Tesco’s Procurement Mistakes: Thoughts on the GCA Investigation

Thursday, February 4th, 2016

               There are shameful practices exposed in this report, highlighting Tesco’s procurement mistakes, amongst other things. In many respects it strikes at the heart of retail management and retail buying in particular. The procurement profession, such as it is, has rarely got to grips with retail buying. There are reasons for this, including mystique of seasonal purchases, changes in fashion, consumer whims, offshore buying and promotions (such as buy one get one free). The language of retail buying is a world of its own, as this report demonstrates.

               The publicity around the report has focussed on Tesco’s manipulation of payment to suppliers but there is much more that is relevant to buying. The catalogue of reasons why supplier payments were delayed is a revelation: data input errors, duplicate invoicing, Tesco’s continued focus on meeting financial targets, unilateral deductions made in relation to historic claims, unilateral deductions for short deliveries and service level charges, and others.

               Readers of the report should note that there is a separate investigation by the Serious Fraud Office that may result in the institution of criminal prosecutions.

               An important finding in the report is that the vast majority of the evidence that the adjudicators had, demonstrated that Tesco paid regular, undisputed invoices in accordance with its contractual terms with suppliers. The issue lay with payments that were otherwise than for goods supplied or there was any disagreement over amounts due. There were circumstances where a debt had been acknowledged by Tesco where the money was not repaid until over 12 months later with some amounts taking up to 24 months to be repaid.

               Unsurprisingly, in a retail setting, a major focus of the Tesco commercial team was on hitting budgeted margin targets. Tesco had Joint Business Plans which they negotiated with suppliers on a periodic basis. The Adjudicator found that the direction being given to Tesco’s buying teams as to the status and enforceability of JBP targets was contradictory and unclear. The Adjudicator found that Tesco knowingly delayed paying money to suppliers to improve its own financial position.

               The plethora of detail about retail buying practices will be a revelation to those outside the sector. Some of the practices raise contracted, financial and ethical issues, in some instances with Tesco buyers not having the motivation or determination to resolve supplier payment issues. The old adage ‘Screw the Supplier’ is apposite to some of the practices.

               Can we help you?

               Supplier relationships are at the heart of your business performance. It is a procurement area worthy of scrutiny, don’t let yourself make the same procurement mistakes. We can help you improve and strengthen your supplier relationships. Give us a call on 01744 20698 to talk about your options and what we can do to help.

               If you’re interested in reading the full report by the GCA, you can find it here: https://goo.gl/zbYdXi

               Photo Credit: FreeImages.com/RossBrown