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Global CEO blog

Welcome to the Global CEO (UK) blog. Its aim is to draw attention to developments and ideas in the world of procurement and supply management and in the work of the profession’s Institute.

We change the blog monthly, and I would welcome your comments personally on ceoblog@cips.org

David Noble FCIPS

What goes up must come down
The volatility of the global economic markets is still keeping us on our toes.  Just as we are lulled into a false sense of near-security, there are always a few surprises in store.
The worst global recession for a generation appears to be receding into history but it’s a patchy recovery. Though Germany is soaring ahead, France is still stagnating and Chinese manufacturing growth has dropped for three months now. This is the background landscape in which supply chains are operating. Add political, environmental and social factors and it’s a capricious and unpredictable mix.
But data shows that risks to supply chains are actually falling.  This is certainly the result of our findings in Q2 of the CIPS Risk Index (CRI) published this week. For the first time in 18 months, the level of global risk has actually decreased. It is a truth universally acknowledged in our profession and now increasingly amongst governments and businesses that the vulnerability of supply chains is increasing and the number and intensity of the problems are multiplying
So, to see that risk has actually decreased is an attention-grabbing development that deserves further investigation. The index has measured risk decreasing for three consecutive quarters since the financial crisis began in 2007. It tracks all the impacts of economic, political and social factors and showed a fall to 78.1 in Q2 this year, compared to the high of 82.4 in Q3 of 2013. The stability in sub-Saharan Africa appears to have been instrumental in the reduction of risk, along with Kuwait’s achievements in infrastructure projects bringing a level of security in the Middle East which still remains one of the most troubled regions in the world.
So though the immediate future for supply chains may be promising, there are possible storms ahead. No one is yet certain how the Ebola crisis will pan out. Could there be a pandemic on the horizon along the lines of the flu crisis a few years ago and will the war of sanctions between East and West with Russia at its core, tip the balance back into instability. As global recovery is taking hold, there may soon be stagnation and further threats to supply chain health, if these fears become a reality.Catch up with my column in Supply Management magazine

Retail sector under investigation again

It appears that retail giant Tesco is in hot water again and under investigation by another official body - this time it’s the Groceries Code Adjudicator (GCA), Christine Tacon.

They are being investigated for breaking a number of rules, including delaying payments to their direct suppliers and ‘positioning’ payments for shelving placements.  The issues came to light following their recent announcement last year overstating the level of their profits where they are now under deep scrutiny. 

Who knows what the results of the investigations will bring, expected to last around nine months, as currently Tacon cannot impose any retrospective punishments. If wrongdoing is discovered, then even if penalties cannot be imposed, change needs to happen in the future depending on the recommendations and, and we hope they will go far enough.

The GCA was established in 2013 to look at the ten largest retailers and how they conduct business with their suppliers. It will look at Tesco’s behaviour from the start of the creation of the GCA to the 5 February this year. The delay in supplier payments will cover a number of possible areas including duplicate invoicing for the same product, deductions for items without prior agreement and deductions for historic promotions where no agreement had been in place. It will also cover payments for shelf positioning when not related to promotions. So, for example, end of shelf positioning is a common promotional practice, but there is little clarity on what is allowed with product position on shelves in the aisles.

The CIPS response to these issues has been received warmly by members and featured in the media. Follow the latest on @CIPSNews with pictures of the coverage received.  We have been quite robust in our response. Retailers have had free rein for far too long and treated suppliers with some contempt. Holding back payments for example has worsened since the financial crisis. Between 2008 and 2012 according to figures published by the Federation of Small Businesses, the overall figure for late payments almost doubled from £18.6billion to £35.3billion. Research from BACS shows that 60% of businesses have experienced late payments, which is quite significant for smaller suppliers heavily reliant on prompt payments for continuous cashflow.

I hope that significant change will happen soon. For too long retailers have been operating under their own rules and have been less aware of good procurement practice. There needs to be clear accountability and higher standards within this sector, because how many more scandals will we hear about before we have competent professionals in place?