A procurement history of Brexit

posted by John Glen
20 February 2019

For years the procurement and supply management profession has been talking about becoming more strategic and looking for the next challenge to prove its worth. That time is now and there can be little argument that the biggest challenge for the profession in Europe and the UK since 2016 is the path to Brexit.

According to the IHS/Markit CIPS Purchasing Managers’ Indices – economic indicators used by businesses and other bodies such as the Bank of England – uncertainty around the terms of the Brexit agreement has had an effect on the UK economy. Clients have been placing fewer orders, consumer spending is down and businesses are stockpiling goods in the hope of reducing impacts of potential tariffs and avoiding any material shortages.

So, there may never be a greater collective challenge to understand how supply chains should be reorganised in this new order: whether to stockpile or not, focus on new opportunities instead of clinging to the current arrangements and emerging from the haze of uncertainty with a brave new direction. But whatever happens, procurement professionals are best-placed to steer their organisations in the right direction, and to advise CEOs and boards on plans A, B and C, and so demonstrate their strategic skills and business knowledge.

To add to the Brexit debate, CIPS is keeping a finger on the procurement community’s pulse through its range of Brexit surveys over the last two years, reflecting the views and actions of professionals in the UK and the EU. These survey results show how the decisions of professionals are impacting not only their businesses but those of the suppliers they use and the wider economy they operate in.

In the first survey in 2017 the initial impacts of the decision to leave were already being felt. Currency fluctuations were wreaking havoc on budgets and cash flow as sterling weakened, never to return to previous heights. In response to these currency highs and lows, the survey found that supply chain managers looked to quick wins to support their margins. A third (36%) of UK businesses planned to respond to these price rises by beating down costs from their own suppliers. In preparation for even more cost burdens, 28% had already mapped the potential cost of new tariffs and the impact these would have on their business.

The second survey in November of the same year found similar issues. Currency fluctuations were still having an impact on business costs as 64% of UK businesses struggled to maintain margins.

The following year, in February and March 2018, the survey found that consumers were being impacted by the uncertainty and ‘paying the price’ of Brexit where previously firms were absorbing their extra costs to remain competitive. A third (32%) of UK businesses had already raised their prices to customers and two-fifths (41%) said they were planning to increase their prices.

In this same survey period, another threat to household budgets came in the shape of a reduction in workforces, where almost a quarter (23%) of UK businesses said they planned to reduce their staff levels to cut costs. 

Elsewhere, businesses in the EU were also facing challenges. To counteract any further potential disruption to their own business, one in seven firms had already moved parts of their business out of the UK. 

As discussions and negotiations continued in 2018 and there was always hope that the UK could stand on its own feet in a competitive global market, our survey found that trade could become more difficult than originally anticipated. Two in five (42%) EU supply chain managers said that they did not believe that British goods stood out from the crowd in a crowded marketplace.

Negotiations still ongoing and no agreement in sight, the results of the fourth survey in September 2018 showed a darkening landscape of uncertainty and indecision and survey attention turned to the workings of the customs process. The preparations for Brexit had become more practical amongst respondents, rather than theoretical and planning potential risks, as businesses took to decisive action, stockpiling goods in the event of a no-deal Brexit and potentially disrupted supply. The survey also found that customs delays were likely to have a huge impact in not only how businesses would operate in a post-Brexit landscape but also whether they would survive if customs arrangements were not pinned down. Of those surveyed, one in 10 said their business would fail and could go bankrupt if customs delays, additional checks and measures became more complicated and delays extended just 30mins or more.

Brexit had also shone a light on immigration and the skills the UK economy needs to remain relevant in the world’s markets. With membership of the EU, rightly or wrongly, there came a range of skills and abilities for business in the free movement of people who had the right to work in the UK. The last survey found that half of the businesses surveyed said they would struggle to find the skills and suppliers they needed in the UK.

This made for gloomy reading, but where there are disadvantages, there are always opportunities as the survey results found the UK economy, its businesses and workforce could also benefit as UK businesses looked for UK suppliers and re-shoring possibilities. In fact 34% of UK businesses with EU suppliers said they were looking for alternative suppliers in the UK, which was an optimistic piece of news much needed during the Brexit storm. 

This hope seemed short-lived and short-sighted as any jobs created would come at a cost. Two fifths (39%) said that they would find it more expensive to work with a UK supplier. In the EU, the situation was the opposite where almost the same percentage (32%) said it would be less expensive to work with an EU supplier, closer to home than a UK one. Only 15% said it would be more expensive. The die, however, was already cast as by March 2018, 18% of EU businesses with UK suppliers said they had already switched suppliers because of Brexit, this figure rose to 23% in the October survey.

Though we have come far in our Brexit journey, it appears that not much has yet been resolved as the deadline to leave is only weeks away. I hope that the fifth CIPS Brexit survey may give us even more insight into what the profession, business and the government can do in Brexit’s eleventh hour.

To read the full reports log on to the CIPS website and contribute to the fifth survey. The results will be released mid-March just before the Brexit deadline.

John Glen is CIPS economist 

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