Tag Archives: Brexit

The Brexit Horror Show: It’s Going To Be Rocky!

We all like to watch a good horror show.. but UK customs trying to manually process our imports? Entertainment it is not!

Are you ready to watch the Brexit horror show unfold?

The National Audit Office (NAO) pubilished a report last Thursday reviewing HM Revenue & Customs’ development of the new Customs Declaration Service (CDS).  The system is being developed in an attempt to manage the predicted 255 million UK customs declarations per year (an increase from 55 million)  once the UK leaves the EU.

But, with a significant amount of work still to be completed before March  2019,  many are concerned about what chaos might ensue.

Amyas Morse,  head of the NAO, did little to disguise his own concerns when he briefed the media on the report this week. He warned of a potential “horror show” at customs if the transition to CDS is not made by January 2019.

He said “What we don’t want to find is that, at the first tap, this falls apart like a chocolate orange.”  (Yep, we were confused by this too – it’s well known that Terry’s Chocolate Oranges are not known for their fragility; hence the marketing slogan “Don’t tap it, whack it!”.)

“It needs to be coming through as uniform, a little bit more like a cricket ball” he continued.

What Is The Customs Declarations Service?

The CDS is a new system, which will be installed to manage all imports and exports post-Brexit, replacing existing system, Customs Handling of Import and Export Freight (CHIEF).

CHIEF can currently process only 100 million declarations per year.  This leaves no question that a new system is needed given that HMRC are estimating an increase to 255 million once new trade and customs agreements are made during Brexit.

Completion of the installation is forecasted for January 2019 which doesn’t allow much room for error or delay given that the UK will officially leave the EU in March 2019. Indeed, the report confirms that there is still a “significant” amount of work to complete and a number of vacancies to fill, which means there’s a pretty good chance that the full functionality of CDS won’t be ready in time.

Ironically, in 2016, the UK came fifth out of 160 countries in the World Bank’s ranking of the efficiency of the border clearance process, including customs. Time will tell if this can be maintained post-Brexit!

Why Should Businesses Be Concerned?

The National Audit Office believes the government is only just starting to realise how difficult Brexit will be.  In a worst-case scenario it would become impossible for customs to collect the £34bn of duty, excise, and VAT taken at the border every year.

Customs officials might have to manually process imports and exports if the new electronic system is not in place, which would of course be a nightmarish scenario for businesses and their supply chains.

Mike Cherry, chairman of the Federation of Small Businesses, said “It’s extremely concerning that the UK’s new customs system may not be ready in time for Brexit, potentially resulting in massive delays to trade and leaving thousands of businesses in the lurch.” And hat’s not to mention a lack of confidence businesses will feel in the UK if their flow of goods is disrupted.

“Can government actually step up in these very difficult circumstances and deliver a unified response?” Morse asked. “I’m not seeing it yet.”

The report, and the alarming comments made by Amyas Morse will no doubt increase the pressure on the prime minister to re-evaluate Brexit progress and policy, but will it be in time to stop a customs horror show?

Let us know your thoughts on the NAO report in the comments section below. 

In other procurement and supply-chain news this week….

Bangladesh Factory Blast

  • Major European buyers of apparel supplied by a Bangladesh garment plant have started investigations after a boiler explosion in the plant killed 13 people and injured dozens
  • The explosion occurred during maintenance work at the factory, whose top buyers include Finnish fashion chain Lindex, which is part of Stockmann
  • Stockmann communications manager Anna Bjarland confirmed to SM that the factory supplied garments to both Stockmann and Lindex saying that the company was investigating

Read more on Supply Management

Hazardous chemicals in Tesco’s clothing supply chain

  • Tesco has joined a growing list of major high street retailers in beginning to remove chemicals thought to be hazardous from the supply chain of its clothing brand
  • Greenpeace said Tesco will immediately begin the process of eliminating 11 groups of hazardous substances from its F&F brand, including phthalates, brominated and chlorinated flame retardants, chlorinated solvents and heavy metals
  • Alan Wragg, technical director for clothing at Tesco, said: “This commitment is part of our goal to protect the environment by sourcing products sustainably and responsibly for our customers.”

Read more on Business Reporter 

Could China lead the way with AI?

  • In the battle of technological innovation between East and West, artificial intelligence (AI) is on the front line. And China’s influence is growing
  • China has invested massively in AI research since 2013, and these efforts are yielding incredible results. China’s AI pioneers are already making great strides in core AI fields
  • It is becoming clear that belief in U.S. dominance of the tech world is flagging. As it stands, China is in the driver’s seat

Read more on Venturebeat

Navigating The Changing Rules Of The Game In A World of Uncertainty

Change, change, more change and a hefty helping of uncertainty pretty much sums up the current regulatory landscape. Seal Software explore why winning the game has become more of a battle in an ever changing world.

Nothing sums up the current state of regulatory affairs quite like the acronym, VUCA.

V – Volatility 

U – Uncertainty 

C – Complexity 

A – Ambiguity 

The concept was introduced by the U.S. military towards the end of the Cold War and has since been used in reference to any conditions or situations that are, namely, volatile, uncertain, complex or ambiguous.

In a post-Brexit, ever-changing world, keeping up and complying with new regulations can be a constant struggle…

Change, change and more change…

Nothing could be more true about the regulatory landscape. This has become ever more apparent over the last year following the Brexit vote. Brexit is triggering the need to review and change currency and exchange rates, governing law and logistics terms within numerous contracts. Revisions to trade rules could also lead organisations to consider the impact on their business relationships. Proactive organisations are already starting their Brexit preparedness initiatives, and are realising it starts with a clear understanding of how these elements and many others are defined inside contracts.

The battle to understand new regulations

Of course, it’s not just Brexit. Changes in regulations in the financial services industry mean it’s a continuous battle to understand the new regulations, then implement them in the most efficient way possible by the stated deadlines to avoid penalties, fines, or worse.

The one global constant is the ever-growing strain this puts on financial institutions to keep up and comply. They must figure out how to comply with new rules and deal with potential reviews, and audits without adding disproportionate cost and disruption to the organisation.

Many regulations impact the way organisations make commitments or conduct transactions with their partners or customers. New and changing regulations require companies to find relevant contracts, review the affected language and identify excess cost, liabilities, risk and exposure that directly impact financial services organisations.

Only then can business decisions be made to revise or novate the contract, renegotiate commercial terms or terminate to avoid non-compliance. This has to be done for all affected contracts, which could be in the tens of thousands or more for some organisations.

Global regulatory bodies

Global regulatory bodies are enforcing mandates to better control the solvency and recovery actions of banks and lending intuitions in the case of future economic downturns. Several key mandates stem from the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed in 2010 to reduce the potential for a recurrence of the recessionary economic conditions experienced in 2008 and 2009. The consistent theme across stress testing, “living wills”, vendor risk, and overall recovery and resolution mandates is that large financial institutions must have a clear understanding of their contractual relationships and obligations as a foundational element of compliance initiatives.

When organisations manage their contracts for regulatory compliance, they also get insights into the data to support critical business decisions and reporting. This may result in contract novation and repapering or restructuring, depending on the mandate, as well as allowing an organisation to meet changing regulatory mandates, in the best way possible. Managing risks & liabilities during changing regulatory & business conditions

The key to coping with change is agility

It’s critical for financial services organisations to remain agile. They need to have the ability to extract the appropriate data within an overwhelming amount of contracts quickly and without significant business disruption to manage risk, reduce liabilities and compete effectively during times of change.

Previously, when mandates changed, organisations would have to perform manual reviews as a part of their compliance initiatives, resulting in months or years of contract analysis and high costs. However, organisations can now reduce the burden of the contractual review aspect of their compliance initiatives. By using automated contract discovery, data extraction, review and analysis, up to 80% of their time can be saved, providing significant savings. This is critical when organisations are facing tight compliance deadlines and have to review and make strategic decisions on hundreds of thousands of contracts.

Using artificial intelligence and powered by an advanced machine learning framework, the automated solution can extract specific terms and provisions needed for regulatory compliance across all contracts. The framework can be taught by users to look for specific provisions and clauses.

What impact will IRFS16 have?

Let’s look at IRFS16, the new regulations for how leases are accounted for in financial statements. For IRFS16 compliance, all lease agreements need to be located and the impact of the change in regulation needs to be determined. Knowing which of your contracts are effectively leases can be challenging, and an automated contract discovery, data extraction, and data analysis solution will locate all contracts and centralise them in a repository.

The system can extract, gather and validate lease terms from the contracts by identifying which have lease provisions or language. This level of reporting helps business users understand the current environment and develop an optimal remediation plan.

This is just one example which demonstrates how financial services organisations can compete effectively in times of change. Complying with new regulations no longer needs to be such an arduous task.

Using an automated contract review and analysis solution can ensure compliance with global regulatory mandates and help manage the overall risk against defined targets. It can dramatically shorten the time and reduce the cost of contract reviews, as well as help model and analyse the business impact before any changes are made. This results in better decisions on the best ways to achieve compliance.

For more information on how Seal can help address regulatory compliance initiatives, please visit our website.

This article was guest-written by Seal Software, a leading provider of contract discovery. Seal Software uses artificial intelligence and natural language processing to help companies efficiently uncover what’s in their contracts.

You Could Be In For A Nasty Shock This Easter

What’s “shrinkflation”? It’s the practice of selling a smaller product at the same price, and it’s increasingly common in the chocolate industry. Procurious looks at three big stories about Chocolate supply management that have hit the news in the past week. 

Regulation impacts complexity, complexity impacts costs, and costs impact the size of your chocolate bar.

Shrinkflation: Why Brexit means Cadbury chocolate bars will get smaller

It might be time to panic-buy your favourite Cadbury chocolate bars in bulk, because Cadbury UK’s parent company (Mondelez International) has warned that Brexit could lead to higher prices, or shrinkflation.

What’s shrinkflation? It’s the practice of selling smaller products for the same price. Mondelez has done this before, when its new-look Toblerone was revealed to have wider gaps between its iconic chocolate triangles, reducing the weight from 400g to 360g but selling at the same price. A pack of six Cadbury Creme Eggs – an Easter favourite – was also reduced to five eggs with only a slight decrease in the recommended retail price, from £3.05 to £2.85. The company has pointed to rising commodity costs, the falling value of the pound and an increase in cocoa prices, while Brexit is expected to make it increasingly costly to do business with other countries in the future.

Mondelez’s UK boss Glenn Caton told The Guardian that his organisation is watching the Brexit negotiations closely. “First of all [the Government] needs to make sure we have a stable and thriving U.K. economy,” Caton said. “If the economy is growing, all businesses benefit from that. Secondly, ensuring there is no new, more complex regulation and that there is free movement of goods and minimal barriers to trade. Regulation impacts complexity, complexity impacts costs, as do trade barriers and tariffs.”

Mondelez has invested more than £200m in Cadbury UK, including £75m on modernising manufacturing at Bournville in Birmingham, the home of the 193-year-old Cadbury brand. Bournville is also home to the global R&D team, which has grown from 25 to 250 people since Mondelez took over in July 2013.

Mars reinvests US$70 million in US supply chain while president warns of protectionism

Mars is re-shoring its manufacturing operation in a move that will mean over 95% of its chocolate products sold in the US are made domestically.

The investment of $70 million will add approximately 250 new jobs to production sites across the US, including a Mars Food factory in Greenville Missouri which will receive a $31 million injection. Last year, Mars poured US$52 million into its chocolate factory in Ontario, Canada.

The announcement was made on the same day that Mars Good President, Fiona Dawson, told the American Chambers of Commerce to the EU that protectionist trends worldwide are “threatening to undermine global trade and make the world less connected”.

“The absence of hard borders with all their attendant tariff, customs and non-tariff barriers allows for an integrated supply chain, which helps to keep costs down. The return of those barriers would create higher costs, threatening that supply chain and the jobs that come with it.

“If Britain ends up trading with the EU on the basis of WTO rules, ‘Most Favoured Nation’ rates would come into force. In the area of confectionery that alone would mean tariffs of around 30%.” 

Prince Charles seeks to halt chocolate-industry deforestation

HRM Prince Charles, a keen environmentalist, convened a meeting with global cocoa and chocolate companies to target deforestation in the cocoa supply chain. Delegates from twelve major companies, including Hershey, Mars and Nestle, met with senior government representatives from two of the world’s leading cocoa-producing countries, Cote d’Ivoire and Ghana.

In his speech to the attendees, Prince Charles noted that aside from environmental damage, “The most powerful direct reason for action is that deforestation threatens to undermine the very resilience of the cocoa sector itself, and with it the livelihoods of the millions of smallholders who depend on it, due to the increased climate variability that follows forest loss.”

The meeting resulted in a Collective Statement of Intent to end deforestation and forest degradation in the cocoa supply chain.

That’s more than enough about chocolate. In other procurement news this week…

UK Grocery Chain Waitrose introduces trucks powered by rotten food

  • Waitrose has partnered with bio-fuel company CNG Fuels to place an order for 10 flatbed trucks that will be powered entirely by rotten food.
  • The fuel will be sourced from unsold food at supermarkets across the UK. Globally, an estimated one-third of all food, or 1.3 billion metric tons of produce – goes to waste every year.
  • The new biomethane trucks have an average range of nearly 500 miles, with the biofuel to cost 40% less than diesel fuel. The biomethane emits 70% less carbon dioxide than diesel.

Read more on Konbini.

Boeing’s VP Supply Chain nominated for US Deputy Secretary of Defence

  • The White House has nominated Boeing’s Patrick Shanahan as Deputy Secretary of Defence, with a view to tap Shanahan’s knowledge of the business side of military aircraft procurement.
  • In December, Trump rattled Boeing management with a Tweet complaining about the high cost of replacing the presidential plane (Air Force One) and threatening to cancel the program. Since then, the relationship between the White House and Boeing appears to have improved.
  • Under new ethics rules, Shanahan will be required to recuse himself from any Boeing-related procurement contract decision for the next two years.

Read more on Seattle Times.

Should Procurement Pros Be Concerned About Global Trade?

Renowned economist and Big Ideas Speaker Dr Linda Yueh explains why CPOs needn’t panic about the President Trump administration but there are causes of concern. 

Register as an online delegate for the London Big Ideas Summit 2017 here.

Donald Trump made good on a campaign promise on the first day of his presidency by signing an executive order indicating the United States won’t ratify the Trans-Pacific Partnership (TPP) trade deal.

Though expected, the move caused a media storm and a flurry of responses from politicians and businesses all around the globe. But what does this mean for supply managers?

Many CPOs are understandably nervous about the Trump administration’s policies with regards to global trade. The resurgence of protectionism in the U.S., coupled with the continuing fallout and trade effects of Brexit, has left many procurement professionals wondering which region of the world they should plan to source from in the future.

The TPP was a massive free-trade agreement advocated by the Obama administration, aimed at deepening economic ties between the U.S. and 11 other Pacific Rim nations, cutting taxes, and fostering trade to boost economic growth in the process. Trump argued on the campaign trail that the agreement would be harmful to the U.S. manufacturing sector. As he signed the withdrawal order, he called it “a great thing for the American worker”.

Economist, broadcaster, author and Big Ideas Summit guest speaker Dr. Linda Yueh’s message to CPOs is one of caution but it’s not time to panic.

Don’t panic

According to Linda, there are three reasons not to panic about what Trump’s protectionist tendencies will mean for procurement, trade, and global supply chains.

  • We need to keep in mind that trade takes place under WTO rules. China is the U.S.’s biggest trading partner, despite no free trade agreement being in place. Of course, if Trump were to pull out of the WTO, then that would be a game changer. But, globalisation, especially e-commerce and the Internet linking markets and people, will mean that trade is likely to continue across borders as it’s hard to see a significant roll-back Costs of trade, of course, are another issue to be focused on.
  • Luckily, the Trump administration hasn’t honed in on e-commerce, which is good news for procurement and supply chains. Currently, one in ten transactions are already undertaken via e-commerce, and this figure will continue to grow.
  • Trump may have moved quickly to sign the TPP withdrawal order on his first day in office, but that wasn’t a formal agreement. Extricating the United States from NAFTA for instance will require renegotiation time and then a period of notice before that free trade agreement would end. Even then, most trade agreements include implementation periods, so a “cliff edge” is unlikely which gives businesses time to plan. Therefore, there’s no need to panic or overhaul your supply chain immediately. But, of course, forward planning and following economic policies would be wise. Also, take Brexit as an example – if Britain succeeds in triggering Article 50 in March 2017, then the UK is scheduled to leave the EU by the end of March 2019 – almost three full years after the people’s vote. And even there, the Prime Minister has indicated that there may be an implementation period to allow more time for businesses to adjust to leaving the Single Market.

Things to watch

So, Linda warns that supply managers should keep an eye on certain factors as global trade adjusts to these seismic political shifts.

1) U.S. border taxes – recently, Trump threatened BMW with a 35 per cent border tax on foreign-built cars imported to the U.S. market. This isn’t an isolated incident and American companies are under even more pressure to produce in the U.S.. Congress is also considering a similar tax, so that is worth bearing in mind as that would have the force of legislation.

2) U.K. Tariffs – one of the consequences of a “hard” Brexit where the UK leaves the EU without any preferential trade deal, which would include no agreement on the Single Market, Customs Union, is the re-emergence of customs for EU trade. Right now, significant customs procedures only apply to non-EU shipments. But, with around half of UK exports going to the EU, taking leave of Britain’s membership in the EU with no deal would means the end of free movement of goods. More customs declarations and duties would raise costs, slow down supply chains and certainly add time at border checks. A potential ‘hard border’ would be a particular issue for Ireland.

3) Resourcing Brexit – the UK Government also needs to think about the resourcing challenges involved in ramping up staff as well as IT systems to cope with the doubling of customs checks on the UK border.

4) NAFTA – As mentioned earlier, Trump has also flagged that the North American Free Trade Agreement (between Canada, Mexico and the U.S.) is up for renegotiation. If you’re a U.S. company, you need to start making plans now about how these changes will affect you. The same applies to any other of America’s free trade deals with 20 countries that Trump would have the authority to re-examine.

What about China?

Globalisation has helped China become a manufacturing powerhouse, but with numerous closed markets.

However, there are very good reasons to continue to do business with China. Wages may be rising but that helps businesses to think about China as a market as well as one production locale in a supply chain. Plus, with growing protectionism in America, China’s President has signalled that China may take more of a lead in globalisation. There’s a lot to watch for.

In short, Linda’s advice to CPOs around the world is keep calm, but keep an eye on the details as the globalisation landscape is shifting significantly. Global trade won’t end tomorrow but it will likely look rather different in the coming years.

Join the conversation and register as a digital delegate for Big Ideas 2017 in London.

Financial Troubles Spell Tough Times for Small Businesses

The start of 2017 looks set to be a tough period for small businesses. With increasing number of businesses being wound up, it appears the high street’s suffering is far from over.

insolvency small businesses

The past twelve months have been hard for small businesses, and it doesn’t look as though 2017 will offer much respite. Changing consumer trends, and economic and political factors, are already taking their toll on the UK’s High Street.

Over 760 businesses ceased trading in December 2016, with a further 1093 small businesses scheduled to be wound up this month. And, according to a survey of the latest insolvency notices published in The Gazette, some industries are being harder hit than others.

Small Business Suffering

Between the companies wound up in December and January, as well as those which failed in the third quarter of 2016, it brings the total number up to nearly 5,500 failed businesses.

With the official figures for the final quarter of 2016 due for publication in January 2017, cause and effect is yet to be confirmed. But it is certain that wherever a business is unable to weather restrictions in cash flow, insolvency looms.

The research was carried out on behalf of London insolvency practitioners Hudson Weir. It reveals that some industries are being hit harder when it comes to failing businesses. The study revealed that 14.5 per cent of these companies were operating in the retail and food and drink sectors.

However, it’s in the construction industry where the impact is felt most acutely. According to data collected during the second quarter of 2016, 2450 construction companies ceased trading. Next most affected was the wholesale, retail and repair of vehicles sector, with 2065 company insolvencies.

And it’s not only small businesses suffering from lower trading towards the end of 2016. Retail giant, Next, has issued a warning over trading for 2017. The company saw a drop of 3.5 per cent in the run up to Christmas, and anticipates a similarly gloomy picture for 2017.

Brexit or Cash Flow to Blame

The reasons for company insolvency can be complex, ranging from unrealistic planning through fraud and unforeseen loss of market share. But the root cause of is it frequently simple: inadequate cash flow.

Financial trouble tends to strike early in the business life cycle. Only 41.4 per cent of the UK businesses started in 2010 survived to their fifth birthday.

But how much of an impact has the Brexit vote and uncertainty had on insolvencies? Although the UK economy seems to be surviving the immediate post-referendum period, vulnerable business sectors – like construction – have experienced contraction.

Restaurants, cafes and other food outlets are heavily represented in the latest insolvency reports, too, a trend which could reflect the recent well-publicised rise in food prices. Even large companies such as catering giant Compass have been affected by the consequences of a weaker pound.

Hasib Howlader, a chartered accountant at Hudson Weir Ltd, commented on the survey results.

“Brexit is unlikely to bring good news for small businesses, and it seems now it’s just a question of how bad it’s going to be. With more than 40 per cent of small businesses struggling to survive beyond five years even in a pre-Brexit climate, it’s now more important than ever for them to be looking for warning signs that their business may be unhealthy.

“If cash flow is a problem, and you can no longer pay your bills as they fall due, the earlier you speak to an insolvency practitioner the better.”

Mitigating the Effects

Even though businesses are at the mercy of circumstance, it’s possible to mitigate the effect of uncertain situations like Brexit. Hudson Weir recommends that business owners:

  • Get to know the normal patterns in cash flow data

When a business keeps good records of its cash flow over a period of years, it’s possible to identify seasonal and other trends, and plan for them.

  • Look to the future

The logical next step after record-keeping is making a cash flow forecast. A clear-eyed view of incomings and outgoings six months to a year in advance helps manage business expectations.

  • Keep up to date with invoicing and payments

Each invoice should be accompanied by clear payment terms, and it’s well worth enforcing these. It’s also worth getting to know customer payment habits, since any unusual delays can be early indicators of financial trouble.

  • Make long payment terms the exception, not the rule

30- and 60-day terms make cash flow management more complicated.

  • Focus on managing cash flow

This is something even highly profitable business should do, as out-of-control cash flow undermines profitability and jeopardises future prospects.

An Expert’s View on the Future of the UK Economy

The media have painted a gloomy future for the UK economy thanks to the events of 2016. But one is breaking ranks – and it’s not all bad news.

the future of the uk economy

A few weeks ago, Procurement Heads enjoyed an insightful business breakfast hosted by the Chilworth Partnership & Venture Recruitment Partners at the Chilworth Manor Hotel. While we were there, we heard from one of the UK’s leading economic commentators, Alex Brummer.

Brummer has been City Editor at the Daily Mail since 2000 and is a multi-award winning economic finance commentator. Brummer was speaking on the topic of Brexit and the potential impacts on the British economy.

To add further spice, there was also the topic of “Trumpenomics” to discuss after the much-publicised US election result. Brummer is no fool, and whilst he was pro-Brexit, he empathised with the shock both events have caused.

Sense of Optimism

Despite the doom and gloom from his peers in the media, there was a sense of optimism from Brummer. He described the UK economy as “having taken the punches pretty well”.

Indeed, in the 3rd quarter we have seen growth at 0.5 per cent. Additionally, we are likely to see annualised growth in the UK of around 2 per cent. This is a faster rate than any of the Group of Seven (G7) countries.

From a recruitment perspective, there is much to celebrate as well. The unemployment rate has dropped to 4.8 per cent, and the number of people in employment is at its highest in 30 years.

Whilst the Chancellor’s Autumn statement next week will likely reveal a dampening of economic expectations, Brummer asserted that infrastructure investment in the 3 ‘Hs’ will boost the economy in time – Hinckley Point in Somerset, HS2, and the expansion of Heathrow.

UK Economy “Punching Above its Weight”

Back to Trump in the US. Brummer argued that his pledge to reduce corporation tax from 37 per cent, and a massive increase in infrastructure spending, will see the UK’s burgeoning Services sector well placed.

In this respect, he asserted that the UK ‘punched well above its weight’, operating at an annual surplus of £100 billion. Only time will tell just how this new political and economic relationship between Britain and the US will work.

One thing is for sure is that Brexit certainly hasn’t been an immediate disaster, reflected by the strong performances of the FTSE 100 and FTSE 250 since June. Brummer claimed a lot of this is down to businesses bringing their operations, and therefore more of their investment, back to Britain.

Tangible example of businesses positive reaction to Brexit can be seen at Nissan, Ford and more recently Google, all making positive long term commitments to the UK. More businesses investing in Britain is surely a good thing for our employment?

Challenges to Come

Brummer warned of the failings of Europe, describing the EU as an “Economic disaster”. And the facts are scary:

  • Greece’s GDP has dropped by 25 per cent,
  • Youth Unemployment in Italy is now at 37 per cent, and
  • Growth since Germany joined the EU is stagnant.

Brummer did not underestimate the UK’s adjustment to Brexit and nor should we. But perhaps we should try and look at the positives of the events of the past few months.

There are challenges to come, like the possibility of a trade war, Trump going back on his economic policy, and the Pound weakening a lot further. Like many in the room, we came out with some reasonable optimism to see this not as a problem but as an opportunity.

To quote Brummers’s closing remark we should “see the glass as half full, not half empty”.

Could Brexit Cloud have a Silver Lining?

The Brexit result upset the apple cart. It also left many people searching for a silver lining to the clouds on the horizon.

silver lining

This article was written by Daniel Ball, Director, Wax Digital.

Marmite – you either love it or hate it as they say. Well, Tesco for one was probably agreeing with the second of those sentiments recently when its rocky relationship with the brand’s owner Unilever hit the press.

As you’ll remember the food giants’ spat was triggered when Unilever stated it would need to raise its UK prices. This was in order to offset the impact of the pound’s post-Brexit weakness against the Euro in its supply chain.

Tesco retorted by removing Unilever products from its shelves. A bold move considering the food manufacturer owns many leading consumer brands.

Weakening Sterling

To recap, in mid-October the pound fell to a value below €1.10 for the first time since March 2010. The pound had generally been on the slide ever since the UK’s EU referendum back in June. It was also performing weakly against other major currencies including the US dollar and those in most emerging markets.

In many ways this is bad news for UK consumer and business to business purchasing. Both as individuals and organisations we’re pretty heavily reliant on global supply chains, meaning that it will cost domestically-based organisations heavily.

UK manufacturers sourcing parts and materials from overseas to make products locally, will pay more due to poor exchange rates.

Equally retailers and wholesalers buying end products from other countries will pay more to put them on their shelves or fill their warehouses. These cost increases will inevitably be passed on to UK business customers and consumers alike.

Returning to Domestic Focus?

However the situation may not be all bad and there could be a silver lining in this post-Brexit cloud. One potential positive outcome from this situation could be some British supply chains choosing to return to a more domestic focus.

Weighing up the options in a less than favourable global financial position, it may make sense for some UK businesses to explore the cost benefits of buying locally. This will help to remove exchange rate risk, even if local supply is not the cheapest price book option.

After years of decline, UK manufacturing may actually receive a boost and resurgence of ‘Buy British’ standards of the past. However this will be fuelled by necessity, rather than a Brexit campaign.

Admittedly it’s an ambitious scenario. Imagine the impact of Tesco commissioning UK food producers to come up with viable, locally made alternatives to replace Unilever’s full range. Especially considering its brands comprise around half of the worldwide grocery market share.

Secondly, consider how a weak pound may also drive overseas buyers to look to British suppliers for pound-based pricing. This will allow them to realise the benefit when the Sterling costs are converted back into their own stronger currencies. UK suppliers could see new market openings and opportunities to trade overseas that once didn’t exist.

British supply may suddenly become in vogue.

Silver Lining in Currency Battles

For procurement teams choosing to buy domestically, a move such as this will mean significant focus on supplier sourcing and close inspection of supplier relationships. Necessary checks and due diligence would have to be built in, in order to ensure any changes in supply didn’t leave the business at risk.

Equally procurement professionals working supply side in the UK should seek to advise the business on how to make the most of new opportunities and negotiate effectively in supply relationships.

Brexit is rather like Marmite in that it divided the nation. But while there are fears about the UK’s future after Brexit, recent currencies-related battles have highlighted a potential silver lining.

Now could actually be the time where we see both onshore and offshore buyers eyeing up UK supply options over going overseas or opting for their foreign domestic choices.

Procurement would need to ensure necessary checks, due diligence and information management in new sourcing activities. There would be a need to ensure swift and effective onboarding. New contracts and relationships would have to carefully managed to minimise ongoing trading risk with new partners.

But if procurement can pull this off, who’s to say this cloud couldn’t have a silver lining?

Not Worth The Money – Will Entrepreneurs Avoid Business in Britain?

The Great British Pound is in trouble again this week and it’s making budding entrepreneurs think twice about their business plans.

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Talk of a Hard-Brexit Sparks Global Concern

The pound plummeted to a 31-year low last week sparking global concern. The crash followed Prime Minister Theresa May’s announcement on Sunday 2nd October, which revealed a firm timeline for triggering Article 50 and the beginning of Brexit. Extra fuel was added to the, already well-stoked, fire when the media reported that she would opt for a complete break from Europe- a “hard brexit”. Reports  already suggest that a “hard brexit” could result in a loss of 70,000 jobs and cost £10bn in tax receipts.

With the pound sitting at $1.27 against the US dollar, chancellor Philip Hammond scuttled to New York with the hope of reassuring America’s biggest banks about the consequences of Brexit. He will try to convince the Wall Street powerbrokers that London will maintain its position as the world’s leading financial centre once the break from the EU is complete.

The pound is also falling against the euro this week, hitting a five-year low and continuing to escalate concerns.

Weak Pound Triggers Rise in UK Services Sector Prices

The dropping value of the pound is already affecting the UK services sector as input prices rose to a three and a half year high in September 2016.

David Noble, group CEO, CIPS, said: “Firms raised their prices in response, to counteract increased costs for fuel, food and elevated wage bills and as the weaker pound had an effect.”

Companies demonstrated their concerns at the ongoing uncertainty over Brexit implications through their reluctance to forge ahead with confidence.

“It’s clear that the pace of expansion has cooled since the first half of the year, reflecting widespread concern about the potential future impact of Brexit”, David commented.

Is Brexit Scaring Off Entrepreneurs?

The aftermath of Britain’s Brexit referendum back in June 2016 saw a strong display of optimism from many entrepreneurs. Indeed, a survey conducted by the Financial Times confirmed that the majority of founders and investors had confidence in London retaining its status as Europe’s biggest center for start-ups. But, is there a change in the wind?

Diana Paredes, CEO & Co-founder at Suade Labs and passionate entrepreneur spoke with Business Insider last week about the effects Brexit will have on entrepreneurship.

She questions why anyone would opt to start a business in the UK given the current economic climate. Operating in London adds a premium in terms of housing and talent and people often see the many business opportunities on offer as a justifiable compromise for quality of life. However, with the future so uncertain, is it worth the risk and sacrifice?

Existing organisations might also be keen to relocate their bases to elsewhere in Europe where it is cheaper to operate, less isolated and they can continue to be regarded as a European company and not simply a British one. 

If you’re an entrepreneur, what are your thoughts? Is the dropping value of the pound enough to make you run a mile from UK business? Let us know in the comments below.

Find out what else has been happening in the world of procurement and supply this week…

Samsung in Trouble Again

  • It’s been a month since Samsung recalled its new flagship phone, the Galaxy Note 7, following several cases of it exploding and injuring customers.
  • The company have been issuing replacement devices to customers who bought Galaxy Note 7 phones.
  • However, a Samsung recently started smoking uncontrollably on a flight before takeoff, forcing the cabin crew to evacuate the plane. This could lead to a second recall and a disastrous outcome for Samsung.
  • Google announced its Pixel smartphone this week and could be well placed to steal a whole host of disappointed Samsung’s customers.

Read More at Business Insider

Uber’s Self-Driving Cars

  • Uber’s self-driving car pilot program may want to fasten its seat belts after the bumpy beginning it has reportedly gotten off to.
  • The cars have reportedly gotten into accidents and ignored traffic signs during testing in Pittsburgh, Pennsylvania.
  • Whilst it is still very early days for self-driving cars, it’s believed that they are, ultimately, inevitable given the overall, enticing end-game which should see the cars combatting road deaths.

Read more at Tech Radar

Supply Chain Leaders Pressured to Embrace Climate Change

  • Business for Social Responsibility (BSR) meets next month in New York with the current cri de Coeur being “bold climate action”.
  • Analysts have observed that multinationals must raise their ambitions by investing in climate finance, transition to renewable energy, and find more innovative was of ensuring resilient supply chains.
  • As well as encouraging change in organisational culture to embrace clean energy and other climate solutions, BSR insist that supply chain managers join Corporate Social Responsibility (CSR) managers in becoming .intrapreneurs.
  • Supply chain managers can – and must – play a major leadership role in addressing the alarming consequences of aberrant global weather conditions.

Read more at Supply Chain 24/7

Drones Tested for Emergency Cell Service

  • Verizon Communications is testing the deployment of large-scale drones to provide mobile connectivity in emergency situations when the land-based cellular network has been damaged.
  • The drone which is being flown by American Aerospace Technologies, is nothing like the small, quad copter devices flown by amateurs at home. With a 17-foot wingspan, Verizon’s drone more resembles the types of unmanned aircraft used in the military.
  • Data gathered in Thursday’s trial will be shared with the FAA in order to help craft future rules regarding drones, Verizon said.

Read more at Fortune

Brexit Presents Export Opportunities for UK Business

Could an increase in export opportunities be a silver lining among the Brexit clouds for UK businesses?

UK Export Market

Much of the reporting in the business world on the Brexit has focused on the potential negative impacts. However, there could be benefits for British businesses, including SMEs, in an increase in exports opportunities.

The weakening of the pound is believed to be a contributing factor to this growth. This has made British products and services cheaper overseas. As a result it’s provided British manufacturing with an opportunity to compete in foreign markets.

UK “Needs to Improve” in Export Market

The Flash UK Purchase Managers Index (PMI) has revealed export business rose for the second straight month, and to the greatest extent in two years.

Additionally, a recent survey by the Federation of Small Businesses suggested that the number of small businesses exporting could double, due to the drop in sterling value. This could potentially help to cushion the economy from the uncertainty of leaving the EU.

However, it’s not all positive. Despite the potential boost for exports from the drop in the value of sterling, Britain is still significantly behind the government target of £1 trillion of exports by 2020.

The recently appointed Trade and Investment Minister, Lord Price CVO, stressed: “The UK punches well below its weight in the export market and badly needs to improve.”

Increasing Overseas Tenders

Procurious caught up with Stuart Brocklehurst, CEO of Applegate, to ask him what the key factors are in export decisions. Since the result of the EU referendum, Applegate PRO, has experienced a 20 percent increase in overseas tender requests.

Brocklehurst commented, “With concerns over domestic demand, exports offer a great diversification of revenue for UK businesses. The decline in sterling means our goods and services are around a tenth cheaper for overseas buyers. This presents a significant opportunity for UK businesses.”

It’s worth looking at the situation from 2 sides when it comes to procurement – UK and non-UK based. For non-UK based procurement, the UK has become a lower-cost manufacturing option. There is a significant opportunity to make savings, as the goods and services in the UK are now 10 per cent cheaper.

Inside the UK, however, it’s a different story for procurement. As the prices fall in the UK, many procurement organisations will be faced with a tricky decision. Should they re-shore their supply chain or not. For example, manufacturing businesses currently planning to make capital investment priced in US dollars have seen the real-cost price increase by 10 per cent.

There’s also a question of currency stability. The pound may drop further in the coming months, so what can procurement do? Brocklehurst stated, “Companies can either mitigate this risk by purchasing derivatives, or purchase locally in order to avoid the volatility altogether.”

SMEs Uncertain on Exports

One interesting point that Stuart Brocklehurst makes comes in contrast to the positive note sounded by the Federation of Small Businesses. Brocklehurst argues that, although there has been a strong increase in overseas orders and export opportunities, many SMEs still don’t want to get involved in exports.

“When it comes to SMEs and exports, nothing is guaranteed. Some SMEs don’t want to get involved in exports, particularly where there are concerns about red tape. They’re hesitant to proceed where there are administration overheads, as they’re worried about getting it wrong,” says Brocklehurst.

Brocklehurst also believes that if there is a UK slowdown, this will be a benefit for businesses exploring export opportunities. Nevertheless, it shouldn’t be taken as a certainty that exports will completely offset the effect of falling currencies on purchases, and a potential economic slowdown.

In 2008, at the height of the Global Financial Crisis, many believed that the export market would help the UK economy. However, due to recessions in many other countries, demand for UK exports actually weakened, and the recovery took longer than expected.

Realising the Opportunities

Whatever the UK economy looks like in the coming months, it’s clear that the Brexit isn’t all bad. It’s also undeniable that it has presented clear export opportunities for UK businesses.

However, many companies remain uninterested in exporting, even with the potential revenue and business growth opportunities. It’s down to business leaders to help drive this strategy through.

Equally, for procurement, it’s time to decide how sourcing will look in the coming months, and ultimately when the UK leaves the EU.

Applegate PRO is the UK’s foremost sourcing database, helping to link buyers and suppliers, and streamline the eProcurement process.

The platform is being utilised by a wide range of companies across the world, including Airbus, SpaceX, General Dynamics, NATO headquarters and The White House.

Facts not Fear: The Impact of Brexit on US Business

Institute for Supply Management (ISM) CEO Tom Derry tells Procurious that people need facts, not speculation and fear, when it comes to understanding the impact of Brexit on US business.  

Brexit US Business

ISM took the unusual step this month of releasing a supplementary Report on Business, focusing specifically on the impact of the UK’s Referendum on EU membership on US business.

The decision was prompted by a flood of enquires from US business and media representatives about whether the data for this month’s highly anticipated and influential report would reflect the fallout from Brexit.

“We decided to go back to our panel of over 600 procurement professionals with a tailored series of questions about the net financial impact of Brexit on their organisations”, said Derry.

“More importantly, there has been an enormous amount of speculation about the impact of Brexit, fed by a sense of unease and uncertainty. ISM was in a position to gather real data and put the information out there so businesses can make informed decisions based on facts, rather than fear, concern or emotion.”

Negligible Impact

The report will serve to dispel much of the speculation around the impacts of Brexit on US business. The vast majority of those surveyed reporting that Brexit will have a “negligible” impact on their business. Only one in three thought their firm would be negatively, or slightly negatively, impacted.

The main concerns for those who do anticipate an impact include the exchange value of the dollar, changes in demand globally, financial market uncertainty, and currency movements.

“The report demonstrates that despite the speculation, the majority of US businesses feel that Brexit will have a negligible impact”, says Derry. “This is because the US has a comparatively low export economy at only 13 per cent of GDP, so we are relatively insulated from the impacts of currency movements and global demand. We’re not a huge commodity exporter, although the strength of the dollar is of course a concern for those who are in the exporting business.”

Derry says that in the short-term, trade relationships are stable. “For US firms doing business in the UK or EU, very little has changed. For now, we’re good – business is predictable, and we love predictability and certainty.”

Future Investment Shift

In the long-term, however, US businesses may not choose to invest additional dollars in the UK. Historically, a lot of companies (such as car manufacturers) have used the UK as their port of entry into the EU, due to its shared language and talented workforce.

Derry added, “That option may no longer be so attractive, and discretionary investment will probably shift to Eastern Europe – Poland or the Czech Republic – to have a presence within the EU, and take advantage of low-cost labour.”

Derry says that the Brexit referendum is a historical event. However, in 10 years it is likely to be seen as a political decision, rather than an economic one. “The ‘sky is falling’ scenario is certainly overdone”, he says. “I don’t think we’re going to see the fracturing of the EU over Brexit.”

“It’s important to keep our vision focused forward. As supply management professionals, we work in the global economy and a major shift, such as Brexit, forces each of us to recalibrate our global supply strategies and trade relationships. The EU is the largest single market in the world – we can’t ignore it.”

Click here to read the supplemental ISM Report on Business: Brexit Report.