Durex are condomed to procurement and supply chain problems (sorry…)

Last Monday we featured sexual affairs and whether we should  start asking more questions of our suppliers in that area. And then, last week we saw this great story that not only featured sex, but also  includes elements of supply chain risk, offshoring strategies, partnership and strategic relationship management, power in the supply chain, merger and acquisition risk; it’s virtually a years’ worth of Harvard Business Reviews all in one case study!

So, SSL, makers of Durex condoms, were acquired recently by Reckitt Benkiser for $3.9 billion. A large percentage of their condoms are actually manufactured in India by TTK, with whom SSL have a joint venture (I don’t know the precise terms of that venture).

But, as the Economic Times reports, a dispute started shortly after the takeover when TTK tried to implement a 35% price increase for condoms destined for the international market. TTK also wanted to  lock Reckitt Benkiser into a 5-year supply contract.

In an interim court ruling, TTK were told to keep supplying, at the higher price, until the dispute was resolved. But they’ve refused to do even that, so in a filing in the Chennai High Court, Reckitt’s have accusing TTK of contempt of court. The Court has given TTK until November 8 to explain why they haven’t complied with the first order.

In the meantime, Reckitts is buying more condoms “at high prices” from suppliers in China and Thailand. (Guys – you all happy with the quality control issues here? I’m sure they’ll be fine. Absolutely fine..)

TTK is concerned that Reckitt intends to replace it as a supplier with new factories that Reckitt is building in China. So here’s a bit of free consulting for TTK – cutting off supply is not usually, in my experience, a great way of persuading customers that they should continue to have a worryingly high supply dependence on you. That’s really going to make Reckitt’s say “I tell you what, let’s not bother with the new factory. Let’s just keep buying from those nice, reliable people at TTK…”

Professor Andrew Cox must be writing a case study now – his seminal work on power in supply chains came to mind as soon as I read this. Who holds the power here? TTK in the short term, Reckitt in the longer, I suspect, assuming there are other reasonable suppliers around. .

We might also see this as a sign of some changing dynamics – Indian companies becoming more assertive perhaps? Cost pressures in countries like India working through to western buyers?

And a spokesperson for the NHS Supply Chain in the UK, said, "NHS Supply Chain is continuing to manage the situation by offering customers suitable alternative products from other suppliers on the framework agreement to ensure that there is minimum disruption to services; please note that not all products in this range have been affected."

Anyway, there is apparently no shortage of condoms, yet, in Europe. So you can all rest easy in your beds tonight..

First Voice

  1. Anon in Chennai:

    I’ll give you a clue… Reckitt is forcing TTK to switch over the marketing efforts (and margin) from TTK to Reckitt for the Indian Market (which the JV has rights over). TTK has been wanting Reckitt to keep status quo. The only power they have is in the short term. If TTK waits too long, Reckitt will switch all its manufacturing worldwide to China, and fight TTK in India for control of marketing condoms in India. Being an exclusive supplier (by agreement), TTK will have no bargaining power in 6 months. Thats why they want to ratify a new agreement with Reckitt to supply worldwide and continue status quo in India. The 35% increase is only a ploy to give an immediate ultimatum to Reckitt. Maybe some few other things going on here because TTK has had a good relationship with LIG (Durex) for 40 years.

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