Tesco, the Groceries Code Adjudicator and CIPS

You are probably already aware that the Groceries Code Adjudicator has announced that her first inquiry will be into Tesco's 'supply chain bullying'. Of course this is not the first inquiry to touch Tesco's fallen angel procurement, it joins those of the Serious Fraud Office and the Financial Reporting Council.

You may have thought this was an appropriate time for the newly badged Chartered Institute of Procurement and Supply to show its teeth too, but I was amazed to learn that David Noble, CIPS CX response to the news of the Groceries Code Adjudicator's inquiry was:

"This remedial action is tantamount to closing the stable door once the horse has bolted"

What on earth is the business world to understand from such a platitude? Surely, CIPS are not advocating the potential breach of the Code should not be investigated? What action are CIPS proposing to take in demonstrating its own Ethical Code has teeth? Would this not have been the right time for CIPS to have championed the Inquiry and champion good supply chain management practice?

That's another fine mess for Tesco procurement

There was a time when Tesco was held up as the exemplar for procurement; that changed with Horsemeat. But today things just got significantly worse and a strategy of late payment for suppliers paralleled with charging suppliers for prominent placement seems to have led to 10% fall in share price and significant reputational damage. Euphemistically this is referred to as 'profit overstatement'. Will CIPS' condemn this as unethical and flex the new disciplinary process?

But while the big news story was on Tesco's 'overstatement', tucked away inside the Times was a related story about one of Tesco's suppliers, Moo Free Chocolates. Moo Free Chocolates have named and shamed Tesco in a late payment dispute - Tesco, it is claimed took five months to pay £6,000 while no such problems were eencounteredwith Sainsbury's and Waitrose.

Wouldn't it be interesting if the main political parties, who are now holding their Conferences, announced, that if they win the election, they will introduce a naming and shaming register of late payments - perhaps that would be the single best thing they could do to help SMEs!

A Mars a day doesn't help procurement pay.

Today we have heard that Mars UK have revised their terms of doing business and expect suppliers to wait 120 days (as opposed to the previous 60 days) for payment. Alternatively, it is reported, suppliers can access supply chain finance, for a reduced payment in 10 days.

Only last week I discussed the issue of late payment and I have to admit I am surprised it is a symptom of the economic recovery as opposed to the recession. Nevertheless, it can be assumed Mars UK have a strategy behind this new policy which suppliers, in turn will have to decide on their response. Now there is a danger that others will feel this is the way forward and something to be copied - so a few thoughts:

1. How dependent are you on your suppliers? If you need your suppliers more than they need you they may chose to say "no thanks";
2. How easy is it for you suppliers to find alternative customers? If it is easy for suppliers to find alternative customers they may just opt to give those customers preference over you;
3. How competitive are your competitors? If your competitors are also using the same suppliers don't be surprised that they offer your suppliers more attractive terms to suck out your supply source?
4. Have you existing contracts in place which state the existing terms? Don't be surprised if suppliers decide to enforce those terms unless you give them something in return, for example a longer term commitment;
5. What will you do if suppliers just say "okay, but in that case the price is higher and lead time longer"?
6. Have you thought what you will do if the suppliers just say 'no' - how will you mitigate against that risk?

Do you really try to become a preferred customer?

18 months ago I co-authored a Whitepaper warning that adopting a short-term approach to procurement strategy could prove detrimental when recovery from the Great Recession arrives. As we approach elections in the UK we are told recovery has been reached, whether or not you feel and see that is debatable.

Today's Financial Times reports on research for the European Payment Index (EPI) that suggests, across the EU, €360bn has been written off as a result or late payment of bills and invoices. The research considered responses from the 31 European companies plus Turkey and Russia. It appears that suppliers are waiting 47 days beyond the contracted term for payment. Now just think what the impact would be on you if your employer told you that you would have to wait a month and a half for your salary.

Of course the 47 days is a sweeping generalisation, but how do you think your firm's payment record would compare if benchmarked against Sweden's delay in payment in the public sector of seven days and with days in the private sector? The Swedes have adopted a system of fining debtors with automatic penalties to protect suppliers.

In the grand scheme of procurement swings and roundabouts there is a time when suppliers have to make decisions between competing buyers as to which should receive preferential service, or indeed delivery at all. When there are plenty of alternative suppliers the buyer can perhaps be a bit complacent and arrogant, assuming suppliers will want to supply. But if you have a history of late payment, don't expect suppliers to be beating a path to supply you, others, perhaps those based in Sweden, can expect to be more attractive for the delivery of quality, price and lead-time. But things could be even worse: what if that critical source for your manufacturing line goes into liquidation due to cash-flow problems?

The report should be a warning that it may well be time to get your payment process improved before your suppliers opt to delay in supplying you.