'Problematic' purchasing practices must be addressed

19 November 2020

The Covid-19 pandemic has prompted many major brands and retailers to improve purchasing practices, particularly when it comes to forecasting and planning, according to a report.

The Better Buying Institute’s 2020 Better Buying Index Report found several brands had made meaningful improvements to their purchasing practices over the past year.

The survey canvassed 22 brands and retailers and more than 2,000 global suppliers on the impact of company purchasing practices around planning and forecasting, cost and cost negotiation, and payment and terms.

Ten companies that had made year-on-year improvements were examined in detail and researchers found five of these had made improvements to their planning and forecasting practices since 2018.

These improvements provided suppliers with increased visibility to plan production and ensure ongoing employment for workers.

Eight of the 10 also ended up with fewer suppliers left with unutilised capacity due to forecasting inaccuracies. Six of the 10 had fewer suppliers left with excess materials.

The largest improvement seen within planning and forecasting was a 40% increase in the proportion of one company’s suppliers reporting that forecasts were regularly updated.

One respondent saw a 22.7% improvement in the proportion of suppliers reporting they reserved capacity for that buyer in advance of production.

Marsha Dickson, president of the Better Buying Institute, said: “Unplanned disruptions like Covid-19 tend to cause extreme reactions from buyers attempting to minimise their exposure to short-term financial risk – reactions that often do not consider the ripple effect on suppliers and workers and the other resulting risks.

“While the impacts of the pandemic have certainly created new challenges in global supply chains, problematic purchasing practices are nothing new and must be addressed in order to meet rebounding consumer demand and protect decades of sustainability progress.”

The report found that eight of the 10 companies improved cost and cost negotiation practices by decreasing their use of high-pressure cost negotiation strategies.

This would help ensure suppliers’ business survival and help them provide safe conditions for workers, who might otherwise fall victim to excessively low wages, unauthorised subcontracting or informal employment.

At least half of the 10 companies had improved payment and terms practices by paying suppliers on time and in full – critical for suppliers’ cash flow.

However fewer than half could say their suppliers saw them as partners in business growth.

The report said that while planning and forecasting was perceived as a more difficult purchasing area to improve given market uncertainties, the improvements would enhance their suppliers’ abilities to plan their business.

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