Investors in Retailers may be the key to driving Supply Chain change in the Retail sector; and Chain of Responsibility may be the first true catalyst for change.
Chain of Responsibility Scenario
Retailers have apparently delayed advising suppliers of intended promotional specials at their stores until the last possible opportunity. That’s logical as they want to get a jump on their competitors, but it does create a potential Chain of Responsibility Risk.
Why the Chain of Responsibility Risk Exists?
Suppliers are then faced with large orders, to pick, pack and deliver to the Retailer DC, with little to no spare time to meet the required delivery time slot.
This may not sound like a risk, but consider that in some cases suppliers may have to organise additional warehouse staff, additional transport resources etc. This takes time, and delays create a risk of failing to deliver as per the time slot. Failure to meet delivery in full and on time (DIFOT) can lead to penalties being imposed by the Retailers DC.
Extract from ACCC Website report ( Court finds Coles engaged in unconscionable conduct and orders Coles pay $10 million penalties 22 December 2014: source)
- requiring and accepting payment from a supplier for a late delivery where this had not been the subject of prior agreement with the supplier; and
- imposing penalties for short deliveries of a supplier’s products without notice to, or prior agreement with, the supplier and, refusing to repay to the supplier, the penalties imposed.
So what are the Chain of Responsibility Risks?
The imposed contractual conditions of DIFOT create an influence on the transport task, that could lead too potentially the Supplier and their Transport provider taking short cuts in meeting secure Loading Requirements and in possibly influencing the driver to “hurry up and get there to make up time” if the loading is delayed. That is influencing the driver to speed or to breach fatigue laws.
These are obviously potential risks but they highlight the risk associated with delaying the announcement of weekly specials, and putting pressure on a Supply Chain.
Chain of Responsibility Policies, Procedures, Systems and Training count for nothing, if the behaviours demonstrate otherwise. This is one of our key findings from the 350 plus sites we have reviewed for clients.
The absence of effective supervision and/or the drive by operations to over ride compliance requirements in order to meet customer demands.
If you are a supplier and these are the genuine concerns you have, you are encouraged to report them to your local State Enforcement Authority.
Investors May Hold the Key to Driving Chain of Responsibility Changes in Retailers
In a recent article, the Intelligent Investor made the following observation, whilst commenting on the bullying by the Retailers.
In the meantime, for investors, the woeful position of suppliers and the supreme position of Woolies and Coles is laid bare by a simple Porter analysis – and the smart money will continue to back the winners.
Effectively it can be intrepreted as saying that Retailers are being rewarded by Investors at the expense of Suppliers.
Competition laws and codes of conduct are struggling to make any serious change in the Supply Chain dominance of the Retailers.
But let’s suppose, that an accident occurs whilst a Supplier is hurrying to deliver a weekly specials delivery to a Retailer DC. Now, the situation could change.
An Enforcement Authority under the Chain of Responsibility laws may be able to pursue a successful case against a Retailer. This may be worth let’s say a few million, honestly that is not going to hurt them. BUT, let’s say that a Civil Litigation firm now gets involved, well the situation completely changes.
The Civil Litigation suit could well bring in the Retailer and it’s Directors personally!
It should be noted one law firm has already announced that it expects the Chain of Responsibility legal market to be worht $100m a year.
Given the threat of a prosecution and may be Civil Action, investors may re-consider their invest decision. And that in the Age of Shareholder Value over Customer Value may well be the catalyst to drive change!
If you need more information or help – then contact us – LATUS is the recognised Australian Specialists in Chain of Responsibility Email Us
Resource Articles on Retailer Behaviour