Tuesday, 31 March 2015

Tesco to move to 14 day payment for smaller suppliers – a ‘temporary’ competitive edge?

In a specially extended interview The Grocer’s Adam Leyland talks to Dave Lewis about future moves. The real value of this type of uncut, indepth interview is that it can be a source of missing pieces of their particular Tesco jigsaw, for individual suppliers. In other words, well worth a read by any NAM trying to anticipate what to expect from their largest customer…

The 14-day move
One particular gem is Lewis’ promise to pay smaller suppliers (less than £100k sales) in 14 days, and to make payment days category-specific, presumably reflecting delivery-resale cycles, and related to size of supplier.

Apart from the obvious relief, such NAMs need to calculate the financial benefit (and cost to Tesco) of moving from Tesco’s average 37 days to 14 day payment.

Annual sales to Tesco                            = £95m
Current payment period                          = 35 days
i.e. Tesco pays 365/37 times/annum       = 9.86 times/annum
:. Amount that Tesco owe, at any time    = £9.635m
Cost of money say 10%
i.e. financing free credit                          = £0.964m

New payment period                               = 14 days
i.e. Tesco pays 365/14 times/annum       = 26.07 times/annum
:. Amount that Tesco owe, at any time    = £3.64m
Cost of money say 10%
i.e. financing free credit                          = £0.364m
:. Saving for supplier                              = £600k
i.e. Percentage of sales 0.6/95.0   x 100  = 0.6%
In other words, a gain of £600k to the bottom line

Impact on other retailers?
However, the real issue is how other retailers will react to this master-stroke in PR by a Tesco going to the heart of the public’s growing concern that ‘abuse’ of small suppliers can lead to less choice on shelf…

In other words, Tesco stand to gain a distinct competitive edge by leading the market in fair-share payment, resulting in loss of share by those who fail to follow suit…          

1 comment:

Ronald said...

Custumers should be leading for the behaviour of suppliers, also towards banks. Custumers are a more important assed for a comapany thanmshereholders, partcularely the capital is more abundant than custumers.