Tesco has pledged to deliver a simpler business model for suppliers, by standardising its payment terms.
The UK's leading supermarket claims it will no longer use a combination of complex and varied terms, and will instead introduce a new standard approach which will offer specific concessions to help small and medium-sized businesses.
It is hoped that the move will allow suppliers to focus on the things that matter for customers, something Tesco CEO Dave Lewis made painstakingly clear was important to the future of Tesco at The Big Debate in London this afternoon (6 October):'We lost the virtuous circle - we focused on margin, not customers, and we made some bad choices,' he told delegates, among offering numerous apologies for past behaviour by the supermarket towards its supply base and shoppers.
Under the changes, smaller suppliers, who deliver up to £100,000 worth of products in a year, will be paid within 14 days.
Meanwhile, medium-sized suppliers who deliver up to £10 million in product value per year will have their accounts settled five days quicker than larger suppliers in their category.
In the case of fruit and veg suppliers, payments to those in the latter 'up to £10m' category will now be made in 23 days, down from 28 days.
Speaking at The Big Debate, Lewis said: 'One of the things that made Tesco great was the little things we did to help our customers. We want to work with our suppliers to get back to innovating on behalf of our customers and these changes will make it easier for us to do that.
'Our customers want value, great availability and new choices. If we think about that from one end of the supply chain to the other we can collaborate with suppliers on ideas and grow together. That's good for customers, good for suppliers, and good for Tesco.
'By introducing a new standardised policy across each category for our larger suppliers, and shorter payment terms for our small and medium suppliers, it will help us to deliver a fairer, more transparent and consistent approach across our supply base.'
Standardisation means that in the majority of categories, Tesco will allegedly be offering shorter payment terms to its suppliers than they in turn pass onto their own suppliers.
The smallest suppliers will typically be paid 34 days quicker than before, the retailer has claimed.
The terms refer to the day when they will receive cash, and not the day the payment is sent for processing.
All changes will be in place by the end of June 2016, to enable suppliers to build plans into their annual financial planning cycle.
Lewis noted that Tesco will make no financial gain from this new way of operating, and in some cases, it will mean additional short-term investments to improve cash flow right across the supply chain.
No comments yet