I admit this is a rant so please proceed with caution. We, at TMG are busy – more than busy, which is great but for me it means that I have limited patience for anything that takes me away from doing what I need to do for my clients. Every week we rotate who is responsible for writing this blog and today was NOT my turn, BUT yesterday I picked up my WSJ at the end of my driveway (yes I still like to read a “paper”) and saw a front page headline “Firms Pinch Payments to Supplier” and I went nuts. I walked into the office and said. “I’ve got the blog this week”! So here goes . . . .
I spent the last two days working with a F500 retail client on the long term strategy for their Strategic Sourcing organization. We talked about what we, at TMG, have been advocating over the last two years – “old school” cost/price based Strategic Sourcing is DEAD and focusing on VALUE is a Next Practice. I walked out earlier this week and said “YES” because I felt like I had convinced a room full of Supply Chain executives that key suppliers must be treated like assets NOT adversaries. The day of beating down suppliers for every last nickel is over and yet numerous large, global consultancies (I refuse to name them but you are probably paying them $$$$$$$ – millions to give you old / lazy / bad advice) AND research firms continue to advocate a “cost focused” approach.
Here is where the rant comes in . . . the WSJ article talked about a global, Fortune 50 company moving to 75 day payment terms to their suppliers. “ . . . could use that cash to fund investments in new factories overseas or to help pay for stock buybacks.” This practice of squeezing even more out of an already lean supply base made the front page of the WSJ as a best practice??? By the way, there are several other large, global Fortune 50 Companies also named that have adopted that practice as well. REALLY!!! I’m not shocked, but I am mortified!!! By the way, this company has been named to the TOP 25 (Top 5 to be exact) Supply Chain Leader list of a major research firm for at least the last three years. I must ask myself, “what is the criteria to be considered a TOP 5 Supply Chain company when 75 day payment terms is being thrown around as a best practice?” Perhaps it is the fees they are paying this research firm . . . .
Now, many of you are thinking, OK, The Mpower Group is a supplier and therefore the 75 day payment terms is hitting too close to home . . . . . Here is our current thinking AND the first question we ask ALL our client, “have you asked your suppliers what they could do for you if you GAVE them $1,000,000?” Our discipline has moved so far toward the cost continuum that we have forgotten the VALUE that is generated from relationships. Come on everyone, how do you select a partner (any type of partner)? Is it based on cost? Or is it things like compatibility, shared values, trust, ability to expand “the size of the pie”, etc.? I hope the aforementioned company is smart enough to realize that suppliers will eventually need to make themselves whole and that can happen in a variety of ways – higher future prices, shifting their capacity to competitors, reducing quality, etc. This practice can also significantly increase their supplier risk profile. One safety / quality incident that adversely impacts consumers because a supplier is trying to make themselves whole from 75 day payment terms, can prove to be a legal / PR nightmare.
I think this company has been given some bad advice . . . perhaps they need to be working with The Mpower Group. The only thing is we won’t accept 75 day payment terms. On the other hand, we will accept $1,000,000 and will promise an ROI of at least 10X . . . . . .
Sorry for the rant . . . . . join in the conversation.
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