Sainsbury’s – not exactly the spirit of supplier partnership, is it?

Typical.

Just two weeks ago, I wrote an article for Spend Matters PRO - our subscription site - that explained why I admired Justin King, the Chief Executive of Sainsbury's, one of the UK's largest supermarket groups. It's not just because when we played golf together as young managers at Mars Confectionery he was even worse than me - but very good company. It was the way he identified and resolved three basic factors that needed addressing when he joined the firm, which was a bit of a basket case at the time, and he's done a great job since then.

Anyway, having praised him then, I was very disappointed to read over the weekend that the firm have written to most (all?) of their non-food, goods for resale suppliers, unilaterally increasing their payment terms from 30 to 75 days. That seems to be even if existing contracts are in place, and appears to be presented on a typical large company "take it or leave it" basis.

Justin, have you forgotten the Mars principle of mutuality? That everyone connected with the organisation should gain from the association and should basically be treated fairly and properly? Now Sainsbury's are claiming this "aligns them with competitors" but let's face it, that's nonsense isn't it? Assuming it doesn't indicate that Sainsbury's are getting into their own financial difficulties, this looks like pure exploitation of the weak in the supply chain.

For smaller or less stable suppliers this could be a death-knell. We know the problems obtaining finance from the banking system at the moment, so suddenly finding that a large customer, perhaps your largest, is basically not going to pay you for the next two to three months will push some firms under. It will also have an effect down the supply chain, as suppliers to the suppliers will presumably also see payments delayed.

Now, we have a strong opinion here that innovative supply chain finance options are going to hit the headlines in our industry in the next few months, with a number of providers launching or extending really innovative solutions (watch this space). So how much better if the Sainsbury's announcement had been something like this.

"We are delighted to be implementing a new supply chain finance scheme. Suppliers will be able to choose how quickly they wish to be paid by us, with the possibility of payment as quickly as 3 days from receipt of invoice. Of course, there will be a small fee for rapid payment, but it is likely to be a far more cost effective way of financing their firm for suppliers than bank borrowing or (God forbid) Wonga loans. We believe this is a huge win: win opportunity and a real innovation in our industry. Sainsbury's expect this to be comfortably profit enhancing given our cash position and credit rating, whilst our suppliers will benefit from a highly effective financing option".

Come on Justin, you can still turn this around. And I don't want to threaten a Smith family boycott of Sainsbury's Camberley, which is likely to cause stock exchange profit warnings, but you're putting me in a difficult position here. Oh, and we might add picketing of the Starbucks concession in that store given their tax issues (see post later this week...!)

Voices (4)

  1. Ben Glynn:

    Their “non-food, goods for resale suppliers”? So is that just referring to suppliers of packaging which the food goes into or does it mean everything from clothing to saucepans to cleaning products? If it is everything “non-food” then that is a large proportion of suppliers!

    It sounds very unreasonable to me. A pre-warned and incremental change of 30 to 45 days now and then 45 to 60 in 6/12 months time, followed by 60 to 75 days after another time period in order to allow the suppliers to adjust to the increased payment terms would be much easier to deal with.

    Only last week I was reading about Justin King defending employees rights following the governments’ proposals to sacrifice these for pay rises and I was thinking he sounded like a great guy! This shows him in a different light which is disappointing.

  2. Chris C:

    Why is it headline good news whenever big supermarket chains announce half yearly increases in profits – not difficult when they are price leaders in the marketplace/often local monopolies and can increase prices almost at will. How much is this contributing to inflation figures? Price competition on branded goods is one thing (although it looks increasingly oligopolistic) but they really must be raking it in on own brand items. That might go some way to explaining why Aldi and Lidl car parks seem increasingly fuller…

  3. Paul Wright:

    It could backfire too. Firstly the bigger suppliers might just refuse to play, and place them on stop when they don’t pay on 30 days. Which would reduce the range and attractiveness do Sainsbury compared to other supermarkets. I know of a distributor who tried this wizard wheeze,and reversed the truck up quickly when they found they ran out of product to sell and suppliers in fact tightened payment control.
    Secondly, this is another month and a half finance for the smaller suppliers.m where are they going to get the cashflow? banks are not going to want to lend them it. There could be closures in the supply chain which is not good for either th reputation or the competitive position of Sainsbury.

    And as you said it makes their own financial position look weak.

    It has the hallmarks of a bright idea from finance pushed through over the complaints of purchasing – who will then pick up the pieces (and the blame)

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