Buying groups & procurement supply chains, your “buying power” has been neutered – time to EARN savings…
Let’s face it, the old model of volumes = % rebates is broken…and even the concept of “buying power”. Repairs & replacement to old laws have been gazetted (Government Gazette No. 42231) as evidenced by the most current Competitions Commission Act. Link to PDF (52 pages) – NOTE SUMMARY ON PAGE 10
This article does not seek to extend the debate on what should or should not be, or what’s right or wrong, that was a debate that concluded long ago. This article intends to stimulate engagement on stimulating the right behaviours.
At the outset, please set aside any self-serving agendas and intellectually consider what will stimulate long term sustainable growth in South Africa, in the context of this topic. This is NOT to say that it should be at the expense of current industry leaders, but rather WITH all existing big and small role-players whilst incorporating the need to add new role-players – Holistic & sustainable, not protectionist and self-serving…MAKING THE CIRCLE BIGGER.
BACKDROP – Under the expectation of being fact-checked, below is a summary that has led to the intervention of the Competitions Commission Tribunal.
Rebates including those by any other name, were born from a perfectly acceptable supply and demand driven incentive of sheer volumes. Buyers with more power (or volumes) got the better price. Over time, the need for suppliers to supply multiple retailers gave rise to competition driving innovative new trading terms, commissions, rebates, discounts, marketing contributions, logistics, travel, early settlements, warehousing and a host of other ways of creating a perception and differentiation of deals between retailers and their suppliers.
All of this was (debatably in hindsite) perfectly justifiable…that is until it became self-destructive ie…The juncture we are now at and as determined by the recommendations of the Competitions Commission Tribunal…and the net spirit of their determinations are spot-on and undeniable.
The stark-naked truth is that industry sectors got sucked into an eco-system that made sense at that point in time, then devolved into a myriad of smoke and mirrors of protectionism and plausible deniability through trying to create differentiation in deal structures. ie: A load of B.S. – I am convinced that Suppliers, Manufacturers, Importers, Distributors, Wholesalers and even Retailers are completely fatigued by trying to maintain an indefensible status quo and would welcome a more transparent even-handed, honest and growth driven playing field. Retailers must EARN their benefits beyond simplistic volumetric bullying-power and Suppliers must justify their preferential pricing beyond the simplistic-thinking of only volumetric measures…Surely we are smarter than that?
IT’S TIME FOR SOUTH AFRICA TO HAVE A GROWTH DRIVEN ECONOMY – Incentivise the right behaviours
Elon Musk once said “What you INCENTIVISE…will happen”: Seems obvious enough but, in the context of this article, we must ask ourselves what it is, specifically, that our buying/selling practices incentivise…at the CORE. Some might say driving volumes is a worthy endeavour, and no-one disagrees with that at face-value, but can the methods being used that drive those volumes be SUSTAINED? Do those methods incentivise a growth in the sectors’ base, or does it merely protect incumbents? It seems ridiculously obvious that the current system does not promote a growth driven economy, in a South African context. Forcing prices down, or rebates/discounts/settlements/contributions etc up, is simply irresponsibly short-sighted but understandable considering the available incentives.
To achieve that, seemingly obvious, goal should not manifest itself through bullying suppliers or retailers being smoke-screened by plausible deniability of variable deal terminologies, but rather work together to reduce the cost of doing business, RESULTING in a lower price or improved rebate ie: JUSTIFIABLE, PROVABLE, COST EFFICIENCIES.
TALK IS CHEAP – This new act, albeit in its infancy, clearly lays out the spirit of its intentions and will likely be interrogated by many companies’ legal advisors, so I will not comment on the legal-speak but rather on the acts’ obvious intent. In the future, simply stating a differentiation between supplier/buyer A vs B, will no longer be enough…BOTH parties will need to be able to justify, and PROVE, the efficiencies creating the differential between party A & party B, if challenged. Words, farcical terminologies and smoke-screens will be relegated to the annals of an archaic time way past its expiry date and replaced with transparent, growth driven, incentives that embrace the concept of “A rising tide raises all boats” and still within a capitalist economy.
Ron Basel
