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Brexit – Procurement Responses

Brexit – Procurement Responses. Preparing for varying outcomes. Brexit – Procurement Responses https://buyresearch.co.uk. Brexit – Procurement Responses. Background!. Brexit – Procurement Responses https://buyresearch.co.uk.

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Brexit – Procurement Responses

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  1. Brexit – Procurement Responses Preparing for varying outcomes Brexit – Procurement Responses https://buyresearch.co.uk

  2. Brexit – Procurement Responses Background! Brexit – Procurement Responses https://buyresearch.co.uk

  3. Preparing for varying outcomes Brexit – Procurement Responses A possible ‘range’ of outcomes. We should be aware ........... But don’t obsess! Know what you can influence and know what you cannot!

  4. China India Australasia S. America has expressed interest in doing quick bilateral seems keen to maintain and develop relationship not an obvious priority. politically distant from UK (?) seems keen to maintain and develop relationship UK NAFTA: Canada USA Mexico EU Single Market + Customs Union USA Africa ME & Gulf ASEAN problematic but seems keen to maintain and develop relationship Often perceived as difficult, but obvious potential growth area 8 countries. Currently lacks strategic direction. Free trade deal with China

  5. Europe and near market focus but pursue bilateral and multilateral advantages Single Market access Focus on bilateral deals Least change Keep close and sweet “the world is my oyster” A “red, white and blue solution” Inevitable direction of travel Immediate focus on multilateral WTO New Dawn “Shooting the rapids” (Broad arrangements already in place so maximise mutual opportunities - focus on multilateral deals) Customs union only Max change Focus shifts to global Trading on WTO rules

  6. Brexit – Procurement Responses Kraljicsupply market segmentation gives Procurement a useful mechanism to assess risk exposure

  7. Supply Market segmentation provides a ‘label’ by which to evaluate different types of supply Strategic security Strategic critical Risk or exposure Tactical profit Tactical acquisition Relative cost

  8. Brexit – Procurement Responses Do you recognise and segment your supply markets in this way?

  9. Brexit – Procurement Responses Kraljic updated by Andrew Cox Brexit – Procurement Responses https://buyresearch.co.uk

  10. Organisational Role of Procurement – Profitability Impact 60% A B 50% TRANSACTIONAL – very low strategic significance CYCLICAL – Low – Medium strategic significance 40% Profit Margins 30% 20% OPERATIONAL – medium – high strategic significance CRITICAL – very high strategic significance 10% 5% C D < 5% >25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of outsourced 3rd party spend

  11. Brexit – Procurement Responses Where does Procurement “fit” in your organisation?

  12. Organisational Role of Procurement – Profitability Impact 60% A B X Professional Services 50% X Wholesale Financial Services 40% X Software Services X E&P Oil and Gas Profit Margins X Pharmaceuticals 30% X IT Networking Eqpt X Retail Financial Svcs 20% X IT Processors D • Household Products X X Tobacco Products 10% X Aerospace X Chemical refining X Food retailing XTelecomms X FMCG 5% X Contract Manufacturing X Automotive X Computer Manufacture C < 5% >25% 0% X Construction 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of outsourced 3rd party spend

  13. Brexit – Procurement Responses What industry sector do you work in? Clear understanding on these issues will help to “surface” where we should focus attention

  14. Brexit – Procurement Responses Roadmap! Brexit – Procurement Responses https://buyresearch.co.uk

  15. Brexit – Procurement Responses 1. Business As Usual Reassure suppliers and customers. Renew contracts where required, but consider having an exit clause that encompasses ‘political change, including Brexit’ n.b. Many contracts include ‘termination for convenience’ provisions. These should be adequate without change .........

  16. Brexit – Procurement Responses 2. Teamwork Build a cross-functional team to monitor situation, incl risk management, compliance, legal, operations, sales/marketing – and Procurement

  17. Brexit – Procurement Responses 3. Prioritisation Prioritize risk issues associated with supply. Create list of those contracts/supplies that appear particularly prone to Brexit uncertainty

  18. Brexit – Procurement Responses 4. Contract review Assess potential impact across current contracts, as well as impending/future deals

  19. Brexit – Procurement Responses 5. Research & Monitor Continue to monitor Brexit issues as matters develop at a political level

  20. Brexit – Procurement Responses Roadmap! Brexit – Procurement Responses https://buyresearch.co.uk

  21. Brexit – Procurement Responses Roadmap 1: Financial Procurement should be ready to advise: • Do any suppliers benefit from EU R&D funding? Is this at risk? • Which supplies/contracts are at risk to price fluctuation e.g. exchange rate volatility? • What is exposure on profitability/cash-flow as a result of increased supply costs?

  22. Brexit – Procurement Responses Roadmap 2: People Labour movement/exposure: • Are we directly reliant on EU labour? • Are our suppliers directly reliant on EU labour? • What other sources of labour are available? • Do any of these factors impact your “make or buy” calculation?

  23. Brexit – Procurement Responses Roadmap 3: Compliance What are the regulatory issues around your business? (may need legal advice) • Legal jurisdiction of key contracts? • Could deregulation make life easier? • Identify contracts where IP ownership and key component supply are EU based • Do you pass personal data to EU suppliers and are there GDPR implications?

  24. Brexit – Procurement Responses Roadmap 4: Key Supplies What opportunities for product or service substitution? • Krajic – which are your top 10 suppliers? • How much do you know about alternative (esp non-EU) suppliers? • How manageable are supply risks associated with identified alternative suppliers • Is “make or buy” a suitable question in your business context?

  25. Brexit – Procurement Responses Roadmap 5: Supply Contracts • Contracts should be under review, periodically, as a normal business practice but w.r.t. Brexit: • Krajic – review your top 10 contracts by value • Krajic – review your top 10 contracts by risk • Progressively review other contracts, esp those that are multi-year • Brexit is NOT a force majeure situation!

  26. Brexit – Procurement Responses Basis to plan Brexit – Procurement Responses https://buyresearch.co.uk

  27. Brexit – Procurement Responses Business as usual The “Great Repeal Bill” indicates that the day after Brexit will be broadly similar to the day before. EU laws will simply become UK laws. Where divergence happens this will take time.

  28. Brexit – Procurement Responses Business as usual Some businesses will aim to comply with EU regulations and emerging UK regulations and will not find this a major issue, especially as these regulations are likely to remain largely in-step, certainly in the short term.

  29. Brexit – Procurement Responses Business as usual Other businesses will progressively take advantage of deregulation (where this occurs). As many regulatory norms are increasingly global/multilateral, this may not prove to be a major obstacle in practice.

  30. Brexit – Procurement Responses Senior Stakeholder Engagement and strategic oversight 2018-19 – monitor all developments. Interpret in the light of the overall strategy of the organisation HR work-stream Employment issues as related to Supply Chain (this is separate from normal hiring and firing issues) Trading Terms. Supply Chain Mapping. Risk assessment. Product (or service) substitution opportunities Procurement work- stream Communications work- stream Necessary messages internally and externally.

  31. Brexit – Procurement Responses Procurement Work-streams ...... T’s & C’s Review Decide what is required Draft - Approve Up – issue Standard T’s & C’s Amend existing Contracts by negotiation 2018 Supply Chain Mapping Define Task Launch exercise Initial Report on Results Follow-up action 2018 2019 Define Methodology Alert major suppliers as to their collaboration in supply chain mapping 2019 – pursue Tier 2 mapping as appropriate through, or in collaboration with, Tier 1 suppliers 2018 – Tier 1 mapped

  32. Brexit – Procurement Responses Managing Currency Brexit – Procurement Responses https://buyresearch.co.uk

  33. What sort of Business are you? Brexit – Procurement Responses If you do the bulk of your business in UK (buying/selling) then Brexit impacts are likely to be restricted to general inflation only in the event of continued (adverse) disparity between Sterling and other key currencies

  34. In this situation your obvious response will be continued downward pressure on costs. So cost and price management strategies will be more important to you. Brexit – Procurement Responses Many businesses apply these disciplines routinely, in any case.

  35. What sort of Business are you? Brexit – Procurement Responses If you buy and sell globally then you may be exposed to certain cost implications, especially if your business is denominated primarily in Sterling

  36. buy and sell globally ? Brexit – Procurement Responses You are probably already doing normal treasury operations, especially FX (foreign exchange) activity. You may need to reconsider FX strategies in the light of emerging Brexit implications.

  37. Hedging is a way for a business to minimize or eliminate FX risk. Two common hedges are forward contracts and options. • A forward contract locks in an exchange rate today at which the currency transaction will occur at the future date. Brexit – Procurement Responses

  38. FX options give the holder the right to buy or sell a currency at an agreed exchange rate and date in the event that the exchange rate moves against them. • Should the exchange rate move in their favour, they can let the options contract, or part of it, expire and buy or sell the currency at the current spot rate. Brexit – Procurement Responses

  39. We repeat, many of these strategies are routinely implied in global international trade. Brexit, per se, makes little difference. Brexit – Procurement Responses

  40. A conversation between Procurement and Treasury, especially for high value strategic contracts, is important. Brexit – Procurement Responses

  41. Brexit – Procurement Responses Supply Chain Brexit – Procurement Responses https://buyresearch.co.uk

  42. Tariffs Brexit – Procurement Responses For buyers this is probably the biggest direct issue. If tariffs are applied as a result of the Brexit ‘settlement’ then this acts as a sort of “tax” on imports

  43. Tariffs Brexit – Procurement Responses At what point do tariffs encourage a buyer to seek domestic/non-EU supplies? Average WTO tariff is 9% on goods This applies more to developing countries and trade between developing countries.

  44. If we are looking for a worst-case scenario (average) then the figure would be 9% Brexit – Procurement Responses To undertake long term calculations you might consider a 9% hike to be the basis to use

  45. Note: more research needs to be done on a sectoral basis. Buyers need to become more familiar with WTO rules. Buyers need to know their own sector in greater detail. It is important to state that WTO trading is an unlikely (but not impossible) scenario. Politically both EU and UK would prefer a “deal” Brexit – Procurement Responses

  46. Note, however, automotive as an example: if UK buy vehicles from Japan or China (or emerging India) and EU effectively places a 9% tariff on EU-made vehicles that are already much more expensive, then does the buyer’s “calculation” shift accordingly? (Will fleet buyers look for global supply sources?) Brexit – Procurement Responses

  47. This is the nature of the internal discussion that you need to be having during 2018 Brexit – Procurement Responses

  48. Buyers should “map” their supply chain to get a fuller understanding of this issue Brexit – Procurement Responses

  49. Brexit – Procurement Responses Other Supply Chain Issues for Buyers Brexit – Procurement Responses https://buyresearch.co.uk

  50. Process: Procurement Departments should use Brexit as an incentive to review process. Update, adapt, modify to improve efficiency. • Does the new trading environment provide fresh opportunities? Brexit – Procurement Responses

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