Today Procurement Leaders reported that some of the UK’s largest companies were set to sting their suppliers by announcing extended payment terms.

The plans - another unwelcome by-product of the credit crunch - are another indication that cash is fast becoming king and appears to represent a hammer blow to suppliers that are already feeling the pinch.

The little guy, however, doesn’t appear to be taking the news lying down, as Alliance Boots has found to its cost.

Last year, the chemist chain wrote to suppliers telling them that invoices would be paid up to 75 days from the end of the invoice month – a dramatic increase on the previous, somewhat more reasonable, timescale of 30 days.

The company also announced plans to charge a 2.5 per cent “settlement fee” – effectively a charge for paying the bill, whilst claiming that its procurement strategies were “in line with other groups of similar size and scale.”

The Federation of Small Businesses (FSB) claimed that the company’s new policy, in reality, extended payment terms to 105 days, and have prompted one supplier to take action.

"Making small businesses wait 105 days for payment and charging them for the privilege of doing so is nothing short of outrageous," the FSB said, and training business MTa International appears to agree.

The company, which unlike the corporate giant it’s taking on has just two employees, has threatened to withdraw its services unless Alliance Boots re-thinks its policy, which last week it did.

But whilst MTa celebrate other suppliers are still facing up to a stark, and rather unpleasant reality - the big boys, meanwhile, appear intent on sticking the boot in.    

Imagine, for a moment, that you're relaxing at home with a glass of wine watching the news when a feature about the child-labour strategies being employed by one of your suppliers gets transmitted to roughly a million people. Then, just for good measure, your own company gets mentioned as being one of its best customers.

What would you do? Would you be able to react swiftly and decisively?

It's roughly what happened to Tesco after the UK's Newsnight broadcast a piece on child labour being used to harvest cotton in Uzbekistan. The UK's largest retailer has now reacted to the news announcing a ban on all cotton sourced from Uzbekistan for its clothing, homeware and corporate purchases.

But it took three months to annouce the reaction. Is this too long or should corporates risk strategies be able to cope with situations such as these quicker and more decisively?

According to a report in this weekend’s Sunday Times, the uncertainty facing many suppliers dealing with the UK’s biggest supermarkets could soon be at an end.

The report, written under the headline “Supermarket ‘bullies’ face crackdown”, suggests that the Competition Commission could soon call on supermarkets to offer suppliers fixed-term contracts so they know how much they will be paid, and when they will receive their money.

All of which must be music to the ears of suppliers, 23 percent of whom, according to a report by Grant Thornton, said that supermarkets were unwilling to offer them a written contract. Almost half also said that they had no pre-agreed order-cancellation notice period in place.

It’s thought the voluntary code of conduct that currently exists between supermarkets and their suppliers – which was introduced after an earlier investigation into supplier relationships – will also be toughened up.

All of this follows a series of scandals – the most high profile of which involved alleged emails between supermarkets and their suppliers, in which suppliers were threatened with blacklisting unless they offered discounts.

We await the Commission’s findings with interest.

Xcitec utilizes the proven Six Sigma Method and DMAIC processes for supplier development. Companies thereby benefit from a structured procedure that ensures transparency, sustainability and development process control.

Supplier development based on Six Sigma is carried out in 5 process steps (DMAIC = define, measure, analyze, improve, control): development projects are defined, measures established, causes documented and corresponding solutions and goals are set. Process progress is routinely measured and monitored in order to secure supplier development and to sustainably optimize cooperation with suppliers. Supplier and purchasers receive regular updates regarding development progress and the degree of implementation for the optimization measures.

The Six Sigma method with the DMAIC process enables targeted management of optimization measures. Only structured and optimization projects with specific goals can fully capitalize on supplier potential regarding price, quality and technology.

Supplier development and the resulting optimization of business relationships lead to competitive advantages for companies. The focus of these business relationships is on value-added partners as well as on strategically important suppliers. Joint supplier optimization projects build up successful and lasting supplier relationships. This means that supplier development is a significant success factor within the framework of comprehensive supplier management.

In his latest post, fellow ELP blogger Richard Edwards took an easy swipe at former US Vice President Al Gore for publicly evangelizing environmental responsibility while privately living in a power-guzzling mansion. While this knock was aptly deserved, it should not overshadow the reality that enterprises around the globe are under increasing pressure to adopt more environmental and socially responsible business practices and supply strategies.

The past weeks have witnessed big and highly publicized commitments from the White House and top global corporations to adopt more environmentally and socially sound business practices. And a recent Economist survey of more than 1,000 CEOs around the globe cited top exec focus sustainable energy sources and environmentally-sound and renewable materials and products. These recent moves are motivated by a mix of public interest, global regulations, and “rocketing” oil prices.

However, the little acknowledged benefit of sustainable supply is not compliance or public perception. It's profits.

Sure new regulations like ROHS and WEEE, and new pushes for mandatory CO² emissions caps are scaring supply managers into adopting renewable energy sources and more environmentally friendly materials and products. But the leaders in corporate responsibility and sustainable supply strategies do not view these approaches as an added cost of business. Instead, they see sustainability as a way to reduce operational and supply costs, increase brand equity and revenues, reduce risks, and drive greater profitability.

Consider these examples:

• Hewlett-Packard has recycled more than 1 billion pounds of used PCs, monitors, and other electronic waste. The company now gets 60% more of the precious metals — like copper and gold — it uses in its products from its recycling program than from mining. Considering the all-time high prices and supply shortages for these metals recently, this strategy has paid off both in reduced costs and risks. Competitors Apple and Dell have been scrambling recently to step up their own recycling efforts.
• Toyota and Honda have developed local supply in formerly rural and recessed regions of the U.S. The move has helped the automakers reduce taxes, transportation costs, and supply risks. It has also helped the automakers overcome U.S. consumer resistance to foreign automakers. (Toyota and Honda also moved first to develop suppliers that could provide hybrid engines, giving them a critical edge in the market for these vehicles.)
• HP, Airbus, and others are pushing sustainable supply strategies across the supply chain by embedding environmental and social responsibility in supplier selection criteria and performance metrics.

Other examples of how sustainable approaches can mitigate supply risk are plentiful. Consider the impact that not effectively assessing and monitoring labor practices has had on companies like K-Mart or Nike. And look how other companies, like Starbucks, have turned the proactive development and protection of labor and wages in emerging markets into a positive marketing strategy that enables them to charge premium prices and increase both revenues and profits.

The overall message to supply management executives: Sustainable supply is not about tree-hugging altruism. Instead, environmentally and socially responsible supply strategies are vital tools for reducing costs, assuring supply, and improving your company's revenues and profits.

Once you’ve entered the Coors website, which like anything in the US requires proof of ID, you’re hit by the slogan, “Refreshing, Clear and Crisp”, it’s enough to make you thirsty.

For the company, however, a new supplier management strategy has suggested that the company’s strapline goes well beyond the beer they brew at the foot of the Rocky Mountains.

A recent Purchasing.com interview with Ron Schnur, the company’s vice-president of strategic sourcing and supply, revealed how an overhaul of procurement procedures has led to the brewing firm achieving cost savings of between 2-3% a year, and has resulted in an increase in the quality of supplier performance by 60%. Not bad going for a company that has an annual spend of around $2bn.

Schnur joined the company in 2003, and following a thorough review of processes has implemented three changes that have made a major impact on how the company’s procurement process operates.

According to the man himself, the most significant of these is a new supply management process that incorporates spend analysis, supply market analysis, and internal and external customer requirements.

The company has also recently launched a Supplier Relationship Management (SRM) tool, which currently involves around 150 suppliers, although Schnur is keen for this number to reach the 1000 mark in the not too distant future. 

With procurement now taking a far more proactive role in the company’s overall strategy the results are as clear as the beer the company produces.

Schnur outlines his vision for success by saying: “First, you need to create a compelling vision and roadmap. Then, you need to spend a lot of time getting people to see and follow it.”

It’s a vision that I’m sure many people would raise a glass to.

Unfortunately I was unable to attend this week's BME Symposium in Berlin, however we can report that REHAU has been awarded with the BME Innovation Award for its “Innovation management within the REHAU purchasing network”.

REHAU has been recognised for its approach to identify and encourage innovation of products, markets and technologies from its suppliers and thereby bringing innovation into its own company according to Dr. Juergen Marquard, president of the BME. A family-owned business, REHAU is positioned as a world leader in premium brand for polymer-based solutions, employing more than 14,000 individuals in more than 170 locations around the world.

REHAU systematically analysed the potential of innovation of its suppliers, allowing the purchasing department to get early involvement into the product development process. A number of initiatives helped REHAU to identify innovations and transfer them into the company including:

• Development of a new “Innovation Scout” function 
  
• Innovation mentors from the management
• “Innovation days” with selected suppliers
• Launch of "new ideas" portal allowing suppliers to submit new products ideas
  

The award shortlist included the likes Océ Printing Systems, RWE Systems and Wacker Chemie. Since 1986 the BME has recognised companies from the manufacturing industry, retail and service sector with the BME Innovation Award and for their successful concepts. 

One of the most well received presentations at the October European Leaders In Procurement Forum was given by Haidé Villuendas of Royal Numico. In her inspirational presentation, Haidé explained the advantages of innovation as a source of growth and how Royal Numico has tapped into its suppliers' R & D budget to benefit.

Numico had benchmarked its Supplier Relationship Management programme - through the Supplier Working Relationship Index - to understand how their business was perceived and where they needed to focus to drive relations and innovation.

The case study is a great example of how a strong Supplier Relationship Management programme can enable procurement to drive value into the business.

If you were unable to join us at the this conference, you can now listen to Haidé's presention online by clicking here (ELP Network members only). Going forward, other selected presentations from the our conferences and events will be made available in the 'Community' section of the site. We hope you enjoy this new service!