Tesco simplifies trade terms with suppliers to help innovate for customers
6 October 2015
Tesco has pledged to deliver a simpler business model for suppliers, by standardising their payment terms. In a move which builds on progress already made to simplify and increase transparency across its business, Tesco aims to improve innovation for shoppers by encouraging collaboration between the retailer and its supply base.
Tesco has pledged to deliver a simpler business model for suppliers, by standardising their payment terms.
In a move which builds on progress already made to simplify and increase transparency across its business, Tesco aims to improve innovation for shoppers by encouraging collaboration between the retailer and its supply base.
Tesco 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. The move will allow suppliers to focus on the things that matter for customers.
Smaller suppliers, who deliver up to £100,000 worth of products in a year, will be paid within 14 days. Whilst 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.
Speaking today at the IGD Conference, Tesco’s Chief Executive Officer Dave 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.
‘To help with this process, we’re announcing the standardisation of our payment terms.
‘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 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. For all partners, 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. Tesco will make no financial gain from this and in some cases this will mean additional short term investments to improve cash flow right across the supply chain.
Tesco is also introducing a new Vendor Payment scheme, which offers no financial incentive to the retailer, but provides a fair and consistent deal for all suppliers, regardless of their size.
Over the last year, Tesco has simplified its business and relationships with suppliers, introducing a number of measures to improve engagement including:
- Creating a single Product team responsible for the entire lifecycle of a product, committed to our new code of conduct
- Adopting a transparent, long term cost-based buying model with consistent and fair standard payment terms that help grow its joint business with suppliers
- Moving to reduce the number of ways it takes commercial income from 24 to 5
- Launching a Supplier Helpline, where any issues raised by suppliers are aimed to be resolved within 48 hours
- Providing support for UK agriculture, with the development of a joint initiative with Anglia Famers - the ProducerClub. The club delivers support for the day-to-day running of farms and an unrivalled combination of savings and benefits
Notes to Editors
- Tesco is writing to suppliers to inform them of the changes.
- Changes to payment terms will affect all suppliers who serve the UK and will be implemented by the end of June 2016.
- Examples of Tesco’s new standardised payments for key categories:
- Meat, fish and poultry- Tesco’s new 28 day standard terms, shortened to 23 days for £100k-£10m businesses. This is significantly shorter than the average 46-49 days it takes for suppliers to pay those further down the supply chain.
- Grocery - Tesco’s 45 day terms, shortened to 40 days for £100k-£10m businesses. This is significantly shorter than the average 60 days it takes for suppliers to pay those further down the supply chain.
- Overseas suppliers who we source clothing and general merchandise products from will be on 90 day payment terms. This is the industry norm and will primarily be products that we source from Asia and spend a significant amount of time being shipped to the UK.
- The ProducerClub is a joint initiative between Anglia Farmers and Tesco, which will provide purchasing support for the day-to-day running of farms and a package of savings and benefits. For more information go to www.tescosuppliernetwork.com/producerclub.html
- Tesco’s Chief Executive Dave Lewis was speaking at the IGD The Big Debate Conference in London on Tuesday 6th October.
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