Supply chain 'bullying' hits one in five small companies

Small businesses are 'fast approaching breaking point' as Premier Foods and Tesco feel the heat from their supply chains.

by Rachel Savage

A week after Premier Foods was outed for turning the screw on its suppliers small business lobby groups are upping the pressure on big companies that squeeze their supply chain. Almost one in five small companies have been ‘bullied’ by a customer in the past two years, according to a conveniently timed survey by the Federation of Small Businesses.

The most common ‘poor payment practices’ highlighted by the disgruntled companies included late payment, insisting on retrospective discounts and ‘pay to stay’ flat fees with the threat of being delisted. That particular tactic was used by Premier Foods and the Mr Kipling maker has now said it will ditch it, although it will still go after discounts.

The survey of 2,539 FSB members, which have an average of less than 10 members of staff, conducted last weekend, also comes in a week where Tesco pledged to reset its relationship with suppliers as it issued a profit warning. The supermarket said it would negotiate prices up front rather than asking for discounts or rebates towards the end of financial periods to smooth its numbers.

Tesco has been universally trollied for its treatment of suppliers, which contributed to a £263m hole in its accounts that is being investigated by the Serious Fraud Office. Debenhams, John Lewis and Argos have also come in for criticism over its relationship with small businesses.

The FSB called on the Government to tighten up the voluntary Prompt Payment Code, but stopped short of asking for full-on legislation – unlikely to get anywhere given politicians probably don’t want to turn up the heat on retailers and large food manufacturers like Premier Foods that are already struggling in the deflating grocery market.

But it is small suppliers standing up and shouting about badly behaving big businesses (as the Forum for Private Business called for in an MT op ed earlier this week), and the resulting bad publicity, that is most likely to force change – as long as it wouldn’t lead to higher prices for consumers.

As FSB chair John Allan put it, ‘Small businesses are fast approaching the breaking point… Brands that think they can continue to squeeze their suppliers with impunity may get a nasty shock when what they are doing comes to the attention of their consumers.’

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