So it transpires that once again it’s “kick-the-supplier” season. So much for the ethos of mutually beneficial working arrangements with suppliers where (excuse the pun) everyone gets their fair slice of the cake!

A recent article in the Daily Mail entitled “Mr. Kipling’s exceedingly murky plot to ‘blackmail’ their suppliers”, a robust and forthright statement, is currently doing the rounds.

Apparently one of Britain’s biggest food manufacturers, Premier Foods, has threatened to stop working with any supplier who refuse to pay them an annual charge, in a move likened to ‘blackmail’ by these suppliers. The owner of brands such as Mr. Kipling, Ambrosia, Bisto and Oxo, Premier Foods have reportedly asked for millions of pounds from suppliers in return for continuing to work with them.

Sadly this is not an isolated case. Having spent 20+ years working in senior procurement and supply chain roles, I have seen this practice used on a number of occasions, usually in the form of a blunt and irrational demand for a rebate usually near the end of the company financial year! I guess the letter sent by chief executive Gavin Darby to suppliers telling them that Premier Foods would ‘now require suppliers to make an investment payment to support their growth or be de-selected if they could not or would not pay’ – in other words stump up or chip on, was quite subtle?

It should also be noted that Technology portals also charge suppliers for being registered and having the “privilege” of doing work with the client, I guess there is something to be said for “no such thing as a free lunch?”

Premier Foods Rationale…Stand and Deliver!

In October, Premier Foods reported a worse than expected 4.7 per cent fall in sales for the third quarter of the year, with branded goods down 4.1 per cent. As a result of these figures, according to BBC’s Newsnight, a letter was sent by the chief executive, Gavin Darby to suppliers telling them that they were expected to make an investment payment to support the growth of Premier Foods. So Premier Foods’ problem becomes their suppliers’ problem to fix!

Mr. Darby’s letter goes on to state:

‘I understand that this approach may lead to some questions, however, it is important that we take the right steps now to support our future growth. In return, our suppliers will benefit from opportunities to secure a larger slice of (the cake) our current business. They also stand to gain as our business grows in the future. In the current challenging environment, the support of all of our suppliers is crucial and we have had a positive response from many who are actively engaging in building a new partnership with us.’

When suppliers raised questions about the payments, another member of Premier’s staff replied: ‘We are looking to obtain an investment payment from our entire supply base and unfortunately those who do not participate will be nominated for de-list.’

Supplier’s response…

One of the company’s suppliers, Bob Horsley – who has had a contract with Ambrosia in Devon for more than ten years – said he was ‘taken aback’ to receive the letter.

He added: ‘I really couldn’t see how they could be asking for money … I think it’s like blackmail as what they are saying is unless you pay this money you can’t do the work.’ He has decided not to pay, risking losing the contract, and said: ‘I’m just a layman but I can’t see how that is right.’

Another businessman said Premier had previously asked them for more than £70,000, but added: ‘I’d never pay anyone for work.’ Another said: ‘It’s like a gun held to your head.’

So is this legal?

Competition law states that in some cases, the so-called ‘pay to stay’ approach can be illegal. But Premier Foods is confident its scheme is within the rules.

Even politicians have had their say…

Labour’s business spokesman Toby Perkins said: ‘Where unfair practices emerge, the Government should be willing to take action.’ Don’t hold your breath!

So what is the alternative?

Bruised and battered suppliers can and will only take so much “give us the money” demands. This direct (ultimatum) approach will only deliver short lived savings, or in this case delivering cash into Premier Foods.

What is required therefore is a full strategic supply chain review, including diagnostic and opportunity analysis activities. It’s all about working WITH suppliers to protect profits whilst removing cost (not price) from their supply chains and delivering mutually beneficial business benefits.

What do you think about Premier Foods approach? Is this just a cost of doing business in this modern climate?

If you’re looking for a constructive approach to handling shocks to your business, contact SpringTide for diagnostics, opportunity analysis and help in creating an effective approach to Supplier Relationship Management. Call us on 0333 9000 350, email us, or just fill in this form.