UK consumers aren’t likely to regard Marmite, fish fingers and crisps as recipe bedfellows, and given recent Brexit-related pricing announcements they aren’t proving too appetising for UK retailers, either. Furthermore, currency volatility is only the opening salvo in the challenges the vote to leave the EU is likely to present to the industry. Tariffs and supply chain disruption are also at the top of a pretty long list. Yet, while strategy teams grapple with planning in an uncertain environment, the opportunity arises for the humble procurement function to shine.
Procurement will have a huge part to play in meeting the challenges and seizing the opportunities Brexit will create, both during the Article 50 negotiations and beyond to when trade deals are finalised. Here are five things that should be in the in-tray of CPOs.
First, understanding the cost base of suppliers. Recent currency volatility on top of food price inflation has re-emphasised the need for robust cost models for major product lines. Buyers need to be able to model what a reasonable request is and potentially spot an opportunity for cost reduction.
Second, conducting contractual due diligence. Do contracts provide firms with adequate protection against Brexit related risks? Currency is usually covered but what happens if more severe swings are ahead - do contracts provide enough flexibility to re-negotiate? For contracts longer than two years in duration, are there provisions in place to take account of tariffs if/when they arrive?
Third, reviewing ranges. Threatening to remove Unilever products from shelves is on the bigger end of range reviews but is an indication of what could be coming down the line for procurement to manage. Understanding how the function can react to these decisions in order to best manage costs and supplier relationships will be key.
Fourth, identifying alternative ingredients and sources of supply. The impact of Brexit on own-label suppliers could also be significant, and thus it will be important to have sourcing strategies in place that take account of being able to change ingredients or even suppliers. The same goes for branded goods firms, which should be considering the same approach.
And finally, supporting the supply base. It is absolutely vital that everyone recognises the need to work collaboratively with suppliers.
Every CPO will have existing mechanisms in place to deal with the above - they’re part and parcel of what procurement deals with on a daily basis. However, the scale of uncertainty and the magnitude of the potential impacts should not be underestimated.
Brexit is going to severely test normal organisational governance structures and the most successful CPOs will have ensured that their departments have the people, processes and systems in place to underpin rapid strategy development, scenario modelling, decision-making and change execution.
Hard Brexit on WTO rules, anyone?
Philip Joss is a partner at 4C Associates