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Brexit and Procurement: Crisis Mode or a Source of Competitive Advantage?

Brexit and Procurement: Crisis Mode or a Source of Competitive Advantage?

In my last article I suggested European suppliers could start to raise their prices by calculating an ‘awkwardness premium’ for the perceived inefficiency of dealing with British customers, if voters in the United Kingdom decide on 23 June to leave the European Union. I also suggested that awkwardness might not be based on fact and reality but on assumptions and perceptions.

Customers too could equally include their own ‘awkwardness premium’ on top of suppliers’ prices. Wherever this is based not on actual risks but on unfounded perceptions, it would bring unnecessary cost into the supply chain, effectively making suppliers and customers less competitive.

A decision to leave the EU would be very likely to cause economic volatility and a general downturn, in addition to giving each individual enterprise its own specific uncertainty. One observation from the referendum campaign is that there has been a scarcity of sources, whether economists, other experts or international bodies, that both sides have respected as competent and impartial.

So who can the CEO trust? Who really gets the issues, is unbiased in presenting them and can actually deal with them across multiple cultures? Clearly, a traditional approach will not be the solution. I can see three main aspects for procurement leaders to rethink in their approach to risk management.

Firstly, procurement leaders should take a holistic view of their company’s, their suppliers’ and their customers’ goals, needs and challenges. Fighting the procurement department’s traditional corner will not always automatically coincide with what the company might need for the future. Amidst the uncertainty following a decision to leave the EU, the CEO will need someone whose impartial view he or she can completely trust. Procurement leaders should see it as their priority to be that person.

Secondly, after Brexit, risk management needs to dig deeper. With such uncertainty, relevant information is less likely to be available from one source. A key skill for risk management in procurement will be to combine seemingly unconnected pieces of information to fully understand the issues beneath the surface. This also entails being aware of and managing risks several layers into the supply chain.

Alongside obvious aspects such as security of supply, currency volatility or suppliers’ financial viability, ethics should be on the agenda. Government and customers increasingly expect suppliers to be responsible for maintaining appropriate standards in their supply chain, with reputational damage and business consequences if they fail (the UK Modern Slavery Act 2015 being an example).

Finally, it is crucial for procurement professionals to understand their business partners’ culture. In Germany and in Britain decisions are often taken differently, employees are trained, managed and developed in different ways, projects might not be managed in the same way and even the same job titles can mean different things. Those who fully grasp this will have more insightful relationships with their business partners and can use them to greater advantage.

These three aspects – understanding the bigger picture, digging deeper into the heart of the issues, and doing so with full cross-cultural awareness – will help companies take the right decisions, develop strategies and plans to address them and then implement these more effectively. With volatility and complexity likely to rise if the people of Britain decide to leave the EU, companies who find the right balance between continuity, reliability and predictability on the one hand and entrepreneurship and agility on the other will have greater chance of success. Making sure this happens will be a core priority for any procurement leader.

 

Author: John Dowling, Principal at INVERTO

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