Over the past seven years, the application of GSCOP has achieved a lot in terms of eliminating much of the tendency for retailers to exploit market share to impose unfair terms and conditions on suppliers. The pressures of Lockdown demand spikes and resulting short-supply have also demonstrated to all stakeholders the benefits of willing collaboration…
However, as we enter the deepest, longest recession in living memory, resulting inevitably in mergers and takeovers as many players find it increasingly difficult to survive alone, it becomes increasingly important that suppliers and retailers learn to ‘look after themselves’ as business pressures cause even trusted trade partners to escalate their demands from the relationship.
Essentially, a buyer can make many different demands, but those that cause particular disruption in supplier-customer relationships include reconciliation of disparities between the trade terms and conditions of two companies following takeover or merger, attempts by a customer to unify its wholesale and retail cost prices, and unjustified or ‘arbitrary’ attempts to increase profitability via extended credit and additional discounts. In this instance, it should be borne in mind that GSCOP is concerned with ensuring that payment periods that have been agreed between the supplier and customer are adhered to in practice. This period is a direct reflection of the relative balance of power between the two parties, in that a demand for 90 days credit on an ever-increasing order size becomes ‘an offer one cannot refuse’. The issue of reasonableness of the payment period i.e. given the lengths of average order cycles and even allowing for bank sluggishness, supplier-retailer payment periods should be only seven days, or thereabouts…
When a supplier ‘allows’ indefensible differences in terms and conditions to develop between different customers over time, it becomes increasingly difficult to challenge reasonable demands from a newly merged combination of two customers to reconcile the differences, usually to the lowest common denominator. In other words, the newly combined customer is justified in attempting to correct an imbalance that should have been corrected by a supplier before the two customer businesses were combined…
Despite the distractions of lockdown, it is imperative that suppliers keep in mind the inevitability of unprecedented trade mergers or takeovers. This means that suppliers are obliged to ensure that any differences in ways of remunerating customers are performance-related, defensible and ideally transparent. All other elements of trading relationships should be standardised and capable of surviving comparison across the supplier’s customer base. After all, given the coming levels of trade turmoil, the resulting mergers and takeovers will eventually reveal everything, so perhaps suppliers should anticipate the inevitable and act on that assumption before a customer does it on their behalf?
In the case of a retailer merging with a wholesaler, a different problem arises. Given that they perform different distribution functions, wholesalers and retailers obviously require different margins, reflecting their different ways of working on behalf of the supplier. As a customer increases its online sales at the expense of its traditional bricks & mortar business post-Lockdown, they will try to add wholesaling to its offering, and thus try to avail of wholesale margins. However, the real problems for suppliers are ensuring that both supply chains are kept separate following delivery and absorbing the high cost of policing compliance. A pragmatic solution might be to accept that supplies could be merged and agreeing a single price per SKU. Again performance-based reward might be considered if the customer is prepared to permit and abide by compliance auditing.
However, the supplier-customer power-balance is really put to the test when a large customer in an ongoing relationship, with a remuneration package that has evolved to reflect relative risk and reward, makes unjustifiable demands on a ‘take-it or leave-it’ basis, confident in the knowledge that its 20+% share of a supplier’s business makes a refusal unlikely. Apart from the inevitability of the authorities, or even competitor retailers, eventually attempting to curtail such abuse of power, the customer runs the risk of diluting current levels of collaboration across their entire supplier base. Whilst large suppliers can use their power to say ‘No’, the grudging agreement of medium and smaller suppliers to a compromised settlement should not be mistaken for willing compliance. Even the largest customer might benefit from keeping in mind the possibility of even a small customer preferring to get even rather than mad.
By default, the resulting alienation of the supplier-base can accelerate the transfer of market share to competitors, as all suppliers attempt to develop alternative and more reliable routes to the consumer, offline and especially online.
By the same token, significant reductions in supplier support and brand equity eventually dilute a store’s pulling power, already reduced by corona-driven disincentives to shop physically, all impacting staff morale at store level, with the inevitable reduction in traffic as the consumer is encouraged to seek on and offline shopping satisfaction elsewhere.
It just takes time….
