Sunday, 8 February 2015

Is Tesco's procurement strategy always wrong?

Readers of this blog will know I haven't been overly sympathetic of all Tesco's woes, however, today I find myself loosely in agreement with a Tesco approach that is the latest focus of criticism. The Sunday Times reports Tesco threatens new squeeze on suppliers' -  the criticism based on alleged letters send by Tesco to suppliers demanding a price decrease due to the recent fall in commodity prices.

I do not know the precise wording of Tesco's contracts, but if they were on a Rise and Fall basis, and the supplies in question are directly linked to commodity prices, then I would expect to see price decreases flowing through too. Of course, when the commodity prices inevitably rise, it would then also be fair and reasonable for Tesco to accept corresponding price rises.

I have spent years observing buyers accept the price rises, and on many occasions they have been unjustifiably linked to RPI, etc., yet those same buyers rarely chase the linked price decreases - that's just bad price management and bad procurement. That laissez faire approach to procurement costs businesses money and the profession reputation.

Having said that, if Tesco haven't contracted on a R&F basis, then their cavalier attitude to supplier management suggests they haven't learnt anything of late and deserve all the criticism they get. Nevertheless, perhaps, given the recent history, Tesco may have approached this initiative slightly differently and sensitively. 

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