Phones 4U go under – a demonstration of Andrew Cox’s supply chain power theories

Professor Andrew Cox, erstwhile founder and leader of the International Institute for Advanced Purchasing & Supply will no doubt be watching the sad demise of Phones 4U with interest. The retail chain has gone into administration this morning, as the BBC reports:

Retailer Phones 4U is to fall into administration putting 5,596 jobs at risk. The chain, which is owned by private equity firm BC Partners, said its 550 stores would all be closed on Monday. Phones 4U blamed the move on mobile network EE's decision not to renew its contract, which followed a similar decision from Vodafone. "If mobile network operators decline to supply us, we do not have a business," said Phones 4U boss David Kassler.

One of the most important elements of the work Cox has done in our field is around power in the supply chain. Who really controls "critical assets" in terms of each relationship within complex supply chains, he would ask. And in this case, unfortunately for the staff, it has become clear that Phones 4U did not hold any real power compared to the network providers like Vodafone and EE.

Those providers have been developing their own chains of retail outlets, and now feel they don’t need Phones 4U. I suspect online buying has also increased in recent years. But how might Phones 4U have addressed this? Perhaps they needed to achieve a critical mass so that their sheer size would make it impossible for the operators to walk away from them? Or developed a closer tie with one operator to become effectively their own retail network?

The other interesting question is whether the networks have acted ethically here? There is bitterness understandably from Phones 4U.

Stefano Quadrio Curzio, from BC Partners, said: "Vodafone has acted in exactly the opposite way to what they had consistently indicated to the management of Phones 4U over more than six months. Their behaviour appears to have been designed to inflict the maximum damage to their partner of 15 years, giving Phones 4U no time to develop commercial alternatives.

"EE's decision on Friday is surprising in the context of a contract that has more than a year to run and leaves the board with no alternative but to seek the administrator's protection in the interests of all its stakeholders."

It’s a tough market position though when you are in effect a competitor to your main suppliers, which was what happened to Phones 4U when the network providers developed their own retail business. That’s when the power argument really comes into play – who needed whom the most? The answer appears to be clear, and Phones 4U has been exposed as the weakest link. And finally, this does not look like good news to buyers; one less competitor in a fairly limited market.

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  1. Stephen Heard:

    I spent six months in 2001 working for John Caudwell the founder of Phones4U at the Singlepoint back office company in Stoke on Trent. John was an astute owner manager who sold Singlepoint to Vodafone some years ago. The business model was always based on buying airtime wholesale and then bundling them up to sell retail to end users. I’m surprised it has latest this long to be honest and John sold out his interest in Phones4U a long time ago as he could probably see this coming way before the markets actually consolidated.

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