9 Dec 14

Can companies be both Jekyll and Hyde with suppliers?

Can companies be both Jekyll and Hyde with suppliers?

By Mel Shutes, Executive Consultant and Head of SRM

Emotive press headlines such as ‘hook and switch’ and ‘pay to stay’ have sent shock waves through some parts of the business world. What these revelations must do is lead us to question the pressure that is being put on procurement departments to continue delivering year-on-year savings.

The expectations at the executive level within companies have, in some ways, been created by procurement’s own success in category management and strategic sourcing. These activities have been hugely successful, but the very nature and success of them means that when a category strategy has been developed and implemented with the ‘low hanging fruit’ harvested, the opportunity for future savings being achieved through leveraging market competition and negotiation are diminished. At least if savings and a well thought out category strategy are to be sustainable – i.e. preventing the supplier walking away from the contract, or worse, being forced out of business.

So what is procurement to do when faced with pressure to keep delivering savings?

In my opinion they can go one of two ways. They can continue to squeeze suppliers on price, and make full use of their market position and buying power to place more and more demands on suppliers, such as charging them to stay on bid lists, demanding rebates and extending payment terms.
Alternatively, they can build on the good work that category management started and create collaborative partnerships with key suppliers to drive out bad cost from the supply chain, work together on improvement and innovation initiatives, build trust, and become a customer of choice. These partnerships can’t be formed with all suppliers so what of the rest? Treat them fairly and reasonably, and focus on transactional efficiency. Continue to use market forces and competition in a responsible and ethical way.
Companies can’t do both. It’s not possible to be both Jekyll and Hyde. You are either a company with strong values and an ethical approach or you are not. If you make statements like ‘other suppliers are signing up so put your big boy pants on and sign the contract’ or demand suppliers pay or be de-listed and say that it is simply asking them to ‘invest in our future growth’, you can only be one type of company. This is cultural and comes from the top. 
Our 2014 global SRM research revealed that executive and senior management stakeholder engagement and support for SRM is insufficient for SRM to be truly regarded as the business change programme it needs to be. It’s clear that much more work needs to be done to convince senior executives there is an alternative to wielding a big stick.
These practices may not be breaking any laws, but society and the business world are not purely governed by laws. There are also moral and ethical codes that should set minimum standards of behaviour. 
State of Flux recently published an article called ’with great power comes great responsibility’ that examined how ‘buying’ power should be exercised responsibly. In my opinion, the practices and behaviours revealed recently suggest an irresponsible exercising of power and something that could cause long term reputational damage to the companies involved.
Contact Mel on +44 (0)2078 420 600 or email him at enquiries@stateofflux.co.uk if you have any questions or would like more information on the above.