Unsavory Business Practices

A few years ago, ABinBev, the parent company of Anheuser Busch, received lots of negative press – and incurred damage to its reputation – by aggressively pushing “net 120 day” terms on its supply base. You would think that the repercussions of their shortsighted approach would cause other companies to think twice about going down the same path. Wrong!

In the September 2, 2013 issue of FORTUNE magazine, a full page article on page 54 is devoted to the actions of Mondelez International, the snack and food company spun off by Kraft Foods last year. Mondelez apparently repeated ABinBEV’s foolishness. The article is appropriately titled “A Snack Maker’s Unsavory Business Practices.”

How is it possible that another large company could make the same mistake? Perhaps they were using the same global consulting company for advice!

Mondelez actually made not just one, but two, classic mistakes regarding payment terms. The first classic mistake was that they took the “dictator” approach. The second mistake was a focus only on “net terms.” (for more on these classic errors, and how to avoid them, read chapter 15 of the highly-endorsed book “Next Level Supply Management Excellence”—the sequel to Straight to the Bottom Line)

Of course, the accounting department will find it easy to calculate the short term financial impact on their balance sheet. What they will be unable to calculate is the shift in the attitude of their suppliers. Why is that important? One of the chief contributors to competitive advantage is the ability to generate new ideas, and implement those ideas, before your competition. And, as more and more companies are learning, their suppliers can often be a rich source of innovation and ideas – if treated well. Suppliers can also help implement new ideas, as part of the extended enterprise, sometimes faster than the customer organization could do so on its own.

In the new world of “next level supply management,” gorilla behavior is out. An element of advanced supply management is about giving your suppliers a reason to consider you to be one of their “Customers of Choice.” Customers of Choice can reap important benefits.

We’ll take a positive look at the subject of “smart working capital management” in the next blog.

SC
MR