Palmer & Harvey – Another Example of Supply Chain Risk

Last week, Palmer & Harvey, one of the largest wholesale distributors of grocery, tobacco and related products in the UK, went bust. Sadly, there were 2,500 immediate redundancies and a further 900 jobs are at risk.  The group delivers goods to 90,000 grocery and convenience stores, including major supermarkets such as Tesco and Sainsbury’s as well as “corner shops” and convenience chains like Costcutter, and has been trying to sort out its finances for some months.

There may be shortages of cigarettes in the shops apparently, which some might see as a positive, and customers have been working hard to find alternative suppliers.  As the Guardian reported, “The UK’s biggest tobacco supplier called in administrators and ceased deliveries on Tuesday after hitting “challenging trading conditions” while efforts to restructure the business have been unsuccessful”.

My memory is that when I worked for Mars back in the 1980s, P&H were our single biggest customer, although by then the supermarkets were becoming more and more important for the confectionery industry. But as independent retailers – whether newsagents, independent grocers, petrol stations, or cinemas – got squeezed out by bigger chains and the supermarkets’ expansion, so P&H saw their natural customer base shrinking.

But the direct reasons for the collapse are less clear. The finances of the firm are complex, with a management buyout in 2008 supported by significant debt, and there are stories in the media that the firm continued to pay out hefty dividends to the owners even when it was trading as a loss. There is nothing illegal about that, but some may see this as another example of the less attractive side of capitalism, with the workers suffering while the owners and financiers walk away relatively unscathed.

It is also another example of supply chain risk of course. In our recent series of short briefing papers (written in conjunction with risk management solution providers riskmethods), supplier financial risk was one of our five key topics. You can still download that note here.

Certainly, the P&H episode just stresses the importance for everyone, whether manufacturer, services business, public organisation or retailer, to understand the risks in their supply chain. That includes having a view on the financial position of key suppliers. It’s not enough to just “do a Dun Bradstreet” when you first take on a firm as a supplier; continuous monitoring of their financial position is vital.

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