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In this guest post, Procurement Leaders invites Proxima's Jonathan Cooper-Bagnall to explain why, despite much of the chatter around new approaches to supplier relationships, there's still work to be done for big business procurement.
In the sometimes complicated dynamic of the company-supplier relationship, it would appear that a contradiction of sorts is unfolding before our eyes.
On one hand, companies of all shapes and sizes are continuing to rely more and more on external suppliers for everything from back office services to the business' core offering. We've referenced our Corporate Virtualization research enough for you to know that by now.
Yet, despite the growing reliance on suppliers and the reality that so many organizations today could not function without them, we continue to see some of the same hardball tactics and adversarial attitudes from companies towards the suppliers that have existed for too long.
Such attitudes are on display in a recent New York Times article that revealed that some sizable, global companies are now asking for 120 days – four months – to pay their suppliers. They are doing so even as they continue to require 30 days payment from their customers. This practice has been prevalent in the food and beverage industry, following the lead of Anheuser Busch who initiated these onerous payment terms on their suppliers back in 2008. The article suggests that many others in varying industries are now following suit not because they are in financial dire straits but, well, because they can.
Whatever the reason may be, there is no way to impose such unreasonable terms on a supplier without, at the same time, alienating the same suppliers on whom you rely so heavily. We see this as just another example of old school bullying tactics employed by companies who fail to understand the new paradigm of supplier relationships.
Heavy-handed dealings with suppliers, either by haggling over price or extending payment terms as AB has done, may very well net savings benefits in the short term. But in the long run, we believe these companies will find that they are simply stepping over dollars to save pennies. How motivated would you be if told you have to wait four months to get compensated?
Companies need to embrace suppliers as if they were actual members of the organizations, leveraging their capabilities to the fullest extent to derive the greatest value. Suppliers should be invited to the table and rewarded for helping organizations innovate and find better ways of doing business. Many have this capability. Keeping them at arm's length, stepping on their heads and bleeding them dry surely won't draw this out. Enlightened and progressive companies will understand this and will reap the benefits.
Jonathan Cooper-Bagnall is EVP and commercial director at Proxima.
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.