Buyers believe public cuts to large suppliers will filter down

9 November 2010

9 November 2010 | Lindsay Clark

The government in the UK is unrealistic in its hope that cuts to top-tier suppliers will not filter down to smaller vendors, according to a survey of buyers.

Last week, international services firm Serco withdrew a request that its suppliers provide a 2.5 per cent cash rebate (Web news, 1 November). The request was made after the government negotiated with its largest suppliers, including Serco, to reduce the cost of its major contracts.

The move by Serco to try to pass cuts along the supply chain provoked ire in the Cabinet Office. “[The government] has made it clear that the major suppliers involved in the government’s contracts renegotiations should act responsibly with their supply chains,” a spokesman said.

Yet 83 per cent of the SM100 survey of procurement professionals believe the government is unrealistic in its hope that when it reduces spending with top suppliers, firms lower down the supply chain will not be hit. Only 12 per cent said this was a realistic ambition while 5 per cent were unsure.

“Under the current circumstances, I really don’t see how we can make the required spending cuts without it impacting on the companies we deal with,” said Liam Gormley procurement category specialist at Newcastle City Council. “There will be a move towards larger organisations who can make price reductions and weather the storm, and smaller businesses will be priced out of 
the market.”

Another buyer who asked not to be named said: “Suppliers further down the chain will be hit and will probably suffer more than bigger suppliers. For every contract reduction negotiated at the top of the chain – the reduction will cascade down to small businesses who won’t have cash-flow options to help absorb their contract reductions and will, in a lot of cases, go to the wall. It is naive to think that main suppliers won’t expect their own suppliers to bear the cost-cutting 
pain as well.”    

However, Anthony Ayre, senior buyer with CE Electric, did not agree: “In fact this should give the smaller businesses the opportunity to show what they are capable of.”

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