How big businesses screw their suppliers

3
REY ELBO

REY ELBO

THE most common trick is to pay their suppliers at an average of 60-day forced credit. Take it or leave it. If you’re a small-time supplier who has no option, you’ll succumb to such unfriendly demand. If you tend to increase your price next time, you’ll be banished from its network of suppliers. How fair is that?

Advertisements

Imagine small-time suppliers giving loans to big businesses.

Recently, a major conglomerate owned by a taipan tried the same trick with us. They’re interested to join our Japan study mission. We sent them the invoice for P100,000. They came back promising to pay after 60 days. We declined the proposal and told them we want to be fair with small businesses that complied with our payment deadline.

So they promised to pay on a certain day as the contact person claims there’s no check signatory available. After breaking their self-imposed deadline for at least four times, we’ve decided to remove their company from our list of delegates to Nagoya. We stopped communicating with them. After several days, their extreme interest to join our study mission became evident when they appealed to pay a premium of P25,000 or a total of P125,000, which was first suggested by my assistant.

They also offered to sign a promissory note, written in “blood” by an authorized signatory. But no, enough is enough. We don’t want to be a party to any agreement that defies logic. It may be lawful, but it is not ethical for us. We’re a small business that is founded on principled leadership. We don’t need your business. In the first place, why would you pay an additional P25,000 to pursue a stupid policy? Why don’t you simply borrow money from a bank and pay a negligible amount of interest? I’m sure it will not reach to P25,000. Anyway, part of your conglomerate is a commercial bank, isn’t?

The policy of big businesses to pay 60 days after service performance or delivery of certain products appear reasonable when you’re talking about millions of pesos in numerous transactions. But what if you’re talking of small amounts?

Sure, we gave them the credit for less than P10,000 in the past, but only after charging them an additional P1,000 for paying after 60 days. But those were the days when the risk was small compared to P125,000.

What I’m worried about is the self-esteem of the executive who was hoping he could be a part of our study mission. I’m sure he’s also at a loss to understand such conglomerate’s policy of screwing its suppliers. Would he begrudge his employer for sticking to its hard-line stand of paying its suppliers very late?

What’s the company’s option if they want to send their people to a similar study mission in the future? Well, they will pay at least P350,000 to another service provider offering the same kind of business.

We lost P125,000 in the process of upholding our business principles. We don’t mind and we don’t care. We’d like to deal only with equal-minded management professionals who believe in nurturing long-term partnership with suppliers.

That’s what W. Edwards Deming (1900-1993) had told Japanese businessmen at the time when he was trying to help resurrect Japan from the ashes of World War II: “End the practice of awarding business on the basis of a price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.”

To put in another way, Deming’s gem offers three don’ts in supplier partnering: One, don’t award any contract to the lowest bidder; Two, don’t increase the price to maximize the credit line; Three don’t rely on many suppliers trying to beat one another. These rules appear counter-intuitive, but they’re not, at least in the case of Toyota that believes in a strong, long-term partnership with suppliers.

If you don’t heed Deming’s principles, you’ll only perpetuate suppliers that will cut corners to violate product quality, safety and health standards, if not labor statutes, among other issues to secure their profit margin. And the result can be disastrous.

Those are pretty strong arguments against big businesses. Then we wonder, why they’re still mouthing motherhood statements under the guise of a CSR (corporate service responsibility) program?

Rey Elbo is a business consultant specializing in human resources and total quality management as a fused interest. Send feedback to elbonomics@gmail.com or follow him on Facebook, LinkedIn, or Twitter for his random thoughts.

Share.
loading...
Loading...

Please follow our commenting guidelines.

3 Comments

  1. I think I have an idea which conglomerate you are talking about. I heard from a friend regarding exactly the same terrible policy on their suppliers of agricultural/farm produce hence the farmers are barely able to make ends meet because of cash flow problems.

  2. I experienced similar situations. I provide manpower to a facility owned by a big corporation with several related businesses. I am able to collect billings after an average of 75 days. Now I terminated my contract with them because I have insufficient capital to cope up with the long cycle.