While I was just accused the other week of being a Francophile because of my enthusiasm for French wines -- and perhaps because of my anger that the socialist food Nazis in Chicago are banning the sale of Fois Gras -- when I read articles like this, I've got to say that I could never practice the art of Spend Management in Europe. I mean, come on, companies have a right to extend payment terms, just as they have a right to tell their suppliers to bugger off if they won't play ball in a competitive sourcing event. The fact that, according to the article, "Fashion retailer New Look has been "named and shamed" for imposing tough payment conditions on its suppliers" is a sad reflection on the state of Spend Management in Europe. One might criticize New Look for the manner in which it notified its suppliers of its new rules, but the strategy they deployed is perfectly justified, outside of the EU at least.
When I talk to companies about the Spend Management levers they can pull besides such areas as global sourcing, strategic sourcing, supplier rationalization, BPO / managed procurement services and manufacturing outsourcing, instituting standard, longer payment terms always comes to mind as a top ten play. In fact, I can fondly recall the story of one Big Five consulting team that put nearly a dozen top-tier MBAs on the ground for months at a major industrial company trying to improve their services parts pricing. Finally, when the so-called brainiacs found that global suppliers would not play ball on lowering pricing for onesey-twosey annual volume spares (duhhhhh!), they were able to achieve their forecast savings from instituting standardized, longer payment terms.
But of course, this type of thinking does not fly in Europe. It's nearly as bad as depriving a raving dictator of his right to enrich Uranium to build a nuclear arsenal. But read it for yourself and decide. According to Supply Management's take on the situation at New Look, "The high-street store is the latest addition to the Forum of Private Business's (FPB) "hall of shame", for telling suppliers it was extending its payment terms to 75 days from 1 July ... In a letter to suppliers, Alastair Miller, managing director of finance and services at New Look, said the changes were as a result of increased investment in new store space. He added that the changes to payment terms were in the interest of New Look customers ... In a statement, Nick Goulding, chief executive of the FPB [a supplier group], said: 'It beggars belief that New Look has the gall to suggest that its expansion plans should be paid for by its suppliers. They can't possibly expect suppliers to foot the bill because the latest consumer fads have caught them cold' ... Meanwhile, a recent survey by credit management company Intrum Justitia revealed that in Europe the average time between sending an invoice and it being settled has risen from 58.7 days in 2005 to 59.2 days this year."
In part, it is organized supplier push-back like this that will make European manufacturing exports irrelevant a century from now -- perhaps sooner. And given this supplier sniveling, I welcome the growth of India, China, Brazil, and other rapidly developing economies, and hope they gradually put Europe in its place as a wonderful tourist destination, albeit one that will need to be staffed with foreigners due to Europe's forecast population decline.
But maybe there's still hope. Rather than whining about extended payment terms, what about protesting government mandated short work-weeks and unemployment laws that encourage people to stay out of work, and more important, discourage companies from hiring full-time employees because of the cost of sacking someone should they choose to do so at a future point in time? Who knows. But I won't hold my breath, though I will continue to enjoy Lafite Rothschild and Chateau Margaux as my celebratory wines of choice. And I'll continue to wash down my everyday fare with a pint of English bitter, rather than the cold watery stuff from across the pond.
The hat-tip for this entry goes to a friend and fellow wine and spend enthusiast, Pierre Mitchell.