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Securing the Inside Track: How Procurement Can Get Ahead of Brexit

It is now 20 months since that fateful day when the UK electorate voted for their country to leave the European Union. The construct of leaving has become known the world over as “Brexit” (which is a slight misnomer, since Brexit covers Northern Ireland which although a part of the UK is not technically part of Great Britain). Anyway, Article 50 was triggered almost a year ago and so March 2019 is hurtling with alacrity towards us. I say “fateful day” on purpose because regardless of viewpoint, we are to some extent at the mercy of “fate” as there is very little clarity on how this is going to unfold. Despite the work of the politicians and the bureaucrats, businesses are really somewhat in the dark. Several high-profile companies have publically stated that they are moving their European Headquarters from the UK to Continental Europe, whilst others have nailed their colours to the UK mast and have proudly announced their intention to invest further in the country. Most, however, are considering their options.

Brexit is going to affect pretty much every commercial business in the country. Within those businesses nearly all functions will be affected, none more so than procurement. Direct procurement professionals will be looking to lock-in prices of their core resources to mitigate volatility come 2019, and those more focused on indirect procurement will be looking at expanding their supplier base to include more UK based companies. Given that cost reduction remains the top priority for Chief Procurement Officers (CPOs) as they look to support growth in an uncertain market (Deloitte Global CPO Survey 2017) that would seem to be at odds with the general belief that Brexit will lead to rising costs and damage the UK economy. So, the CPOs of UK businesses are going to find themselves in the spotlight more than ever when Brexit hits. They will be under extreme pressure to identify cost savings and prove they have total visibility into their supply chains, at a time when, if the forecasters are to be believed, costs are rising. Like King Canute, they will be trying to hold back rising tides. In addition to this, we could well be witnessing a perfect storm in the summer of ’19. Not only will CPOs be dealing with Brexit, but GDPR will have been in force for a year and by then the regulators may well be flexing their muscles and looking at data management throughout an organisation’s supply chains, looking for non-compliance and investigating data breach disclosures.

So, what can the CPO and his or her procurement department do to get ahead of this and mitigate any potentially negative consequences of Brexit?

An excellent recent blog post from Phil Denson at Insider Procurement entitled “Preparing for Brexit – 7 things procurement teams should do now” was thought-provoking. To synopsize it, Phil identifies these as 1) Review your supplier base. Do the groundwork now by identifying alternative non-EU suppliers, should you need to switch post-Brexit. 2) Identify your critical suppliers. Especially for direct procurement. You absolutely need to think about worst-case scenarios and consider hedging strategies, forward pricing and so on. 3) Consider whether any EU suppliers not present in the UK could be persuaded to set up in the country. That seems a long shot but a collective approach with like-minded companies might be worth investigating. 4) Audit your supply chain. This is critical and isn’t specific only to Brexit. As mentioned before, the incoming GDPR regulations mean whether a business is a controller, a processor or both, they must know how personally identifiable information is being used throughout their supply chains. 5) Carry out a contract audit. More of this in a moment. 6) Put contingency plans in place to mitigate delays in the supply chain and finally 7) Be prepared for additional workload, especially around paperwork, as tariffs and import complexity increase.

Overall, a very useful “to-do” list for the CPO and the procurement teams to consider.

Early last year I wrote a post about how UK businesses were stalling their GDPR projects in favour of focusing on Brexit. At least that was what businesses were reporting as the reason. From our perspective, however, we have seen a number of clients implementing Seal to understand their GDPR liabilities and exposures through contract analytics, and the same is running true for Brexit. Paul’s piece points out that businesses need to audit their contracts for “Incoterms”, a set of rules established by the International Chamber of Commerce designed to assist trading partners in a smooth and low-friction movement of goods. For contracts without Incoterms, there is a very real possibility of higher taxation and import duties. But that is not all. Many contracts will need repapering to reflect a potential change in governing law and certainly, companies outside the UK who trade with or supply goods to British companies will need to understand whether their contractual terms need changing. The Article 50 post outlined some of the potential actions a company can take right now, to get this under control.

As I have said many times before, contracts are the ultimate instantiation of supplier-customer relationships and at the end of the day when it comes to the legal status of the relationship, they are all that substantively matters. Whilst Brexit and indeed GDPR are multifaceted and no-one is suggesting that getting your contracts under control and knowing precisely what’s in them is the whole story, it is undeniably on that “to-do” list and one that can be addressed with the latest advances in machine learning and contract analytics.