Tesco “Acted Unreasonably” In Their Treatment Of Suppliers

The Grocery Code Adjudicator, Christine Tacon (an old colleague of mine from Mars Confectionery days), released her long-awaited report into Tesco’s treatment of suppliers yesterday. The grocery ombudsman's investigation began in February 2015 following the revelation of an accounting scandal at Tesco. Here is the actual report, all sixty pages of it; we’re working our way through it now.

The headline is that Tacon says the supermarket seriously breached the industry's code of conduct to protect suppliers, including delaying payments to suppliers in order to help Tesco’s short-term margins and finances. That was “acting unreasonably”. A seven-figure sum was unilaterally deducted from a supplier in order to meet a margin target in one case – that certainly seems “unreasonable”!

Even when a debt was acknowledged, it could take Tesco up to two years to actually pay up. There was also a huge administrative burden for suppliers – one senior account manager told her that 20% of their job was just chasing payments from Tesco!

Tacon cannot fine Tesco as she only acquired this power after the investigation began. But she will be checking up on the five recommendations, including stopping Tesco from making unilateral deductions from money owed for goods supplied. Suppliers will be given 30 days to challenge any proposed deduction and if challenged Tesco will not be permitted to make the deduction. She has set a four-week deadline for Tesco to say how it plans to implement her recommendations and then requires regular reports from the company on progress.

In terms of the administrative elements of this, surely a good eInvoicing system would avoid most of the problems? But then again, it was not in Tesco’s interest to make the process simple for all parties; the ability to delay payment based on invoice queries and the like worked in their favour no doubt. As Tacon says in the report; “I saw numerous instances when data input errors by Tesco into its systems resulted in suppliers being overcharged or underpaid by Tesco. Tesco failed to rectify data input errors within a reasonable time and also failed to pay money owed to suppliers as a result of these errors within a reasonable time”.

The firm remains under investigation by the Serious Fraud Office (SFO) into alleged accounting irregularities, and could be fine hundreds of millions for those events. In September 2014 a £250m black hole was found in the company's accounts - a sum later revised up to £326m - because of the way Tesco booked income from its suppliers. You have to feel a bit sorry for the CEO, Dave Lewis, who only joined in 2014. Not surprisingly, he says things have changed.

"Over the last year we have worked hard to make Tesco a very different company from the one described in the GCA report. The absolute focus on operating margin had damaging consequences for the business and our relationship with suppliers. This has now been fundamentally changed."

Will Tacon’s report signal a change in behaviour for retailers, many of whom have treated suppliers in a less than “appropriate” manner in the past? (And let’s not forget it is not just retailers who do this – remember Serco, Premier Foods and other cases)? Or is all of this simply a case of the power relationships in the supply chain being played out? If you hold no power as a supplier to Tesco or indeed any other customer, you are in a weak position.

But some of the practices described in the report, which looks at first sight to be very clear and incisive, were pretty disgraceful – “Buyers frequently sought to use money owed to a supplier as leverage in negotiations for future agreements or promotions. I found that Tesco acted unreasonably when seeking to bring the resolution of debts into other commercial negotiations and delaying payment of monies owed until other negotiated terms were agreed”.

Using the money you owe a supplier as a negotiating lever – nice! A final thought; were any CIPS members involved in these practices, I wonder? Actually, there aren’t many retail buyers in CIPS, which is probably just as well!

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