Brexit took a lot of people by surprise, particularly those who were deeply involved with Europe. If you have a trading relationship, European employees, cross-border research programmes, or are simply buying from Europe, the future is uncertain. Hard or soft, long or short, clean or messy, the leaving will continue to surprise and frustrate people for some time to come.
For anyone doing business with Europe, the first and most painful effect was the drop in the value of Sterling compared to both the Euro and the Dollar. What was in effect a devaluation made our products and services cheaper and our imports dearer. How many companies with fixed sales contracts suddenly found themselves looking at losses on what had been profitable business?
Could your procurement function have prepared you for this? Before the vote, there seemed little need to worry. Now things are different, as no one knows what to expect. If we remain a member of the single market, the rules and regulations from Europe will still be with us. If you want to export to Europe, in or out of the single market, you will also have to comply. So has anything changed?
One thing we can be certain of is that exchange rates between the dollar, Euro and Sterling will change often over the coming years whilst Brexit and the aftermath take time to settle. The easiest way to avoid exchange rate fluctuation is to concentrate your supply chain in the same area as your operational base, therefore avoiding any exchange consequences.
Surely that will mean higher supply costs? Not necessarily. If you only focus on the cost of acquiring goods and services, buying from within the UK may look a poor option. If you add in the certainty of supply, lower transport costs and carbon footprint, clear legal framework, direct communications, and certainty of cost base, then the picture looks more interesting. Sacrificing a little on price may bring so many advantages that you’ll wonder why you didn’t buy from the UK to start with!
Remember too that your price to overseas customers looks very competitive. So a small price rise to reflect an altered cost base may have little effect on your overall business – but being sure of your margin through certainty of supply is more sustainable position.
So 3 things to do now:
- Get quotes from UK suppliers to replace overseas suppliers
- Look at benefits in the round, not just price; quality, reliability, supply times, and low transportation costs will compensate for price differentials
- Talk to your suppliers, let them know what you need so that they can innovate and help you