55-703897 – Strategic Sourcing & Procurement
This report briefly explains the effect of the Brexit deal on “Global Procurement strategy”. The report also addressed the challenges faced by the procurement department. Here, a brief idea of how procurement strategy is demonstrated properly. The benefits as well as the challenges associated with the implementation of procurement strategy on the organizations have been discussed.
The major focus of this report is to highlight the positive as well as negative effects of the very controversial Brexit deal on the international procurement strategy. Moreover, this report also brings light on the necessary steps that the organizations should make in order to counter the challenges evolved due to the Brexit deal. Besides this, the report also gives recommendations on how organizations should maintain their procurement strategy in order to remain in the market.
Significance of procurement function in supply chain management
A proper “Supply chain Management ” system is crucial for an organization for maximizing its profits. Organizations can implement this system into its organization culture by balancing cost deduction, improving supplier quality and assuring the supply. It is also important to unlock the innovation of suppliers (Alickeet al. 2020). The demand of this system is constantly growing over the past years. As the organizations are being more strategic. This system helps the organizations intensely in finding new and innovative solutions to develop the supply chain. Proper procurement strategy helps greatly i8n managing compliance as well as reducing risks in the supply chain. True procurement strategy is very helpful in driving innovation and bringing new products to the market faster. This strategy helps the companies to collaborate enormously with its suppliers. As the demands of customers are constantly changing, the suppliers need to engage more in the product’s life cycle. Proper procurement strategy immensely helps the organizations in this process. The regulatory environment is also changing quickly. So, for innovating faster, the organizations need to implement new strategies to collaborate bits supplier both internally and externally. Technologies also have a big role in constructing procurement strategy. Technologies bring efficiency as well as automation in the supply chain.
Disruptions in supply chain and its solutions
The concept of leveraging inventory to mitigate supply chain risk is very simple. First is to maintain more critical components or completed products on hand than is operationally required to offer a buffer against potential disruptions (Barskaet al. 2018). Huge stockpiles inventory, on either hand, is not a one-size-fits-all solution, and that there are multiple problems to be addressed. The quantity of the stockpile should be consistently related to the expected number and duration of the events. A common event with a short duration, including a machine breakdown, can be easily controlled by carrying slightly more inventory, but minimizing the effects of a rare event with a longer duration, given the costs of holding inventory, can be challenging.
Diversifying the supply chain
In recent times, Covid-19 was one of the biggest disruptions in the international supply chain. This pandemic almost forced all the companies to make its supply chain more sustainable. Products like cars, mobile phones often need critical components. This components require special technological skills. Any company does not has the capacity to produce all the parts by itself. So, they depended on some particular supplier for some specific components. But, if the organizations started tio diversity their supplier chain then it will eliminate any chances of disruption in the company’s supply chain (Bergami, 2018). If the organizations engage several suppliers in different places then it will significantly reduce the geographical impacts. It also reduces the economy of sales and increase the fiscal cost. The organizations have to balance this fiscal cost with the cost due to disruption in the supply chain. Furthermore, the manufacturers need to develop Network Configuration. This network will consider the tax regulations, designing of the supply chain and flow of transportation. This network also has capabilities to monitor on the accessibility of resources. Often there are many duplicate suppliers of raw materials. So, it became very important for the companies to monitor the impact of shared suppliers. The organization has to develop strategies which maintains consistency in product quality between these shared suppliers.
Managing product demand
When the companies face many problems when they try to implement new strategies on the supply side, the best solution is to manage the product demand (Botton, 2018). There are mainly two strategies to do it. By implementing a switching strategy, an organization which produces a range of products can effectively encourage its customers to buy the specific products which are not retained by supply. The organization can more effectively implement this strategy by giving discounts or incentives.
Existing barriers to implement above strategies appropriately
Now global warming is becoming one of the main subjects of concern for if manufacturers. Global warming is causing climate change (Flachet al. 2018). In the last two decades ten world has seen more natural catastrophes than in the last 80 years. So, the organizations need to implement a green supply chain immediately. There are also many restrictions. Because these big manufacturers require enormous amount of electricity. Most of this electricity comes from non-renewable sources like coal, fossil fuel etc. These companies also require huge amounts of freshwater on a daily basis. . It impacts the environment in a very bad way.
By making a sustainable supply chain, the company can reduce the carbon footprint of the company. This can effectively improve the brand image amongst the customers. Thus, it will increase the brand’s sales. The company is able to improve the continuity level in the supply chain. By diversifying the supply chain the manufacturers can effectively remove over-reliance on a particular supplier. This will benefit the company in many ways. A sustainable supply chain also ensures the improvement of the lives of the workers. This also makes sure that fair working conditions are maintained in the plant. Sustainable supply chain also make the company attractive to others (Giammettiet al. 2020). As a result, many companies try to make partnerships with that company. Thus, it is also helpful for the company to enter new markets and launch new products. It also protects the company against reputational damage.
True procurement strategy makes sure that the raw materials, industrial consumables and equipment required for the manufacturing of the products are available on time. Procurement strategy makes a deep effect on any organization’s growth. It also helps organizations to improve its supply chain in order to achieve excellence. It also plays a huge role in reducing the production cost. But, the Brexit deal has totally changed the procurement strategy all over the world. When, U.K leaves the European Union (EU), then EU imposed many restrictions on export and import of goods from the U.K. The EU imposed high taxes on the goods which are either imported or exported to the U.K.
Figure 1: Effect of Brexit on the employment and output of Europe (Source: https://blogs.imf.net)
Due to the Brexit deal, many tariffs were which were not there. Many leather and shoe companies of the U.K heavily depend on European countries like France, Netherlands for raw materials. This deal has disrupted this supply chain massively. On the other hand, the EU also depends heavily on the U.K for raw materials (Jucyteet al. 2021). Due to the Brexit deal, there is also instability in the currency. The deal creates huge fluctuations in the currency across the world. This also impacts procurement strategy heavily. To counter these fluctuations, procurement professionals have predicted that the government across the world should immediately arbitrage the currency.
The effects of Brexit will impact more on big international organizations who operates their businesses globally. Because, the suppliers of these big organizations are mainly based in Europe. Brexit restricts the free movement of European citizens across the Europe. Reports show thatBrexit will cause turning away of businesses from the U.K-EU border.
Figure 2: Effect of Brexit on different sectors (Source: https://www.bain.net)
It is predicted that private as well as public big companies need to increase the hiring of vendor managers, contract managers and “Supplier relationship managers” in order to cope with the changes occurred in the market due to Brexit. These professionals will help the organizations to remain compliant after Brexit is fully implemented. Brexit has caused considerable uncertainties in the global supply chain. Experts in the field have said that his uncertainty will remain for a long time. Brexit will cause immense vulnerability in the global supply chain. Companies of the U.K mainly food and soft drinks companies have big trading ties with E.U. The Brexit deal imposes many restrictions on these ties. As a result, the production of these goods will be hampered to a significant extent which will cause turbulence in international procurement strategy. Experts are not sure about the unfolding process of Brexit (Lintonet al. 2021). The “Consumer-goods-manufacture” companies express deep fundamental concerns about the effect of tariffs as well as impact of border friction on international supply chain. Many food manufacturers depend on their manufacturing plants in the U.K to meet its global demand. So, this clearly shows that Brexitis making an unprecedented effect on international procurement strategy. Expert’s also predicted that Brexit will also impact on the domestic competitiveness. Because this deal greatly changes the trade costs. Brexit will increase the cost of buying intermediate inputs significantly. This will greatly reduce the total output of the UK in the manufacturing sector. Thus, it will hinder the global supply chain.
Figure 3: Total jobs loses across the world due to Brexit Deal (Source: https://voxeu.net)
Brexit will affect most of the business. Brexit is causing serious damages to Beklgian steel industry. As most of the steel manufactured in Belgium was exported to U.K. Moreover, most of the German cars which are exported to the U.K. are made of Belgian steel. Brexit mainly hit the U.K’s economy compared to that of the rest of Europe’s economy (Maliket al. 2019). It is seen that U.K’s economic activities were reduced by 3 times more than that of rest of Europe. Many manufacturing plants in the chemicals as well as agricultural sector are forced to close. This causes serious damages to global procurement strategy. Due to the Brexit deal nearly 4 lakhs people across the Europe lost their jobs. As a result, in 2019, Europe’s economy shrunk to almost 2 percent.
The U.K businesses are also expected to be largely influenced by pro-Brexit vote. This effect includes deduction in FDI, new tariffs and non-tariff types of barriers. Brexit also causes uncertainty in trading leadership (Martínez-Románet al. 2017). Which greatly affecting the supply chain all over the world. U.K will lose its character of being an exciting single market due to Brexit. Tariffs and non-tariffs barriers will significantly increase the production cost in the U.K. Thus, U.K will face many challenges to export its products to the rest of the world.
As, Brexit make a very adverse effect on the international supply chain, the companies needs to focus more on improving their procurement strategy. The companies should consider all the above discussed solutions for removing disruption in the supply chain. Only a single solution can not have any effect. The manufacturer has to implement all these measurements. The companies need to improve the visibility in the supply chain. If the supply chain of a specific company is not transparent, then it causes public criticism. The company has to strictly make sure that the business expenses should not exceed a comfortable margin. The organizations also need to give more priority in the functioning process of “Expense-Income Equation” in order to assure that the company will run successfully. This also makes sure that the supply chain will function without any disruption.
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