Premier case puts focus on supplier relationships

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MaloryDavies.jpgDriving a hard bargain with your suppliers is one thing, but demanding a cash gift under the threat of delisting, is downright unfair. These, and other harsh words, were directed at Premier Foods last week by the Federation of Small Businesses.

It followed a complaint in the press about how Premier manages companies in its supply chain.

Premier was quick to clarify: “We launched our ‘Invest for Growth’ programme in July 2013 as part of a broader initiative to reduce complexity in support of plans to help turnaround our business.

“This included a commitment to halve the number of our suppliers and develop more strategic partnerships focused on mutual growth.

“As part of the programme, our suppliers are asked to make an annual voluntary investment to help fund our growth plans. In return, our suppliers benefit from opportunities to secure a larger slice of our current business. They also stand to gain as our business grows in the future.”

And it found support from some of its suppliers, notably Andy Humpherson, managing director of logistics provider Jigsaw.

He said: “This programme has given Jigsaw a platform on which to significantly grow turnover with one of the largest food suppliers in the UK market. Increased revenues have presented additional employment opportunities with our Premier Foods contract team almost doubling from 8 FTEs to 14 FTEs.”

It’s worth noting that Premier Foods has been looking to improve profitability through supply chain savings for more than a year. Key elements of the plans are a reduction in the number SKUs and a focus on more strategic partnerships with fewer suppliers. In the half year to 30th June, it reported a pre-tax loss of 54.9m, largely due to finance costs of £46.2m.

Professor Martin Christopher famously said that in the future it would supply chains that compete against each other, not just individual companies. That begs the question: is it unreasonable to expect suppliers to see themselves as part of a competitive supply chain and invest in it to make it more competitive?

For the moment, the question has become academic. Premier has taken a step back, saying: “Over the last few days we have clearly seen that this mechanism has been widely misunderstood and misinterpreted. In this situation, we are fully prepared to simplify the details of our future programme to a more conventional type of discount negotiation, potentially based on price, value or volume based rebates or lump sums.”

Nevertheless, there is a discussion to be had about how you build strong supply chain relationships and what each member should be expected to contribute and the benefits it can expect to receive.

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