Your Purchasing Strategy and How Brexit May Influence It?
As we see the UK triggering Article 50 the daunting task begins of negotiating how the exit will happen in a way that can leave the businesses of the UK with the best outlook possible.
I would like us to take the time to look at ways in which those that have responsibilities for purchasing and supply chain within their business can prepare to seize opportunities and cut risks as these show themselves during the Brexit process. To begin with, let us take a look at the risks.
A Rise in Market Uncertainty and Pressures on Inflation
The price to import raw materials will go up as sterling weakens against key international currencies. Oil prices which are set in dollars could go up because of currency movements, this being the case even when overseas suppliers which you use are not experiencing a personal increase in costs themselves.
This uncertainty both in economic and political terms risks dampening investment from corporate sources, as well as institutional, although the pound being weak may result in foreign investment even with this uncertainty. Employment levels may be curbed due to lower investment hence domestic consumption may be cut which would negatively impact economic growth in the UK. In the event that corporate investment and consumer demand both fall, UK sellers, as well as those overseas could look for price increases so as to protect their profit margin.
Barriers When It Comes to Travel and The Movement of Goods – Both to and from the EU
Another inflationary threat is that of increasing customs duties as well as increased admin challenges on EU goods and services which are being imported to the UK. Couple this with custom check delays. For UK buyers this means giving thought to the effect on their business that long delays at UK ports would have.
However, risk is accompanied by opportunity. For buyers who are working with EU based suppliers, the negative situation can be turned into a positive one if full engagement takes place to give assurance and protection to the supply chains. Even in the event that the dealings between EU suppliers take a turn for the worse, buyers may not be aware of several extremely innovative supply chains located in other parts of the world, this includes within the UK itself. There may be positive effects as a result of changing to non-EU suppliers, however, this is only if the buyer is able to develop the right supply strategies as alternatives.
Eight Top Tips to Aid Buyers in Navigating Brexit
- Have a Plan of Action
In first place, have an action plan which looks at short, medium and long term impact of Brexit to your business. This is not a time to bury your head in the sand and presume that you will not be affected by Brexit. In reality, nobody knows what effect Brexit will really have, it is certainly out of your control, however, you are able to make plans in advance. For example, Brexit may impact on VAT according to VATGlobal. Having an action plan will mean that you have flexible and secure supply chains at both ends.
- Audit Supply Chains
It’s time for an audit of your supply chains to identify risks, as well as opportunities. Use a classification system by risk to your business and go through a few ‘potential’ situations which would impact the entire business.
- Risks of Supply Chain Disruption
Look at you own internal business and think about the risks which supply chain disruption would cause. Ensure that in other areas of your business buyers and suppliers are working side by side so that risk and alternatives are discussed. Look at opportunities as well, like exporting outside the EU, although if you are going to move into non-EU markets you may need to make changes when it comes to the specification of your products, as well as adoption of new suppliers. You will need to invest a lot of time and effort into this, hence the need to get started without delay.
- Review Contracts
Carry out a review of the contractual agreements that you have with EU based suppliers and determine whether you can re-negotiate terms, for instance, break clauses.
- Prepare for Negotiations
In the event that suppliers you currently use press for an increase in prices for their own profit margins, prepare for negotiations. Suppliers should be able to provide concrete evidence that they have genuine demands, otherwise, you should resist such demands. If the effect of cost inflation will be too much, think about changing suppliers.
- Speak to EU suppliers
Have frank conversations with EU based suppliers and, if need be, start planning out strategies that will mitigate risks (keep in mind that your suppliers will also be worried that they may lose your business and will want to work together with you). Find ways to continue to show your support towards your EU suppliers, your risk may be increased due to anti-British sentiment within mainland Europe.
- Market Intelligence
So that you can monitor potential risks to supplies, as well as opportunities, make sure that you have good quality supply market intelligence.
- Adapt to changes
Make checks to ensure that your ERP systems and your internal finance are able to be adapted to changes like delivery lead times and customs duties. Such changes in your system will require planning and testing in advance or you will only increase your risk further. In addition, review all documentation, online and offline, for purchasing, such as delivery notes and purchase orders. Will you need to amend these post-Brexit so that they comply with diversion between UK legislation and that of the EU?