Procurement: Bully-boys?

Here we go again: industry spokesperson defends the ‘little guy’ from the brutality of the all-powerful supermarket giants.

Recently in Supply Management there was the news of Waitrose imposing late delivery charges on suppliers for shipments not arriving to schedule.

The Forum of Private Business’ (FPB) senior policy advisor Phil McCabe complains this is unfair to members of his association. According to McCabe, Waitrose should be “building relations with suppliers through dialogue and more understanding” rather than imposing the late delivery fines – as if these two concepts were mutually exclusive.

The idea of “building relations” with suppliers is undoubtedly a valuable vehicle for those in procurement practicing supplier relationship management (SRM) but Mr McCabe’s view is very simplistic and unrealistic.  The type of relationships McCabe is alluding-to are typically very few in number for buying organisations; making relationship investments with suppliers on a broad scale is simply too expensive. SRM leaders focus their collaboration on the few (it’s a simple return on investment calculation), with ‘basic’ performance management being deployed with the many suppliers that make up the total.

Mr McCabe and other representatives like him would be better advised to acknowledge late deliveries are a serious problem for the customer and that – providing they are not caused by such customers ‘short-calling’ suppliers (ordering inside agreed lead times) – this is a supply-side problem. From the customer perspective, this is no less than value leakage. Suppliers need to up their game and stop overpromising and under-delivering.

Of course, large supermarkets wield great power over certain sections of their supply chains and have been shown not to be slow in using that power, but suppliers are naive to think such customers will tolerate repeated lateness.

Several years ago, I was working with a large buying organisation that was forever frustrated that certain suppliers were bold enough to make a calculation they would accept customer abuse as a price for being able to plan their production activities with the stability of having a buffer of unfulfilled customer orders. They and the customer termed these ‘arrears’ and they had been part of the landscape for years. It wasn’t until the buying organisation homed-in on these arrears, either re-scheduling its demand or working with the supplier to ensure clearance, that the suppliers began a long and tortuous journey to excellence in delivery performance. The result was on time/in-full (OTIF) delivery and improved supplier relationships with those suppliers that embraced the challenge.

The point? Ultimately, both customers and suppliers get the business partners they deserve. For buyers needing to keep their businesses competitive, this typically means demanding increasingly higher standards of supplier performance, and adopting more systematic supplier management practices. For the suppliers who decide to operate in this sector, their key account managers, and the Mr McCabes of this world, it’s about stopping complaining about powerful customers, accept the world they’re operating in, and deliver on their promises.

By David Atkinson

This is an updated version of a blog that first appeared in Supply Management on 27th February. View the orignal, and comment responses here.

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