Supply Chain Finance, Mars and Mutuality of Benefits

Please, don't let it be true! A report in Monday's The Times says that Mars is implementing a supply chain finance (SCF) programme. Nothing wrong with that, I hear you say. Indeed, we've been enthusiastically promoting the idea for some time, given that technology is making the whole premise of SCF, dynamic discounting and so on both more practically feasible and strategically worthwhile.

But Mars has allegedly extended payment terms whilst introducing an SCF option for suppliers. So according to The Times, standard terms have been extended, but suppliers have the option to go for an SCF option - discounted of course - which means they can be paid more quickly.

"Mars UK has become the latest company to change its payment terms for suppliers, adding to concerns that credit-starved small and medium-sized businesses will be put under renewed pressure.

The Forum of Private Business, which represents thousands of SMEs, is investigating claims that Mars UK has doubled the time in which it pays suppliers, from 60 days to 120 days. It also has allegedly introduced a supply chain finance scheme through which SMEs can be paid within ten days if they accept a discounted payment."

Now the devil is in the detail. But if a supplier who does not take up the SCF option is disadvantaged to the extent of a further 60 days without payment, then that is obviously bad news. And if you are imposing a cost on the supplier just to retain the same payment terms, then that is no better really than the tactic of imposing an arbitrary price reduction on your supply base.

As a Martian or 'PastMaster' myself, having spent the first nine years of my working life with the confectionery business, I have a conceptual struggle to believe the firm would do this for two reasons. Firstly, if you simply make it less profitable for your suppliers to deal with you then they will recover the loss in time somehow. Mars is a smart business, with smart people, and must realise that.

But more importantly for Mars, it would seem to be a breach of the principle of "mutuality of benefits" - one of the five core principles of the firm. That makes me doubt whether Mars would really contemplate such a move. (Those five principles really do matter, or certainly did when I worked there). Mutuality means that everyone who has dealings or comes into contact with Mars should benefit from that contact. It tells you to take that wider view outside the firm whenever decisions are being made that affect others - here's what Mars itself says about it:

"A mutual benefit is a shared benefit; a shared benefit will endure. We believe the standard by which our business relationships should be measured is the degree to which mutual benefits are created.

These benefits can take many different forms, and need not be strictly financial in nature. Likewise, while we must try to achieve the most competitive terms, the actions of Mars should never be at the expense, economic or otherwise, of others with whom we work."

Now I guess you could argue suppliers are still getting benefits from the firm, but disadvantaging suppliers in the way The Times describes would surely ring alarm bells as it would seem to be Mars gaining, "at the expense ... of others with whom we work."

The Times said that Mars acknowledged payment terms were changing but declined to provide further comment. We'll keep an eye on any further response and see if we can find out more when I'm back in the UK!

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