Buyer Beware – Regulation is on its way

Buyer Beware – Regulation is on its way

The regulation of supply chain tactics is long overdue and will, if acted upon early enough, will help to avoid the potential meltdown in the supply chain of consumer goods.

Following a 3 year enquiry by the competition commission, the UK Government is set to take some control of the supply chains of some retailers by appointing an independent arbiter to help settle disputes between super markets and their suppliers.

According to the BBC, measures are proposed to regulate more closely the way supermarkets deal with their suppliers. These measures include:

  • A new, stronger code of practice to be set up – detailing how suppliers should be are dealt with – and applying to all major grocery retailers.
  • Grocery retailers to be banned from retrospectively changing contracts with suppliers.
  • Supermarkets to employ staff whose role will be ensuring that the code is followed.
  • An independent ombudsman to be appointed to arbitrate in any disputes between retailers and their food suppliers. They will have the power to award compensation and will uphold the code.

This is long overdue and urgent. It is a shame that governments worldwide didn’t act more proactively in the financial markets before credit markets ground to a halt so disastrously in 2008. Make no mistake, if the purchasing practices of retailers, and FMCG retailers in particular, are not regulated urgently, we will see the same kind of supply chain paralysis happen in the high street as we did in the financial markets.

It has been argued that regulation will be costly and that this will ultimately lead to increased prices for consumers. This is a simplistic argument that belies the fundamental problems. Procurement professionals know full well the tactics that powerful retailers employ to drive down costs. The malpractice reported in the media, retrospective contract amendments, disproportionately shared marketing costs etc. are just the tip of the iceberg. There is a “jam today” mentality amongst super market buyers where short-term savings are rewarded, regardless of the long term consequences to suppliers and supply chains. Sound familiar? It should do.

It should be a source of shame that some of the biggest retailers in the UK refused to agree a voluntary code of practice and a source of embarrassment that the government has been so slow and lily livered in its attempts at regulation. If the lessons of recent months are to be learned, governments globally should take a much more detailed and closer interest in retail supply chains so that consumers, retailers and their suppliers are protected.

When the financial markets collapse, governments can always print money – they can’t print meat!

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