Late payments may dominate the headlines as the biggest worry for suppliers — especially smaller vendors. But lengthy payment terms and missed invoice payments are not the only risk that B2B suppliers face, as recently showcased in the U.K. supermarket sector.
Various voluntary codes of conduct have become a popular strategy among regulators in the U.K. and elsewhere to curb unfair practices among large corporate buyers with their vendors, with a focus on late payment practices. Indeed, in the U.K., separate codes of conduct, including the construction sector’s Construction Supply Chain Payment Charter, and an industry-agnostic Prompt Payment Code, both emerged in a climate of broad-ranging late payment behavior. Similar initiatives have emerged in Australia, as well as within the U.S. government as it relates to federal procurement practices.
But the latest matter involving Co-op, the U.K.’s sixth-largest supermarket brand, sheds light on the risks that small vendors face beyond delayed payments.
According to Tacon’s report, a yearlong investigation into Co-op revealed systemic misconduct with the company’s supply chain.
An announcement in Gov.uk this week said that the company did not provide adequate notice to its supplier base when it decided to de-list certain products in its stores, and did not provide proper notice to changes in unilateral supply agreements related to two specific charges related to depot quality control.
“The practices and behaviors described in my report were widespread,” Tacon said in a statement. “Systems, processes, business practices and the ability of different parts of the retailer to affect suppliers’ risks and costs of trading with the company all contributed to Co-op breaking the legally-binding code.
“At the core,” she continued, “there was inadequate governance to oversee and manage Code compliance.”
She has recommended the implementation of adequate governance to manage Code compliance, changes to compliance and audit functions, upgrades to IT systems, proper employee training and effective communication with vendors when Co-op decides to de-list products.
Tacon stopped short of imposing fines, however, despite having the power to issue a penalty of up to 1 percent of the firm’s annual turnover, reports noted. Co-op did not act maliciously, the investigation found.
The company will have to cover the costs of the government probe as well as pay for the cost of implementing Tacon’s recommendations to remedy the issue. Further, the company said it has issued an apology to its vendors and provided nearly $860,000 to impacted suppliers. Further, Co-op has introduced employee training to promote compliance.
“We are sorry,” the company’s CEO Jo Whitfield said in a statement. “We’ve gone to great lengths to put these things right and have undertaken a root and branch review of all our supplier dealings.”
Supply chain risk is often discussed from the vantage point of the buyer, with everything from inaccurate product information to natural disasters to cyberattacks threatening to ripple down supply chains and impact a corporate procurement team. Compounding the risk is the compliance factor, with businesses often on the hook when their suppliers act unlawfully.
When it comes to vendors, buyer risks can be similarly diverse and damaging. In addition to late payments, the risk of customer insolvency — as demonstrated in recent bankruptcy cases in the U.S. including Sears and Toys ‘R’ Us — can mean unpaid invoices and cash flow disruption. A previous CGA investigation revealed how these issues have affected the U.K. supermarket sector in the past, with the watchdog finding grocery giant Tesco intentionally delayed supplier payments.
But as the Co-op case demonstrates, buyer risk can apply to more than delayed, late and unpaid invoices, with sudden contract changes threatening to disrupt operations.