Appointing an ombudsman is an opportunity for the industry to stop rogue traders but suppliers need to make their views known
Apparently Soc Gen had two chances to stop its rogue trader before he caused a £3.7bn loss. I believe that with the current Competition Commission review, UK grocery is in the midst of its second opportunity to stop its own rogue traders - buyers who abuse their power and act outside employer guidelines and the Supermarkets Code of Practice.
The difference with these rogues is that the damage is against third parties, in the short term weakening suppliers and creating job losses and in the long term reducing choice. Despite the fact my business is receiving more work, I am concerned particularly with the flurry of cases of supplier distress that follows six to 12 months after every "supermarket price war". Having clear, certain terms with major customers makes saving supplier businesses easier.
With contracts typically unwritten, a "rather flexible" code and no real policing, rogue buyers can flourish. I've seen too many suppliers driven to the brink of failure by buyers' behaviour.
There are a number of common offences. The first is retrospective discounts that bear no relation to actual sales (effectively listing fees), with the rebate payments occasionally timed to match buyers' own personal bonuses.The second is shoddy forecasting causing over-supply dealt with through short notice order cancellations and/or hikes in product specification. The third is abuse of intellectual property rights (for example, innovative packaging design "samples" being shared by certain buyers with the supplier's competitors). Fourth is inconsistent assurance standards, with UK-based suppliers expected to comply with standards that oversees suppliers don't. The fifth is short-notice delisting. Ferndale Foods, which had been supplying almost exclusively to Asda for 10 years, was given just 12 weeks' notice of 100% product delisting, for instance. The sixth is over-extended credit terms, yielding larger "piggy-banks" of supplier monies owed, against which often nefarious deductions are applied.
Price is not the primary issue here - all these concern buyer behaviour and whether prices agreed upfront are certain and paid. In the face of supermarket lobbying and the OFT saying "there's no problem" (few supplier complaints and an audit of only "live" relationships suggesting to them that everything is OK), the commission is being brave to alert us again to the shortfalls in the supply chain.
We are now being given a choice of two remedies: a groceries supply code ombudsman to arbitrate, guide, investigate and report; or an independent arbitrator with the OFT doing the rest. While it may take longer to set up, an ombudsman is the only option that can make any substantive difference. However, its success relies on two key factors. The appointee must be independent, robust, proactive and reliable with the respect and confidence of the supply chain and the sufficient team and finances to fully discharge his responsibilities.
Early publication of guidance on reasonable interpretations of the GSCOP is also needed to explicitly define reasonable and unreasonable supplier/supermarket relationships. Without these benchmarks the ombudsman may quickly drown in assessing individual relationship issues.
Whatever your opinion, please act and make your views known to the commission by 5pm on 7 March.n
Duncan Swift is head of food & agribusiness recovery group at Grant Thornton UK LLP