It is now a week since we woke up to the surprise news that the UK had voted to leave the European Union. It’s been without doubt, the biggest political and economic shock this decade and at the core of many discussions since.
At this point it seems inevitable that Britain will leave. What does that mean for UK businesses and how can their systems help them not just to take this in their stride but maximise any potential opportunities? After all the old saying goes ‘its an ill wind….’
So, my thoughts and conversations have covered the following points:
Right now for most businesses the immediate impact is from currency fluctuation. For the exporters it’s been a significant boost but then a lot of those import components or use lots of energy which is paid for in dollars. For the importers who then sell into the domestic market, they have seen 10%+ of their margin disappear overnight with little opportunity to inflate prices yet.
With at least a two year plus period while our exit is negotiated then you can only see the fluctuations continuing. Every news story about which British or European leader said what will send GBP falling or climbing, not the stability that businesses thrive on.
For Dynamics NAV users we need better reporting to highlight the exposure to currency changes across both sales and purchase. Dynamics NAV already has excellent functionality to calculate these but doesn’t necessarily dashboard the changes to make them obvious.
Across inventory we need the product costing to be multicurrency aware. Where components are purchased in foreign currency we need the cost rollup to be aware of this and take account of the current exchange rate when converting to the local currency. That’s not something that Dynamics NAV does as standard but it something that it can be made to do. Companies need to have product cost movements highlighted so that they can understand where they need to focus efforts reducing cost from their supply chain (because domestic supply is now cost beneficial?) or passing on the increased costs to their customers where margin unacceptably eroded.
I haven’t seen many for a while outside the transport sector (due to fuel price changes) but cost fluctuations in the past have lead to the need for surcharge agreements with customers and suppliers. Where prices are going up and down weekly it hard to keep renegotiating prices, so often the easiest way to manage this is to agree a surcharge rate and just adjust that each day/week/month. This can be a price per tonne, litre, each or other unit, even down at component level.
Again, Dynamics NAV doesn’t facilitate this as standard on either the sales or purchase side. Changing the ‘oil price surcharge’ with a vendor need to affect the product cost of the items that vendor is the preferred supplier of and then roll up into the items they make. Then we need to compare that new overall cost with the sales price including any agreed surcharge with our customers to understand what our margins now are.
When raising a sales or purchase order the system need to understand and calculate what may be several different surcharges that apply to the item being bought or sold. The documentation needs to detail the core price of those items and list the effective of the surcharges before showing the overall price now.
Interestingly enough surcharges are sometimes applied by what was in force at the point of order or commonly what it was at the point of receipt or shipment. That means when your matching a purchase invoice for instance, it may not be just what is on the purchase order when it was raised but need updating at the point of receipt/shipment or even invoicing. The interim postings need to account for this.
Duties & Tariffs
For the time being (at least the next two years) this is not going to apply to European trading but after that I suspect these will be a significant increase in the number of imports and exports to which duties and tariffs apply to. It seems inevitable that exports are going to rise with the rest of the world due to the lower exchange rate and the need for us to focus more effort outside the EU, where we will be in future. That means that we need Dynamics NAV to manage applicable duties more effectively that it does by ‘expecting’ and accruing/reserving for them via interim postings.
Currently standard Dynamics NAV copes with these as a post transaction item charge but we need the system to understand we will incur these costs at point of purchase or sales order entry and then make the postings at point of receipt or shipment for these expected costs. We need to be able to reconcile with the Her Majesties Revenue and Customs and understand what they are going to take out of our bank with no notice before it happens. They are not the most accurate organisation either so having the systems to challenge them would be critical. Exporters might well have to deal with lots of equivalent organisations in each European country so that will need the system to help as well.
Lots of UK companies only really export/import with other European counties. We don’t know what rules will be applied yet but the chances are that goods will need to be accompanied by more of the ‘right’ documentation to get to their destination with no delays. Currently there are is no requirement to put the value of the goods on the shipping note when delivering into the EU. For instance when delivering to non-EU countries may require not just specific declarations (shipping to a Middle East country can require a paragraph to assert nothing is of Israeli origin for instance) and we might well see more of this type of requirement even within Europe as well as the invoice values being included. So expect that you documentation might require changes.
VAT & Intrastat’s
We don’t know if the EC sales list will still be required hopefully the UK government will require as few changes as possible and use the same information to compile their export statistics. Logically though, long term it will make no sense to have different reporting for EU and non-EU countries when they are effectively the same. It also possible that the UK will want to know sales and purchases from individual EU countries so I expect it to transition to report against all country codes.
One thing is certain is that VAT reporting will change, we currently have to report net sales/purchase to EU countries and non EU countries and the VAT (or lack off) changed on those sales/purchases. This is likely to require just a change of VAT posting groups on the day along with setting up the VAT statement to reflect the new requirements.
I think constant changes for the medium terms at least in regulatory and currency situation are going to mean that existing relationships with both end of your supply chain are going to be in a state of continual change. Unless you are extremely small or like dropping the ball then you need help to consistently make sure you are on top of the situation and that every customer and supplier is uniquely understood and communicated with. You need a CRM system to maintain that single customer view rather than a complicated mixture of excel spread sheets, outlook emails, contacts, appointments and tasks, folders on network drives, dropbox or onedrive folders on top of your ERP system data.
One of the key challenge's that will affect end users is a possible exit of skilled experts back to Europe. For the NAV partner community I would estimate that as many as 40% of staff are not UK nationals currently. With a lack of skills and with aging teams (people like me getting old and slow to learn) partners have imported people from places like Hungary, Lithuania and even Italy and Spain. Those people are paid in GBP but count their earnings in Euros and so have already had a 10% wage cut in their eyes in the last week. I hear that searches for jobs in Ireland are now 500% up due to the pay being in Euros and the language still being English.
With one of the major client complaints over the last few years being the availability of skilled resources to work on Dynamics projects, any significant exodus of talent will create a problem. Even more sure is that the UK is not as attractive destination as it was once. We need to start training people now to fill this gap with some urgency.
Make sure that your system that helps you with all these issues now rather than when you get too busy and damage relationships as a result. Work smarter as well as harder to drive maximum results and help drive the UK out of the economic PTSD that the governor of the Bank of England described yesterday. What is certain that we need to get our act together better than our political masters are doing. Overall I believe that the UK can work through this period and become the European Singapore, similarly close to a continent but independent of it ,with a world leading economy and environment that works well with all our neighbours. Lets get on with getting it done.