Preparing for Brexit: A five point action plan
One way or another - fundamental change looms for UK businesses
Whatever the final outcome on March 29, 2019– be it a revised Chequers Plan, the Norway Deal, a customs partnership, hard Brexit, soft Brexit, ‘no deal’ or even the prospect of another referendum - the one certainty is the triggering of fundamental changes in the way organisations do business.
With a real potential for boundaries to be resurrected between the UK and Europe, further currency turbulence likely and supply chain friction issues – not forgetting the real possibility of reduced access to skills – additional costs are almost certain to be created.
At the same time, a dip in sales is being forecast. In a survey of 200 large and medium-sized firms across the UK, data specialist MHR Analytics found that 93 per cent of businesses expect a drop in revenue in 2019, with 57 per cent citing Brexit as the reason.
There will of course also be opportunities – particularly from any new trade agreements that the UK can now negotiate once it is no longer part of the EU.
But the fact remains that change is upon us.
And those businesses that can react in the most agile and well-planned ways will be best placed to ride out the storm – and make the most from the opportunities.
A five-point plan of action
There are of course many actions that businesses can take in preparation for these changes. This article focuses on the cost control / cost reduction side of this.
The following five-point plan follows a series of steps that can be taken.
STEP ONE: Understand how exposed you are
Having an understanding of the impact of Brexit on your business in terms of key exposure (exchange rate, supply chain, competition, demand dynamics, access to skills etc) and value chain (suppliers, logistics, customers, stakeholders) is a fundamental starting point.
Creating a Brexit scenario for each possibility — such as a no-deal Brexit, a free trade agreement, or a soft Brexit where the UK maintains many benefits of remaining in the EU — should be a key exercise. Setting up a Brexit Impact Steering Group, with input from all disciplines, levels of experience and seniority is one way in which this can be done, pulling together collective insights and viewpoints whilst building risk visibility.
STEP TWO: Work out who is spending how much, on what and why
Most organisations still lack visibility of their everyday spend.
But, with a genuinely real threat of rising prices, disrupted supply chains and currency turbulence, tackling this visibility challenge must be a leading priority.
There has, arguably, never been a better time to address this issue and begin turning financial numbers into the necessary, actionable insights that are required to inform excellent procurement and cost management decision making.
STEP THREE: Align your procurement function with your Brexit strategy
How well equipped is your internal procurement team to proactively address the challenges of Brexit? How do you rate in comparison to other organisations in your sector and against best in class in other industries?
Undertaking a procurement effectiveness diagnostic is an excellent way of understanding current strengths, development areas and what needs to be done to align your team with your Brexit strategy.
It may be that you already have very capable people in place, who simply need extra resources to get to everything that’s required in the Brexit environment.
Or, perhaps its time to introduce a category management approach to underpin cost savings and enhanced supplier relationships.
At the other end of the spectrum, you may have a limited procurement function - or possibly no dedicated resource at all – in which case a procurement managed service could play a crucial role in protecting your margins in the coming months and years ahead.
STEP FOUR: Get smarter at controlling and reducing costs
The following procurement strategies can be employed to protect your business – and maximise opportunities:
- Challenge – utilise negotiation techniques to avoid, delay, or rebase any impending cost increases
- Delay – particularly relevant for importers of commodities, buying stock prior to anticipated price rises and hedging to offset against losses
- Avoid – tap into the high number of new entrants in UK markets to reduce the volume of imported goods and services and currency related cost increases. Making time, now, to explore disruptive innovation and research potential new suppliers could pay significant dividends.
- Mitigate – although fuel and fleet technology costs have been rising, conducting a ‘deep dive’ analysis into the cost of individual vehicle components and services (e.g. body build or maintenance and repair costs) can yield savings, prolong usage and delay replacement costs.
- Offset – while key ‘direct’ costs may be rising, there are always opportunities to identify and deliver cost reduction across the smaller, less targeted, but often significant, indirect spend categories
- Reclaim – look back through your invoice records and examine supplier agreements to reclaim incorrect charges and recover profits
- Tail – examine your tail spend, get this under proper procurement management and make savings
STEP FIVE: Get greater value for money in necessary areas of increased spend
As a response to Brexit challenges, particularly around reduced demand, the MHR Analytics survey indicated that 59% per of companies in the UK are planning on increasing investment in IT, while 49% said they would spend more on marketing and 46% on increased sales budgets.
Whilst there is a compelling proposition to invest in areas designed to support a campaign of increased sales activity, this should be underpinned by sound procurement practices and value for money principles.
Strong Marketing and IT procurement capability, underpinned by category management, supplier management and collaboration best practices should be crucial components of your overall sourcing strategies.
Points to consider
- Brexit is just 6 months away and yet most businesses are still without a plan
- Assessing the risks presented by each of the various Brexit outcomes is a useful starting point
- Defining a Brexit Strategy and ensuring your procurement team is aligned with this is a logical next step
- Use sound procurement principles to protect your margins and capitalise on opportunities in the coming months - and years - ahead