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Brexit: a complex future for UK procurement and the supply chain

Posted: 07/08/2016 - 02:19

The result of the EU referendum will undoubtedly have a profound and long-lasting impact on the entire UK population and is likely to be something that is truly generational. Whether we voted for Remain or for Leave, however, Brits now have to assess where we are and how we maintain our position in the global economy.

As we are all aware Leave campaigners claimed that import costs will be significantly reduced (by as much as 8%) as we move to being a zero-tariff regime. Whilst I would agree that this is a possibility, it is also true that import costs are equally likely to rise or stay the same. The dichotomy between the two positions and what will actually happen brings into sharp focus the lack of detail, clarity and certainty of what is going to happen over the coming months and years.

What we do know is that until Article 50 has been served, and within the two-year negotiation time frame, things are not likely to change dramatically, but it is important that we begin to plan for the future, whatever agreements are finally put in place.

Opportunities and Risks

The drop in the pound, should it remain at this level or somewhere close, provides us with both risk and opportunity. Buying goods and services may be more expensive from our overseas suppliers but the export market will be looking at this as a significant opportunity.

UK-based delivery centres may at present mainly serve demand from the home nations but if the pounds remains low, coupled with the skill base we have and the relative availability of foreign languages in our cities, there is potentially a positive outlook in providing these services to countries outside of the EU.

The immediate impact of the Brexit decision has been that the cost of the products and services we buy has dramatically risen with the weakening of the pound. The government now needs not to focus just on the negotiation with the EU, but also to develop and deliver non-EU-based trade deals with other markets including China, India and the US, in order that we have multiple trade streams outside of the EU block. If we can bring some of our historic civil service acumen and legacy to bear it is likely to add significant leverage to our EU negotiating position.

For the foreseeable future many of our imports will continue to come from the inside the EU and this situation is unlikely to change. Given the complexity of the situation it’s also almost certain that the UK will not immediately move away from the international agreements that the EU has – and certainly the legislation in place is not going to be unwound anytime soon.

Part of the complexity of unwinding this morass of legislation is the sheer volume of laws passed by the EU; between 1993 and and 2014 there were a total of 49,699 laws and directives enacted and whilst a majority of them are not directly applicable to the UK they are still in force across other EU markets. The impact of this situation is that if the UK is looking to trade with the EU these laws have to be taken into consideration when developing any form of trade agreement.

This position is compounded by a lack of availability of Whitehall trade negotiators. At a recent UCL Constitution Unit seminar where they assessed the impact of the Brexit on Whitehall and Westminster, it was noted that a vote for Leave and the subsequent trade negotiations are likely to cause an enormous headache for Whitehall. Sir Simon Fraser, former Permanent Under-Secretary at the Foreign & Commonwealth Office remarked that as it stands the UK government currently employs very few trade negotiators, given that the function has been long outsourced to Brussels

Migration

What is certain to add more costs to business following the Brexit decision will be the associated decrease in migration. The palpable level of tension within the migrant population is already rising and this uncertainty will either drive people back to their home country and/or, more likely, discourage new migrants from entering until the situation is resolved.

This shift in balance of the mobile and migrant working population will lead to a clear increase in costs for products and services that depend on low-skilled migrant labour (everything from contract cleaning to logistics and construction). This is a scenario that over the coming months and years may drive inflationary tendencies in areas of UK outsourcing that rely on this demographic.

Our recent monthly tracking poll of 500 global procurement professionals found that three quarters (79.5%) said they’d rather the UK stays part of the European Union, 78.6% said they thought the procurement industry would be a harder sector to work in and 98% felt that leaving the EU would have a negative impact on procurement career opportunities in the UK. The referendum result clearly went against this sentiment and only now will we really see its impact on both the procurement and outsourcing industries.

Looking to the future, and as the visibility of trade deals with both the EU and other markets becomes clear, it suggests that the level of complexity in delivering multinational procurement and outsourcing deals is only going to get harder.

The UK government, procurement trade bodies ‘and individual companies need to urgently look at the risk and agility of their supply chain as well as putting in place alternative sourcing methodologies that look towards reducing cost as a protective mechanism.

The development of these types of solution and the strategies underpinning them will not remove this short-term uncertainly; however, putting them in place will mean that by the time the clock on Article 50 has finished ticking, solutions should be in place to ensure business continuity and control of costs for the UK economy.

 
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About The Author

Milan Panchmatia is Managing Partner at 4C Associates, an award-winning management consultancy specialising in procurement, savings delivery and managed services. Milan has over 20 years’ experience in working with global brands and world-class marketers, delivering ATL/BTL and Digital projects. His breadth of experience comes from working in procurement, management consultancy and creative agencies, and he has worked with a wide variety of clients including Coca-Cola, Diageo, J&J, BMW, Honda, Orange and Castrol. Milan focuses on providing clients with truly actionable insights at both a strategic and tactical level and delivering cost savings and increased value from marketing spend.