Bullying Suppliers – Unethical and Stupid

The sheer stupidity of the “supplier bullying” we seem to be seeing more and more often continues to amaze me. Tesco hit the headlines last year with the innovative methods they appear to have used to both boost their own apparent success and extract more cash from their suppliers. Then we had Premier Foods, who had to back down under media pressure after writing to their suppliers demanding money simply for the privilege of having a chance to do business with them.

Then recently food manufacturing firm 2 Sisters and Sainsbury's joined the hall of shame, extending payment terms to certain suppliers (according to reports).

“Sainsbury's is accused of delaying payment to contractors that built and refitted its stores, the Sunday Times alleged. The supermarket chain wrote to contractors through the law firm Dentons, increasing to 82 days from 30 days the time contractors must wait for payment”.

That could be enough to put some smaller suppliers out of business - is that something Sainsbury's and the rest think about? There's nothing wrong with tough negotiation and most readers (as well as Spend Maters) are working quite happily in the capitalist system, so in a sense of course we should not object philosophically to this. If you can take more value from your suppliers, why not do that? It’s all about power in the supply chain, as Professor Andrew Cox would say.

But there are surely some ethical lines that shouldn’t be crossed here, as well as legal. And what is even more questionable is whether these tactics even in reality deliver value to the instigators. Because anyone who thinks that most suppliers (those who don't go out of business anyway) who are treated like this won't get that value back is delusional.

If you extend my payment terms unilaterally, with no quid pro quo, I will increase my prices. Or if business is good, I might just decide I don't want to work with you. If I was really unscrupulous, and really annoyed, I might even try a little bit of sabotage - I know from personal experience how easy it would be for a raw material supplier to the food industry to do that, by the way.

And what I certainly won't do is provide you any additional advantage through innovation, access to new ideas, additional quality, or customer service above and beyond the bare minimum to meet the contract. Relationships do matter – not because there is anything intrinsically wonderful about having a good relationship with your supplier, but because relationships lead to other advantages.

Last year we saw proof of this, with the excellent work done by Professor John Henke in the automotive industry. With data from 25 years or surveys and research, he proved the benefits of good supplier relationships. We wrote quite a lot about that – start here if you want a recap.

So has anyone in senior management, procurement or indeed more widely, in these firms mentioned above, taken the time to read this material? It doesn’t look like it. My other personal take is that these moves are one great big ”sell” signal in share price and financial terms. For a firm to be doing this sort of thing just smacks of desperation. Perhaps if investors start reacting in that way, then firms will think twice about using these tactics. And perhaps CIPS needs to start throwing out a few members too for unethical behaviour, but let’s leave that thought for another day.

Voices (3)

  1. Sigi Osagie:

    Great piece, Peter.

    It’s a real shame that so many businesses still haven’t grasped the fundamental truth that suppliers are an extension of their value chain. So taking such suboptimal supplier management approaches will only hurt them in the long run.

    Sigi Osagie
    Author, Procurement Mojo: Strengthening the Function and Raising Its Profile

  2. Paul Wright:

    The bizarre reality of extending payment terms is that supermarkets who can borrow cheaply are keeping money, which earns no interest for them, back from suppliers who have to borrow at high rates if they can get credit at all. What do they think is going to happen?

    1. Peter Smith:

      that is a great point! Absolutely right and another angle on the stupidity of this.

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