Rio Tinto Drops Plan to Extend Supplier Payment Terms, Relief for CIPS

Yesterday, Supply Management reported that mining giant Rio Tinto had unilaterally extended payment terms to suppliers, telling them that they wouldn’t get their cash for 90 days now. Indeed, the timing of the invoice and payment meant that it could take up to 120 days to get paid. The CEO, Sam Walsh, wrote to suppliers to say this would be implemented immediately.

That’s interesting, we thought. Whilst we could see the problem from his point of view, with the recent collapse in commodity prices, this would put further pressure on a supply chain that is also feeling the strain. And it appears to be the same sort of use (or abuse) of power that we have seen too often from retailers in particular. CIPS has spoken out against this sort of action; for example, in an article here from David Noble, CIPS CEO.

So we started writing an article about this whole issue – also pointing out that Walsh started his career in procurement, and has become CIPS’ favourite CEO. Indeed, he was the first recipient of the CIPS Award for CEO Procurement Champion in 2013, an award that looked like it was pretty much created for him (has it been awarded to anyone else since*?)  Now here he was, implementing a policy which seemed to go against the Institute’s principles and played to the media view of ruthless large firms exploiting their helpless small suppliers. Would CIPS have to strip him of his award? (In a glittering ceremony at the Grosvenor House Hotel on Park Lane, of course!)

However, before our article was even finished, we heard that Rio Tinto had dropped the plan. "We value our partnerships with our suppliers and their feedback, so we have taken the decision to maintain our payment terms for those suppliers with contracts in place, as they were at March 30," a spokesman said in an emailed statement.

That follows an outcry from contractors and politicians. Brendan Grylls, a politician and state member for the Western Australian Nationals, will be particularly pleased. He got involved and called on the prime minister to launch an Australian Competition and Consumer Commission (ACCC) investigation into the matter. He compared Rio Tinto’s actions to those of Coles, which the ACCC found in 2014 had engaged in “unconscionable conduct” in its dealing with suppliers. The supermarket chain was required to refund more than $12 million to suppliers because of their unfair actions.

A victory for ethical behaviour then, following a bit of a mis-step from Walsh. But one other thought. If Rio Tinto had announced they were putting in place a Supply Chain Finance initiative, with payment available for suppliers even more quickly than currently (at a price of course), this could have been presented as a positive for Rio Tinto and the suppliers.

Indeed, done properly, it could have been a genuine win: win, not just a presentational device. So why haven’t the CPO or CFO gone for that option? There are many solution providers now who can facilitate this; it is easier than ever to put in place, and really, every firm should be at least considering SCF, particularly if cash flow is important. So a missed opportunity for Rio Tinto perhaps.

 

*By the way, we might have a philosophical debate another time about why the CIPS Award for “intellectual” contribution to the profession, the Swinbank Medal, has been apparently forgotten, whereas we seem keen to flatter CEOs with new awards.

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