Draconian Procurement Practise…The Bane of Modern Business [fact]

The rise (and rise) of autocratic procurement!

Anyone following the commentary concerning the recent Holland and Barrett’s action, which demanded a 5% reduction in supplier costs and replacement of cost/stock stolen from stores, will know that this is just more evidence of a worrying trend in morally questionable Big business practise.

Big business dictating to small businesses is nothing new. The demand for unfair or unqualified reductions in costs (or a contribution) is unfortunately all too common. Big ‘brand’ business understands that they are the master with the supplier being the servant in almost all business relationships. This is obviously not a healthy position for the supplier, especially if they rely on the Big business custom to trade effectively. When Big business decides to ‘strong-arm’ their suppliers it never turns out well for the little guy.

This attitude is just plain destructive, instead of working cooperatively with suppliers, explaining the rationale for the need of additional investment, which will lead to mutual benefit, they resort to a simple draconian ‘your money or your livelihood’ ultimatum. Dress it up as you choose, but this is basically the content of the letter sent by Holland and Barratt’s (UK) CEO Peter Aldis to its suppliers.

Now, I appreciate that some will think well that’s just business, but this is not a healthy scenario for the people involved in SME business or the wider economy as a whole; I’ll explain why…

Anyone who has stepped outside of the protective walls of corporate world understands that ‘Business works better in partnership’; working together creates dynamics not available when trading in isolation. New business initiative such as unique service propositions, competitive advantages and joint ventures can be defined that create increased revenue, company value and improved working environments for all those involved. But this isn’t the concern of the small-minded ‘Jam today’ attitude and thinking which is all too common in procurement circles today.

Being someone who has had to deal with this insolent procurement-school approach, championed by big corporate accountancy firms, I really do feel for those small to medium sized organisations caught in the middle of these situations. This approach is destructive to relationships and leaves a bitter taste in the mouth of the supplier.

Quite simply bullying tactics is not the answer; negotiation to a win-win position is…

The Win-Win position

If anyone reading this article is from Big business and is considering the said approach, then I would wholeheartedly suggest that you adopt a different tact; might I suggest that you sit down with each supplier and negotiate their involvement and required commitment to achieving better organisations to the benefit of both parties. This approach will allow considered decisions, although admittedly a longer process, it will be more palatable to all and could lead to a better organisation for both companies involved.

The approach of big business demanding unacceptable terms of small to medium suppliers is destructive, disrespectful to relationships and, in my opinion, has no place in the world of cooperative business. The decisions we make today can have long lasting implications; think on this every time you feel the need to flex your muscles and push your suppliers around.

Also, customers do notice Big business decisions; in a world more digitally connected than ever before, people notice and react by taking their custom elsewhere, as I am sure Holland and Barratt is all too aware of by now.

*I would like to make one concession, not all procurement managers are the same. I know of two exceptional people, who happen to be procurement managers; they do their very best day in, day out to support suppliers and strike the right deal. It is such a shame that these are a rare breed indeed.

Short-term gains! But Long-term Pains (?)

Do I think that these Big businesses will advocate such an approach or do nothing more than snigger at my naivety? An instigator of such draconian tactics will probably think ‘This guy has no idea how much money this will make the Big business’(?) and he is probably right; however, when the consultant responsible for this decision has moved on from his two year contract to the next assignment, the management team will be left counting the damage.

Suppliers will take a different approach to negotiation in future, they will be less inclined to work collaboratively with the Big business and not proffer additional support; they may start looking for other partners who do give them respect and value their relationship. I have witnessed SME business leaders channel their anger to great effect. In the world of business no one is ever entirely powerless to react, as is demonstrated by the supplier passing the Holland and Barrett letter to the BBC (below):

holland and barrett letter

Taken from BBC News website: http://www.bbc.co.uk/news/business-35347578

Short-termism & Agency Theory (the conflict between managers and shareholder needs)

This is where the true problem lies, short-termism focus by accountants, management consultants, internal procurement, private equity firms etc. are determined to drive up earnings and the business value in the short-term. They do not possess the capacity or have the desire to see passed the end of their contract or deal date. This creates a bubble in which they operate not concerned with relationships past a couple of years. It’s not their problem what happens after this date, they’ll be long gone.

However, this is the problem of the shareholders as they are looking to maximise their dividends in the short-term and the overall value of the business in the long-term. This said, they are pretty much powerless to act, as they will only have the powers agreed in the shareholder agreements (and the like) with or without voting rights to fall back on. So, in real terms, the management board is a law unto itself. There is no other fall-back position but sacking the CEO. Difficult to do if you are not aware of the practises being conducted in the business such as supplier squeezing; It’s all too easy to turn a blind eye. Oh, and a healthy dividend every quarter makes this position even easier.

Holland and Barrett are not alone, others do this as well

Other companies who have followed a similar tact include (links to supporting articles are at the bottom of this post):

  • Marks and Spencer
  • Aldi/Tesco/Waitrose
  • Muller
  • Argos/Homebase

to mention a few…

Is it right to walk away?

That said it isn’t always the right decision to walk away, one of the businesses I am involved with worked with a corporate telecoms company who quite frankly left us high and dry, promising to renew a contract and reaffirming their commitment on several occasions. When it came to the signing they served notice instead and exposed us to significant costs. Everything perfectly legal and above board; however, the manner in which it was done was nothing short of outrageous, procurement had purposely misled us.

After much consideration and soul searching, we chose to stay on the company’s supplier list and continue to work with our main points of contact. They were nice people and we enjoyed working with them. The work we did was trivial in comparison to previous years, but it was worth maintaining a relationship to keep the brand on our client list.

Years later, when the company had been sold, we were approached by the company and offered a two year contract without a formal tender. The reason, we were the only supplier not to walk away from them. They appreciated this, as they knew we had been treated appallingly, and wanted to thank us for our commitment and support during a time of great upheaval for them, as well as us.

About my position…

Those of you who know me will not be surprised by my comments. I cannot abide those faceless bureaucrats who hide behind decisions made in board rooms. If you make the decision, which will alter the way a partners/suppliers business will operate, then at least take the time to explain your position. Who knows something positive might come out the other side (?).

If on the other hand you are on the receiving end of this type of appalling behaviour then I would suggest channelling your frustration. Focus on what you can effect – alter your short-term objectives to establish new ideas, which will enhance your position and create new relationships for a more stable business future. Easy to say I know, but a positive attitude in the face of others incompetence places you in control, employees will be energised and you never know this might be the driver you need to build a stronger and more proactive business.

On a personal note I would add take time to understand your own feelings about the situation. Don’t act irrationally, jumping up and down doesn’t help. Consider your next steps and be prepared to walk away from the table if things are too tight.

One piece of advice that has worked for me is to ensure everyone knows about the position you have been put in. This is not your dirty little secret to hide. This is not of your doing. Share the information and talk to everyone, such as the management team, bank, local support network. Share your thoughts and encourage feedback. I can assure you people will want to help you deal with this situation. I know this, as I have been here myself on several occasions and it has worked for me.

 (non-) conclusion

Nothing would give me greater pleasure than to conclude this article with enlightenment. This is how we solve this problem (answer), but it isn’t easy to stop bullying tactics. If it was then we wouldn’t need to term bully, as we could resolve this horrible practise in school grounds and make the world a much healthier place for everyone.

The Bigger Picture…

No, my parting thought is to remember the bigger picture, being involved in business can be rewarding in so many ways – materially, emotionally, motivationally etc. the list goes on. I try and live my life open and honestly working to values that I feel make me who I am as a person. If you find yourself in a situation where you, or your business, is not being respected, then take action to change it, whatever that might entail. Good luck.

*All comments are based on my personal experiences and given freely. That said, you need to make your own choices. I can’t and won’t accept liability for you employing any recommendations. Business is all about risk. It’s your choice.

Nigel stone has, over the last fifteen years, started, led, consulted and nurtured both UK and European businesses to achieve quite outstanding results.

Weblinks:

The original article can be found on the BBC news website. Link is below:

http://www.bbc.co.uk/news/business-35347578

Links to company articles below:

Marks and Spencer – http://www.packagingnews.co.uk/news/business/ms-annoys-food-suppliers-with-discount-demands-05-02-2008

Aldi/Tesco/Waitrose – http://www.thegrocer.co.uk/companies/how-should-we-read-aldis-hardball-letter-to-suppliers/201812.article

Muller – http://www.bbc.co.uk/news/uk-england-33816177

Argos/Home – http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10617384/Argos-and-Homebase-demand-rebate-from-suppliers.html

Also, take a look at this article you might find it useful (?)

https://nigelstonesite.wordpress.com/2015/12/07/contract-or-tender-negotiation-some-insights-from-my-experiences/

 

 

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