29 August 2018
Topics in this article
  • Cost Optimization
  • Strategy & Planning

Where do we go from here?

Who wants to do business with the UK? Any takers?

When we started out in procurement we learnt all of the standard things about risk: indicators, monitoring, mitigation plans, contingencies, etc. Political risk was on the list, but mainly reserved for those of us dealing with unstable regimes. It struck us yesterday how the UK is a political risk.

Strong and stable? What’s your contingency plan for trading with the UK!

In the US, the drivers are different, but some of the effects for procurement are no less similar; a set of circumstances which make the trade environment look less predictable. So who wants to do business with the US? Answer – everyone, but it’s not getting easier or more predictable, and this is in some part down to political factors.

For the purpose of these thoughts, the outcome doesn’t really matter. Neither does the cause: Trump or Brexit. The point is that these are hard to predict times that couldn’t have been foreseen even three years ago. And global markets need to adapt. Political risk is alive and well, and it’s in our own back yard.

Come March, we still don’t know what is actually going to happen in the UK.

We do know that there will be no shortage of takers for trade; if you have the need and the money, people will do business with you. We will always continue to buy and sell – that’s a given. What we don’t know is the balance, terms, and disruption to our embedded supply chains. There is certainly enough thinking out there, and speculation about what to do given any possible scenario. Now we simply have to wait and see, be as prepared as we can, and learn from the results.

So what should you do now?

You may not be able to predict what is going to happen after Brexit or the next round of the prospective US Trade Wars, but you can follow up on several knowns given that your supply chain is now more complex than it has ever been.

  • Piggyback off your supplier’s thinking: There is no monopoly on wisdom, so ask your suppliers about their contingency plans. This is good practice anyway as it may alert you to things that you had not previously considered, but it will also make you think about your own business.
  • Specifically check your supplier’s key preparations: Ensure that you will get your goods in the couple of months following eg Brexit.
  • Pre-order: Trade will not stop, but it may be disrupted, so consider pre-ordering goods ahead of time for six / eight weeks after eg Brexit. You do not need to pay for them now, just pre-commit now for delivery in eg May. This gives your supplier certainty, and they can choose to stock up in advance, without risk.

What are the medium term implications?

In a world of greater interconnectedness, if you want to protect yourself from operating risk, you need to have better mechanisms to see inside your suppliers and which ones might be affected by it. It will add some impetus to already emerging trends that you will need to think about:

1. Rise of Supplier (risk) Management

Few CPO’s have embedded Supplier Management into their procurement strategy. Brexit provides CPO’s with a clear articulation of the supplier management problem, and a platform to sell Supplier (risk) Management solutions based on “fear”. The “Brexit Budget” may make a single person both the budget holder and accountable for the problem. This is good for CPO’s looking to develop in this way.

It should be noted that there will be a huge amount of change in the (underwhelming) technology market for Supplier Management Solutions. There will also be greater delineation between supplier management and supplier collaboration, which sound like they go hand in hand, but are actually very different.

2. Greater Supplier collaboration

The emerging trend of supplier collaboration must continue, but supply chains for turnkey goods and services now need to be agile and well-orchestrated. A kneejerk reaction may well be to shorten supply chains, but we expect this to be a short term effect. Increased visibility and better management of supply chains will become a core need.

We’d argue that for leaders in procurement, collaboration is already a reality, and failure to think in smarter, more agile terms will drive a greater gap between the performance of those that do, and those that don’t.

Embedding functionality that enables better agility and collaboration may be the key development feature in the procurement tool box over the next five years.

3. A Changing Shape of the Workforce

One thing Brexit has highlighted is the need for more agile operating models. The current Brexit-related resource shortages will continue through 2019. Many organisations have been unable to react to the challenge of an influx of work and simultaneous budget restrictions. We simply have to work smarter.

The answer is out there, and the opportunities presented by automation, knowledge, capacity and capability on demand will be seized. By moving to best of breed, we can give a much better, more agile and more relevant service to our customers.

Back to reality

It’s easy to be overawed by Brexit because we simply don’t know the “answer”, and we can drive our selves mad running what-if/if-then scenarios. Looking back on the first two articles we have written, We know what is going to happen post-Brexit, and Preparing for Brexit the answer may just be to move quickly and drive change. You can encourage your organisations to learn from the experience. You may be right, you may be wrong, but you must be on the front foot and ready to learn and respond in an increasingly unstable environment.

Procurement often bemoans our ability to tackle real business issues, but here we are. This is a difficult time, but a brilliant time to be in procurement.

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