Corporate buyers in Britain are adjusting to a new post Brexit landscape. Much of their supply base will be impacted by Brexit, whether directly as an EU-based organisation or indirectly if any of their supply chain or employees have an EU profile. But expert procurement professionals are used to dealing with international procurement scenarios, so will Brexit mean new skills are needed?
Perhaps not new skills, but certainly the post-Brexit buyer should focus their 2017 competency development in the following areas:
Discussions over which country law should apply to the legal agreement with the suppliers becomes more impactful now. The European Court is currently the ultimate arbiter of disputes between EU based organisations and EU Law prevails where two EU-based parties have made a purchasing agreement where the governing law is from either of their respective countries. UK buyers should already be considering the impact if this will no longer apply.
In the absence of the European court, another governing body such as the World Trade Organisation (WTO) could ultimately intervene in the event of catastrophic relationship breakdown. But the comfort of having a common legal framework may vanish. Buyers should therefore evaluate their contracting strategy carefully before commitment to any suppliers.
Total Cost of Ownership
The procurement professional is used to considering the total cost of any supplier proposal in terms of purchase price, logistics costs, and on-going support and maintenance issues. In the Post Brexit world, some of these costs are difficult to calculate right now – for example, will the costs of import, export, tariffs and taxes change?
Buyers should scenario plan multiple total cost eventualities when evaluating potential relationship options with suppliers, and build contingencies into the agreement such as renegotiation or review points. This will help protect all parties who wish to maintain a long term relationship without the disruption of unbudgeted operating cost increases.
Supplier Financial Analysis
Post Brexit buyers should pay careful attention to suppliers’ financial performance. In this period of uncertainty, changes in interest rates, currency valuation and employment law can radically shift the profitability of customer accounts for suppliers. Procurement professionals typically look at financial analysis as a risk management issue (the focus being on supplier solvency). Credit checks are duly undertaken prior to supplier selection, and perhaps annually thereafter for key suppliers.
But in the new post-Brexit landscape, buyers should look at prospective important suppliers’ financial statements to understand the impact of the deal on the suppliers’ business models and what shocks may impact the viability of the deal. Buyers must ensure they are securing an agreement that is sustainable and attractive for both parties.
As Britain gears up to trigger Article 50 in spring 2017, the two-year withdrawal process of the country as an EU member state will commence. Buyers have adequate time to enhance the skills that will help maintain business continuity for their organisations.