What follows is the description of the relationship between a small-size, organic food-growing company led by a woman and a big international retail food chain. It underscores the difficulty a large business has to truly understand its impact when purchasing from smaller enterprises. This confirms the need for a careful and caring leadership of the buyer-supplier relationship and the obligation of fairness on the part of the big players to protect smaller-size partners without compromising the business value creation, while applying higher ethical standards.
An old story: aggressive buyers
At a recent major procurement conference, the topic came up again of suppliers being confronted with the size and complexity of major buyers, creating a “David against Goliath” sentiment. In a way the use of this metaphor is misleading as it assumes that David can actually win. The case we’re going to describe of a small, responsible company confronted with a big retailer is far better explained by a notion that Thomas Vollmann and Carlos Cordon from IMD addressed years ago in their book "The Power of Two - How Smart Companies Create Win:Win Customer-Supplier Partnerships that Outperform the Competition": that many procurement organisations frequently behave like Rottweilers is much better captured by the following metaphor: Can Rottweilers actually take care of Chihuahuas!?
Let’s tell you about a real case that says a lot on complexity, accountability and fairness in business, with takeaways for both suppliers and buyers.
Buyer-Supplier commercial relationship case: The actors involved
A small supplier recently entered in contact with a big international retail food chain for a new product. It is, by the way, not very common for a small supplier to establish a direct relationship with a large retailer. Retail chains tend to create purchasing companies that leverage scale, buy for more companies and act as independent negotiators. Due to the complexity and scarcity of resources there is not much visibility with upstream suppliers on procurement behaviours.
Timeline and issue
Two intermediary companies helped the supplier get in contact with a purchasing company operating on behalf of the retailer. John Cotter in the November 2012 issue of HBR in his article “Accelerate” addressed business issues of managing complexity in highly hierarchical structures. There is frequent bad communication, information flows slowly and can be misleading, and decisions are biased. In this particular case, the size of the retailer is “10’000 times” bigger than the supplier’s business in number of people and revenue. At the same time, the sheer “size of the deal” is crucial for the supplier, while for the retailer it is near insignificant. Here is what happened over almost 2 years of relationship:
In 2017 several meetings took place, product samples were sent, products evaluated, certified and approved, all of this at a high cost for the supplier.
In May 2018 an indicative large buying quantity triggered production runs at the supplier’s plant that was not backed by a formal order or contract.
In May-July 2018 – As organically-grown food is seasonal and relatively scarce, several months of advanced purchasing was needed.
In September 2018, during the buyer’s visit prior to the final phase of a deal, the buyer’s representative sexually harassed a female employee of the supplier, which created tension.
In October 2018, a formal order had not been placed and the deal was off.
In February 2019, the retail company claimed that this project had been cancelled as the product and target price were not good.
As we write this article, the supplier runs the risk of having to destroy one year’s worth of unsold production, is forced to take short-term credits, to lower employees’ compensation for several months with a risk of having to lay them off in a year’s time.
A Call to action: re-align actions with values
You are a buyer and work with thousands of suppliers.
How can you become a role model for small suppliers without compromising business results?
How do you ensure alignment between the values and standards you put forward and the daily behaviors of your field representatives?
Are you concerned by those gaps and do you care enough to do something about it?
You are a retailer:
Open your eyes and consider your social responsibility for small suppliers even when you hire intermediary purchasing companies.
Consider running thorough and independent assessments of your dealings with suppliers, particularly smaller ones.
In our practice we frequently come across gaps between proclaimed corporate values and actual practices and behaviors. In the above example, the large retail company in question has a very high reputation as a “people-oriented company”, with a strict code of conduct, which, very unfortunately, was not put in practice.
A Blueprint for Better Business published in March 2019 a new Report on Fairness in Business that is meant to provide guidance on this important aspect of doing business.
As Inspiring Culture Association we can work with you on aligning or realigning your values, strategies and practices with your purpose.
We are convinced that the world can become a better place.
Do you agree?
Do you wish to leverage the principle of fairness in a culture of respect and trust?
Contact us as we look forward to working with you on the fair treatment of extended supply network partners (suppliers, buyers, manufacturers, distributors, customers).
Follow us here and/or on LinkedIn, call us on +41 21 320 60 63 or email at firstname.lastname@example.org
We, at Inspiring Culture Association, are passionate professionals with a diverse international leadership background.
We encourage businesses and individuals to serve a higher purpose and to deliver a sustainable performance by being:
honest and fair with customers and suppliers;
a responsible and responsive employer;
a good citizen;
a guardian for future generations.
Read about us here: Inspiring Culture Association