05 Dec 2014 Supply chain ineptitude and the procurement practices that are about to backfire
I went into a supermarket recently and helped myself to £50 worth of food. Rather than going to the tills to pay, I approached a security guard and told him I had no intention of paying and unless he allowed me to leave the store without paying, I would do my weekly grocery shop somewhere else. Oddly enough, he didn’t appreciate my position and I was forced to leave the store empty handed. And it is odd that he didn’t understand the point I was making because this same retailer does exactly the same thing with its suppliers.
It has become common practice amongst some retailers to demand cash from suppliers or insist that outstanding debts are written off in return for a continued relationship. Only this week, the BBC reported that Premier Foods, one of the UKs biggest manufacturers, has been asking suppliers to pay to continue to do business with them. You can read the full story here but it was the wording of a letter to suppliers that the BBC claim to be from Gavin Darby the CEO of Premier food that I found quite shocking: “We require you to make an investment payment to support our growth” he apparently wrote. It isn’t even subtle.
Premier Foods claim to have done nothing illegal. Of course it is not illegal to request an investment. Of course it is not illegal to ask that outstanding invoices are written off. Neither is it illegal to deliberately pay suppliers late in order to boost cash flow. These practices may not be illegal but they are unfair, unethical and ultimately, from a commercial perspective, they are downright stupid.
Please do not misunderstand me – I’m not going soft in my old age. Business is tough and to remain competitive, buyers need to drive commercially advantageous deals with suppliers. But without a healthy supply chain, manufacturers don’t have a business. We see it all the time – accountants and treasury managers that are expert in optimising their cash position by universally extending payments to suppliers but have no clue what effect their tunnel vision has on the heath of the supply base on which their business depends.
But even if a business fails to be convinced of the commercial naivety of abusing vulnerable suppliers, they really should understand the ineptitude of being perceived to behave unethically in a socially networked economy of people that are not obliged to buy their products. In this world the defence “we are doing nothing illegal” holds no water. Nobody likes businesses that behave like bastards.
Premier Foods’ brands include Bisto and Mr Kipling – both of which enjoy enormous brand loyalty in the UK. Brand loyalty is very fragile. It can evaporate overnight. Do I really need to join the dots? Mr Kipling for goodness sake – he’s like Santa Claus. If the BBC news story is true, what was Premier Foods thinking?
Treating suppliers with respect and engendering mutually supportive relationships within supply chains isn’t just about being nice to each other – it’s commercial common sense and the kind of supply chain malpractice that we continue to see reflects extremely badly on those business leaders that haven’t realised that.
Pete Loughlin can be found on twitter @peteloughlin