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. 

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?

More Teswoe's - and thoughts on the linkage of Marketing & Procurement Strategy

With the slogan 'Every little helps' Tesco are also sure to understand the drip, drip, drip of every little piece of negative publicity also counting. I have given considerable attention to Tesco's approach to procurement over the years and how it may not have been just exemplary as others argued.

However, today's Sunday Times article drew my attention to an aspect of Tesco procurement strategy that I previously hadn't considered, namely, minimising customer choice. I just hadn't considered that the strong arm of Tesco's buyers were suspending products from the shelves - customers were being deprived of choice by Tesco. Of course the suspension also had a painful impact on suppliers. Ironically Premier Foods lost £10m in three months. I say ironically as you may recall, some months ago, I referred to Premier Foods bizare approach to defining strategic suppliers.

While these case studies are of interest to the procurement world, to me they are also of interest to those interested in Marketing Strategy. Did Marketing in Premier Foods position Tesco as strategic - clearly Tesco's Procurement Strategy didn't position Premier Foods as strategic. And what about the reputational damage caused by Tesco's Procurement Strategy - never mind that a number of the Tesco staff are now suspended, how much will Brand reconstruction cost. Wouldn't it be interesting to read the brief for the procurement of that Brand agency who have to undo the damage caused by Procurement!

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.