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Uncovering The Truths Behind Supplying The Supermarket Giants

Supplier Rebates to be Discussed at Tesco Shareholders Meeting

Tesco supplier rebates under scrutiny

This Friday, Dave Lewis has the unenviable task of addressing the Tesco shareholders at the firm’s annual meeting. As the firm’s new CEO, the responsibility for explaining the company’s fall from grace over the past 12 months falls at his feet.

There is a lot to talk about. But it’s likely that the majority of the shareholder’s concerns will revolve around the £6.4 billion in pre-tax losses that were reported for the year ending February.

Who audits the auditor?

Serious concerns have been raised around Tesco’s relationship with its previous auditor, PwC. This relationship (which was terminated last month) appeared to have turned septic and has been used to explain some of the accounting discrepancies that contributed to company’s recent woes.

While it is easy to focus on the firm’s recent poor performance, perhaps the greatest challenge for Lewis will be explaining that the worst is potentially still to come.

The UK’s Serious Fraud Office has opened an inquiry into the supermarket chain over an accounting scandal that saw the retailer inflate its reported profits by £263m through incorrectly logging supplier rebates. Not only has this scandal cast doubts over Tesco’s reporting standards, it has brought the company’s ethics and supplier relationships into question.

Dodgy accounting brings dodgy supplier relationships into focus

Supplier rebates are nothing new in the supermarket space. In fact, it’s believed that this behaviour has existed since the 1970’s. However, in recent years the practice has been stepped up significantly. Suggestions have been made that UK supermarkets make as much money from supplier rebates as they do from operating profits.

Supplier rebates, which see suppliers making compulsory contributions to supermarkets in return for prime shelf space (or the allocation of marketing effort), have faced scrutiny for the way they are reported. These payments have traditionally not been well defined and recognised through financial reporting systems. In the wake of the Tesco rebate fiasco, the Financial Reporting Council has announced it will look more closely at the way rebates are managed from an accounting point of view.

The supplier rebate scandal not only carries implications for the firm’s reporting credibility; it has been a public relations nightmare. The mass media has jumped on the issue of supplier rebates and customers are now fully aware that supermarkets insist on large payments from suppliers, not only to market their products but also to secure in-store shelf space (this stuff fills column inches). In an era of increased supermarket competition (firms like Aldi are stealing significant market share from Tesco) these PR scandals are crippling.

Lewis’s moment of truth will come this Friday. Tune into Procurious on Monday, as we’ll be providing a review of the shareholder meeting, including an analysis of the way Lewis responded to the supplier rebate scandal.

Celebrating National Women in Engineering Day

National Women In Engineering Day is hoping to change perceptions and inspire more women engineers.

Supporting National Women in Engineering Day

What is it?

National Women in Engineering Day (NWED) was launched in 2014 by the Women’s Engineering Society (WES), as an inaugural event to celebrate the achievements of women in engineering and encourage more girls to consider engineering as a career. 

Who’s involved?

Approximately 400 schools and colleges across the UK are expected to take part in NWED celebrations this year with over 100 events listed on the NWED website www.nwed.org.uk. The organisations hosting the events include universities, schools, engineering societies, and multinational organisations, such as Ford Motor Company, Amec Foster Wheeler, Qinetiq, Atkins, DECC, BT, Pepsi, Selex ES, Dyson, Arup, DuPont, BP, Siemens, BAE Systems, TFL, Crossrail, and many more.

Is it just a UK initiative then?

Nope.

This year NWED has also gained interest on an international level with events happening all over the world to celebrate achievements of women engineers on a global level. For example, the Institution of Engineering and Technology in Kuwait are hosting a conference on NWED with talks from guest speakers, networking activities and awards.

How did it come about?

The Women’s Engineering Society (WES) is a not for profit organisation which was established in 1919 after the First World War to inspire and support women in engineering. For more information visit www.wes.org.uk.

Dawn Bonfield, Founder of National Women in Engineering Day and President of the Women’s Engineering Society said ‘We were absolutely amazed by the enthusiasm for National Women in Engineering Day last year, but this year the day has grown even more and we have seen an enormous number of organisations getting involved with the celebrations. This really is testament to the change in perception of women in engineering, and we need to do all we can now to maintain this activity throughout the year to ensure that girls see engineering as a real career choice for them.’

How many female engineers does it take to set a world record?

Among the events, a Guinness World Record has also been planned to coincide with NWED with the aim to have the largest gathering of women engineers on NWED 23 June at Horse Guards Parade.

Worrying Number of UK Organisations Lack Supply Chain ‘Plan B’

Nearly two and a half years since the oft reported ‘horsemeat scandal’ and many organisations are still lacking a Plan B for a supply chain crisis, according to a survey by CIPS.

Most organisations don't have a plan B

CIPS quizzed senior supply chain managers from across the globe on a number of topics, with the research throwing up a number of surprising statistics, all of which show that many organisations are just not learning the lessons of past failures in the industry.

No Risk Mitigation

At the most basic level when considering a subject like a supply chain scandal is the concept of risk mitigation strategies. These can be for ensuring continuity of supply in the event of a natural disaster or alternative suppliers if sourcing has to be changed due to ethical issues.

CIPS found that two-thirds of the respondents didn’t have, or weren’t aware of, a mitigation strategy covering all tiers of their supply chains. Compounding this is a lack of close relationships with suppliers (only 11 per cent) and the majority (65 per cent) of the managers only having relationships with Tier 1 suppliers or not at all.

Not Managing Relationships

With procurement often focused on reducing cost, reducing supplier lists and eliminating tail spend, relationships can often be overlooked with larger, more critical suppliers. These relationships can help to build trust, maintain ethical standards and can also help to reduce cost in the long-term.

And the statistics back this up too, with the survey results showing a big difference in organisations suffering a supply chain crisis in the past year.

  • 67 per cent with relationships with Tier 3 suppliers and beyond highlighted zero supply chain crises
  • Only 45 per cent with Tier 1 supplier relationships could say the same

Supply Chain Fog – Low Visibility

When considering supply chain transparency (reported recently on Procurious here and here), these relationships can also be a key pillar for buyers in avoiding disruptions. According to the survey:

  • 56 per cent with relationships with Tier 3 suppliers and beyond had complete visibility of their supply chain
  • A worrying 13 per cent with only Tier 1 supplier relationships were able to say the same

A similar difference is seen with malpractice and ethical violations in the supply chain too.

  • 49 per cent with Tier 3 supplier relationships could be certain of no supply chain malpractice, compared to just 16 per cent with Tier 1 supplier relationships
  • Of these, 62 per cent with Tier 3 relationships would take responsibility for malpractice, versus 32 per cent with Tier 1 relationships

Taking Responsibility

In light of these results, David Noble, Group CEO of CIPS, stated that it was time for UK organisations to take responsibility for the conditions in which their goods were being produced.

“As UK companies are increasingly using suppliers in emerging markets to maintain their price competitiveness, they are becoming more exposed to reputational risks such as poor health and safety standards for workers or even enforced slavery, bribery and corruption, as well as environmental degradation.

Having visibility and strong supplier relationships at the first tier of the supply chain is clearly no longer enough, as these risks do not always exist in the first tier, but often further down supply chains.”

Procurious wants to make it easier for companies to do this, and has proposed the idea of a ‘Supply Chain Wiki’, which would enable organisations to have access to the full picture in their supply chains. It’s only by working together that the profession can create something like this and allow us to get to the stage where transparency is a given, rather than an option.

Do you want to get involved with helping build a Supply Chain Wiki? What examples of the practices above have you seen? Get in touch with Procurious and let us know.

Meanwhile, some light reading for you all with your weekly procurement and supply chain headlines.

Supply chain wary as Airbus and Boeing push output envelope

  • Suppliers to Airbus and Boeing are worried they might lose out if they invest to meet higher commercial jet production targets that ultimately prove unsustainable
  • The manufacturing giants plan to raise production rates of best-selling single-aisle planes by 25 percent to 50-52 a month in 2017-18, with the possibility of output going up to 60 or more
  • This prompted public pushback from major suppliers such as GE and partner Safran, who said they needed to secure the start of a steep rise in output before committing to even higher targets
  • Concerns were also raised over how long any higher production rates may last, although Airbus CEO Fabrice Bregier dismissed talk of a bubble

Read more at Business Insider

Made in Britain: Booming UK automotive industry must re-shore IT to future proof supply chain

  • The UK automotive industry is back on track after years of decline, with many pointing to the important role it plays in improving the economy
  • According to the Society of Motor Manufacturers and Traders (SMMT) UK car plants last year produced more than 1.5 million vehicles, the highest number since 2007
  • One of the factors underpinning the increase has been the decision by car makers to re-shore many of the processes, including production, that have been systematically transferred overseas over the past couple of decades
  • The survey found that cost was but one driving factor, and was in fact eclipsed by the desire to improve quality, create shorter, more responsive supply chains and streamline communication with customers

Read more at IT Pro Portal

Mattel looks to overcome supply chain talent shortage

  • Mattel Inc. is revamping its supply chain operations but says there is a limited pool of people with the right skills
  • Companies are looking inward to find people to manage increasingly complex supply chains, amid a shortage of skilled labor
  • Peter Gibbons, the company’s chief supply chain officer, said in an interview, “Finding really good people who’ve been there and done it before is a challenge.”
  • The company is now hiring college grads directly from supply chain or business programs in hopes of moulding them into supply chain leaders down the line. It has also changed the metrics it uses to evaluate its supply chain managers to take a more “holistic” view of the job function

Read more at Wall St Journal

US to import egg products from Netherlands to ease shortage

  • With an increasing egg shortage due to the widespread bird flu outbreak, the United States will soon allow imported egg products from the Netherlands to be used for commercial baking and in processed foods.
  • It’s the first time in more than a decade the U.S. has bought eggs from a European nation, and comes as consumers are seeing a surge in shell egg prices and a Texas-based supermarket began limiting purchases.
  • The H5N2 virus — which began to spread widely through Midwest farms in the early spring, including in Iowa, the nation’s largest egg producer — has left nearly 47 million birds dead or dying
  • “Our members are not able to get their hands on enough eggs to continue their production. It’s very much a crisis for us right now,” said Cory Martin, director of government relations for the American Bakers Association, a trade group representing wholesale bakeries including cookie and cracker maker Pepperidge Farm, Krispy Kreme Doughnut Corp., and White Plains, New York-based Linden’s Cookies.
  • Prices for egg products used by food manufacturers and bakeries jumped more than 200 percent in the past month, and even large bakeries have been forced to buy eggs by the carton and crack them individually to continue production, Martin said.

Read more at US News and World Report

Industry body launched to support timber supply chain

  • The ethical, social and environmental risks in the timber supply chain are to be addressed by a newly-formed umbrella organisation which aims to provide a unified voice for the timber industry and ultimately grow the UK’s low-carbon economy.
  • The Confederation of Timber Industries (CTI) will represent the timber supply chain from forest to end-of-life recycling and energy recovery; consolidating and enhancing the various links in the timber supply chain and building more relationships with new industry partners.
  • Dr Peter Bonfield, chief executive of BRE, launched the CTI. He said: “This Industry has needed a stronger joined up voice for a very long time. This is a great moment for the Timber Industries to demonstrate their combined strength and showcase the Industry.
  • The timber supply chain contributes substantially to the UK’s construction and manufacturing industries; providing jobs across the skills spectrum and adding value of around £20bn to the UK economy. It is among of the most complex in the world with a huge diversity of operations worldwide and a downstream process that involves many steps from harvesting through to sawmill, wood processing and distribution.

Read more at edie.net

Tuna supplier calls for improved supply chain visibility

Ecuadorian tuna supplier, Marbelize, and Frequentz form strategic global partnership to ensure supply chain transparency.

Calls for improved transparency in the tuna supply chain

Marbelize, one of the world’s largest tuna suppliers, has entered an exclusive partnership with Frequentz Inc., a global leader and champion of end-to-end visibility, in a strategic move that proactively addresses the coming IUU Task Force seafood traceability action plan.

Marbelize will leverage Frequentz’s robust track and trace technology to build consumer trust and combat the effects of illegal, unreported and unregulated fishing. This sets a seafood industry precedent, as this is the first time a third party has provided a fully integrated supply chain visibility solution from source to retailer.

Andres Cuka, chief operating officer of Marbelize said: “The industry is adapting to the ever-changing demands of consumers while also remaining true to social responsibility and sustainability objectives.”

“We strive to remain an innovative leader within our industry, while delivering value added products to consumers. Kindness to our people and the environment is the foundation upon which our company was built, so for us being as transparent as possible is a very important component to our success. Frequentz’s product tracking software provides us with that transparency and will be essential in pushing the seafood industry forward.”

Frankie Terzoli, vice president for global sales with Frequentz added: “By adding a traceability system to their operation, Marbelize will once again be a pioneer in the industry. They not only claim that their catch is sustainable, but can prove it to be true.”

LEGO announces billion Krone Sustainable Materials Centre

LEGO announces billion Krone Sustainable Materials Centre

LEGO, the world’s largest toymaker, has announced it will open a new Sustainable Materials Centre as part of the company’s commitment to sourcing more environmentally friendly materials for its packaging and products.

The group’s CEO announced that the commitment of one billion Danish Krone (roughly $150 million USD) marked a significant step in the company’s long-term aspiration of using only sustainable materials in its production by 2030.

The huge cash investment will fund the development of a new Sustainable Materials Centre at the company’s headquarters in Billund, Denmark as well as outposts at various locations across the globe. The company has suggested that its search for more sustainable bricks will directly employ over 100 new specialists.

The LEGO Group owner Kjeld Kirk Kristiansen made the following comment on the announcement:

“Our mission is to inspire and develop the builders of tomorrow. We believe that our main contribution to this is through the creative play experiences we provide to children. The investment announced is a testament to our continued ambition to leave a positive impact on the planet, which future generations will inherit. It is certainly in line with the mission of the LEGO Group and in line with the motto of my grandfather and founder of the LEGO Group, Ole Kirk Kristiansen: Only the best is good enough”.

LEGO's popularity around the world

The LEGO group initially stated its interest in searching for more sustainable product alternatives back in 2012 (the year the 2030 sustainability commitment was made). Since then, the group has conducted research and testing into how it might make its vast production (in 2014 more than 60 billion LEGO bits were manufactured) more sustainable. The new Sustainable Materials Centre is a direct outcome of these steps.

It is expected that LEGO will need to continue to partner with other organisations in order to achieve its lofty ambitions. The group signed a Climate Savers partnership with the WWF in 2013 and has outlined it will continue to look to leverage partners to make its productions methods more sustainable.

Jørgen Vig Knudstorp, CEO and President of the LEGO Group, said:

“What we announce today is a long-term investment and a dedication to ensuring the continued research and development of new materials that will enable us to continue to deliver great, high quality creative play experiences in the future, while caring for the environment and future generations. It is a daunting and exciting challenge.”

Sarah Trota: How People Create Alchemy In Organisations

‘The relationship between Human Resources and Procurement is closer than people think…’

Watch our sixth Big Ideas Summit keynote (part 1 of 4)

Watch Sarah’s keynote in FULL here

Sarah Trota, founder of sarahtrotaalchemy and Personnel Today HR Director of the Year 2013, discusses her own model for how to create ‘alchemy’ within organisations. The focus of the idea is on properly engaging with employees, ensuring they are satisfied and as a result, producing better outcomes for the business.

Procurious members can find Sarah’s full keynote here. Not a member yet? Register for free.

Airlines to seek legal advice on supplier competition

Airlines to seek legal advice on supplier competition

Willie Walsh, the head of International Consolidated Airlines Group (a parent company of British Airways) announced at the International Air Transport Association’s (IATA) annual meeting earlier this month, that airlines are actively seeking legal advice on the competitive nature of the industry’s supply market.

Two suppliers, Boeing and Airbus, dominate the aircraft production market and it is thought that this duopoly situation has led to airlines paying excessive prices for vital parts.

The airline industry has argued that the pricing disparity can be easily spelt out by comparing the profit margins of these businesses. The IATA reports that airline profits are around 4 per cent. These profit figures are significantly lower than those of the aircraft makers, who regularly report double-digit profit margins.

Mr Walsh said, “If we don’t challenge the restrictive practices that exist, we will be held captive, and costs as we’ve seen before will rise well in excess anything that is justified.”

Walsh outlined further concerns around industry developments that have seen manufacturers produce aircraft that can only accommodate one particular make of engine. In the past it was possible to use different engines in an aircraft, which brought an element of competition into the market. Walsh said the changes were a “a development that we don’t like to see.”

It is not clear whether the investigation will result in legal action; Walsh himself has stated that such measures may not in fact be warranted. He did claim however, that airlines feel they are “not getting a fair deal” from the aircraft manufacturers.