Procurement in a nutshell – Planning ahead to mitigate the risks of Brexit

Unless an extension is agreed between the UK and the EU 27, the UK will leave the EU on 29 March 2019. Deal or no deal, the UK will cease to be subject to the EU treaties from this date. In this update we identify some of the considerations which contracting authorities (CAs) should make and act on now ahead of Brexit, in order to weather the storm ahead.

The Brexit process – what’s happening?

Please click here to view a table that highlights some of the key points in the Brexit process to date as well as to come. The future timescales given are only indicative of how the process may pan out, given the unpredictable nature of politics. The timeline should be a useful tool for CAs providing context for the development of a framework for future plans.

Potential consequences for CAs

“Brexit influenced supply chain disruption” is a threat facing CAs. Impacts of Brexit could span:

• potential changes in contract terms;
• changes in the identity of suppliers; and
• further price increases in products, services and building materials as a result of the fall in the value of the pound.

In some cases the price implications are already being felt by CAs. Areas which will be particularly affected include IT, due to the effect of components and licences from overseas, construction, and energy as a result of the UK’s partial reliance on imported fuel.

Mitigating the impact 

Certain courses of action may help CAs to mitigate the potential disruptive effects of Brexit.

Supply chain assessment 

Increasing the regularity of supplier risk assessments, from annual to bi-annual or quarterly for example is a sensible consideration for procurement teams. Some CAs might also consider creating redundancies throughout their supply chains which could act to support weak spots, prevent slowdowns or shutdowns and provide safety stock or services in case of failures. By modelling a variety of Brexit outcomes against supply chains and preparing real options in advance, CAs will be prepared to tackle any potential disruptions.

Collaboration 

Collaborative procurement could be an effective strategy to help CAs achieve savings. At local government level for example, the Communities and Local Government Committee suggested in its 2014 report that potential savings from a fully integrated approach to local government procurement could amount to as much as £1.8 billion annually.

CAs working together to procure results in fewer tendering exercises and therefore lowers administration costs. This allows CAs to spend more time on specialised purchases which are unique to the each organisation. Other benefits include:

• greater spending power through aggregated demand;
• reduced risk through sharing best ideas and practice;
• more effective use of resources including workforce; and
• encouraging the development of innovative ideas and practices.

By opening up a dialogue with possible procurement partners, CAs can explore the option of developing a collaborative approach to procurement which will deliver a range of benefits not just financially but also organisationally and socially.

Talent sourcing and development 

The considerations above highlight the evolving role of procurement from transactional processing to a strategic business function. The shift stresses the need for procurement professionals to possess a suitable skillset. Procurement practice now extends far beyond the ability to squeeze supplier margins. Softer skills are required, namely:

• stakeholder management;
• change management; and
• creating and driving innovative solutions to business problems.

Moving forward, the ability of procurement teams to harness these skills will be determinative of either success or failure. CAs must recruit people with the right potential and drive the development of both new and existing personnel to ensure that they satisfy the skills criteria.

Why is this important?

Planning for procurement in a post-Brexit Britain is difficult when there is no clear vision of what the outcome of the process will be. However preparation is vital. The actions outlined above are not a guarantee of a “Brexit-proof” model for CAs. Rather, they are methods which CAs can use to combat the inevitable risks caused by Brexit. These suggestions can assist in the development of a long-term sustainable procurement solution in the face of increasingly challenging times.

How can I find out more?

If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.