Sunday, 7 December 2014

Premier Foods procurement strategy going from bad to worse

Last year I wrote about the procurement strategy of Premier Foods which has suddenly become a hot topic and now looks as if the chief executive has been coerced into setting aside.

Initially the rationale of the Premier Foods procurement strategy was to supplier reduction and a focus on strategic suppliers. The objective wasn't necessarily wrong but the implementation was flawed in both rationale and implementation.

Now to add to that confusion the chief executive has said "in my view that is just one of many kinds of discounts. It's an investment on growing our business and that's entirely appropriate". That seems a massive shift in last year's justification! Did the chief executive understand the 2013 rationale? Was there any Board buy-in to the risks of what could happen and the potential fallout which has now led to adverse national press and media converage?

Gavin Darby, the chief executive, to me, has made things worse by stating:
If the optics of this scheme for some people feel uncomfortable, I'm happy to move on and move the scheme to a more traditional discount .. we would just say we have an invest-to-grow campaign, we want people to come with us to invest in our business and that would be reflected in a discount soon the terms they have offered in the past.
If Premier Foods had wanted "[suppliers] to come with us" they should have thought a bit more about how they would bring the supply market with them.

Darby seems to forget that some of last year's suppliers appear to have now chosen to opt out of supplying and some who did pay-to-stay never received any business anyway. How will Premier Foods go about negotiating the new discounts with those firms? Let's face it Premier Foods have now lost the initiative and common sense would suggest that suppliers should just refuse to budge on discounts.

Setting all that aside, we have yet another example of procurement damaging brand value and I assume adding to remedial costs associated with retrieving reputation.

Then we have the issue of do they really understand the concept of strategic supplier management? Sadly, I fear, Premier Foods are working to their own recipe and it has a remarkably bad taste.

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