More on Supplier Bullying – The Wider Issues

Last week, we published this excellent article from Andrew Cox, founder of IIAPS and procurement guru, arguing that the recent cases of “supplier bullying” (buyers demanding price cuts/extending payment terms unilaterally) were not unethical and were just part of the normal cut and thrust of supply relationships. He also mentioned the issues around power in the supply chain, referring back to his own influential academic work on the topic.

There was an immediate comment from James Mahon, who did not exactly agree with Cox!

“Whether it is ethical or not, according to the dictionary definition of ethical, is purely for the academics. Whether it is professional, gentlemanly, etc. is quite another discussion. To me, however, this practice is just plain stupid”.

Paul Wright raised the contractual issues around what we are seeing.

".. surely we do not want to encourage breaking of contracts, and payment terms would be expected to be a material term leading to breech. The buyer may feel there are enough suppliers out there that they can “burn” through them this way – but has that been tested”?

Anyway, as I wrote the article that started it all, using the “unethical” word (perhaps carelessly, I admit), I thought I should reply personally to the Cox argument. So, is this behaviour acceptable and just normal give and take? Perhaps it is in some narrow sense, but I still have real concerns, particularly when we look at some wider issues.

1. Not all buyers are smart enough to understand the dynamics of power relationships in the supply chain. So a supermarket buyer might think that he or she holds the power and can bully suppliers until they are forced out of the market. Now at some point, the buyer should realise that there isn’t the capacity to supply what they need and should get less aggressive. But if they are too stupid to understand that? They will keep going until there is no supply – having damaged both the supply market and ultimately their own business. Are we OK with that?

2. The temptation experienced by a supplier in this situation is obviously to cut the cost of what they are supplying. How could they do that? Well, they could strive to become a more efficient producer. Or they could substitute a bit of horsemeat for beef, some whey power for milk, some floor sweepings for breadcrumbs. How do we feel about that as consumers? Are we OK with that?

3. If there are cheaper substitutes for the buyer, enabling this aggressive behaviour, then there is every chance they are products not produced in the UK. As well as the effect long term on our national prosperity, those countries probably have lower health and safety or sustainability standards, maybe even use slave labour. Are we OK with that?

4. If the seller does not have any genuine power, they will take their revenge in other ways. See the comment from James Mahon on the last post from Cox – even if it is “only” a very annoyed salesman vowing never again to buy from that firm, it does matter. Or the supplier launches a PR campaign – Premier Foods were forced to withdraw their demands because of the outcry. Even if just a couple of percent of consumers stop buying, then the saving screwed out of the supplier will be far outweighed by the negatives.

I guess this all comes back to a fundamental point. Cox is correct if you look at the pure commercial interface between buyer and seller – and I am a HUGE supporter of his ideas about power, which really should be as well known as some of Michael Porter’s business concepts. But if we move beyond the pure dynamics of buyer / seller, and bring into the picture the greater good for the consumer, the taxpayer, the concerned citizen, I still can’t support the type of behaviour we have seen recently.

Boycott Heinz Beans! Maybe that will help ...

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First Voice

  1. Peter Kobryn:

    Superb article Peter, very thought provoking and for me descriptive of two distinct attitudes to what procurement should be about and the short and long term aspects to both

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