In an article written for Supply Management, Jose Oliveira, Principal at Efficio shares his views on what Brexit would mean for Chief Procurement Officers.
It is now clear UK-EU relations will fundamentally change whatever the outcome of a referendum.
A full departure or an exception status will drive divergence of financial policies, regulations, labour markets, monetary policy as well as likely raise potential escalation or barriers on trade.
Most CPOs from both sides of the English Channel will face long-term implications with the same challenges every time they re-look at their spend. But supply bases evolve and are adaptable, contracts are amended, needs are constantly in flux and once the political and regulatory context has settled, everything will seem the same as today.
Yet despite similarities in the endgame, it is the ability to control and react to an abrupt EU departure that could pose the largest difficulties to CPOs. Quick corrections to processes, re-sourcing and contract renegotiation will likely be needed, in particular for companies with strong cross-border activity and in highly regulated environments.
The short-term effects of a Brexit scenario
The short-term effects of a Brexit scenario could prove unnerving for companies with either heavy reliance on EU suppliers or with a strong client base in the EU. A transition period will definitely generate greater uncertainty on key cost variables and also key working assumptions for commercial terms. This may require:
- Mitigating supplier “risk premiums”. Key suppliers’ uncertainty around “basic rules of the game” may inhibit them from sharpening their pencils, making long-term commitments and confidently bidding for new contracts. Postponement of competitive processes or a greater emphasis on long-term commitments may be required
- Looking for a wider range of domestic options. Given the risk of barriers emerging across borders, it may be wise to expand market research beyond the existing supply base – both within the UK and outside the UK, to avoid bottlenecks driven by regulatory or financial constraints
- Expanding service locations. Services companies, such as surveyors, legal services, consultants may have to shift operations within the EU markets, affecting the provision and quality of local services due to relocation – reaching out to suppliers for assurance may be advisable
- Adjusting contractual terms. Suppliers may seek changes in warranties, governing law, VAT and IT security standards, essentially halting negotiations and taking months to clarify positions and practices – contract templates may need redesign or suppliers may simply request changes
- Restrictions on people movement. Uncertainty or delay around people circulation could impact services both in and out of the UK. This could require some contingency planning regarding fallback local options or greater alignment with suppliers
Additionally, some changes may affect procurement operations – in particular for regulated environments. Regulatory divergence may impact public procurement, though this is not likely in the short term. If the UK does leave, this may mean servicing different procurement processes across borders with increased complexity related to dual processes.
While none of us can predict what will happen, there is no doubt there will be changes ahead, and good preparation coupled with a willingness to adapt will serve the CPO well in the coming months.
To view the article on the Supply Management site, click here.