The uncertainty of a post-Brexit landscape continues.
Calls for a soft-Brexit and fears over a hard-Brexit shaped the economic market. The impact has already caused ripples with the pound the worst performing currency in the world in 2016. HSBC forecasts that the pound will fall to $1.10 and hit parity with the Euro by the end of 2017.
The plunging pound has sent the cost of imports soaring. The reality of increased costs will mean a heightened focus on efficiency savings, putting procurement at the centre of business strategy. So, what can procurement leaders do now to get their business Brexit ready and future proof their organisation?
The first step is to review the likely impacts of Brexit based on what we know or have high levels of certainty will happen. Risks to the business should then be prioritised and advantages seized.
Since the vote to leave the EU the economic market has demonstrated currency swings. As this is highly likely to continue until the dust settles post-Brexit, supply chain professionals should map out their geographical sources for goods and identify where currency fluctuations may hit. All contracts should be reviewed to ensure currency movement clauses have the right level of floors and ceilings attached to protect the business.
Likewise, commodity markets will react to Brexit related news with price increase demands. One of the strategies buyers can take is to lock in supply and improve pricing now. Businesses should understand that the threat of price increases for the UK is also a threat of demand reduction for EU suppliers.
If UK commercial functions are looking for alternative routes outside the EU, then this will create a negative forecast for existing suppliers as well as enticing in new global entrants. It’s a big threat for existing suppliers and therefore an opportunity for buyers. The competitive advantage lies in using the option to switch and negotiate better deals now with incumbent supply chains.
The R&D and procurement functions should be rapidly developing networks outside of the usual country of origin for goods and services. The key to being Brexit ready is having credible alternatives.
Clauses currently governed by EU legislation will need to be amended including IPR, data protection, TUPE, competition and employment law. However, this will take time to unfold. Now is the time to establish a streamlined process for contract variations such as embedding a fee agreement that encourages lawyers to act efficiently and by ensuring buyers are knowledgeable in contract negotiations.
The unknown impact of Brexit creates a genuine challenge for supply chains and means that purchasing has a pivotal role to play in helping to mitigate increases and manage risks. There are strategies and opportunities businesses can implement now to stay ahead of the curve and become Brexit ready.
☛ Nicki Perrott is client director at Procure4