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Supply chain bullying affects one in five small businesses

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John Allan: Small businesses are no longer prepared to put up with sharp practices.

John Allan: Small businesses are no longer prepared to put up with
sharp practices.

NEW RESEARCH by the Federation of Small Businesses (FSB) uncovers alarming levels of widespread unfair dealing. In a survey of 2,500 FSB members, almost one in five (17 percent) said they faced supply chain bullying in one form or another in the past two years. The results indicate a serious deterioration of payment practices much wider than ‘pay to stay’.

The FSB is calling for a toughening up of the Prompt Payment Code, as well as fresh measures to stamp out the most heinous examples of bad practice like retrospective discounting and ‘pay to stay’. The Prompt Payment Code should be a key tool in improving payment culture. The Government has promised to toughen up the code.

The FSB wants to see any company looking to supply the public sector to extend the Government’s standard 30 day prompt payment terms to their own suppliers. Small businesses want 60 day payment terms to be set as an absolute maximum for any business signed up to the Prompt Payment Code.

If a company will not agree to 60 days they should not be allowed to sign up. As part of the FSB research, businesses were asked to give examples of the most common poor payment practices they had to deal with including pay to stay. The FSB has used these examples to create a list of the five most resented payment practices in use across the UK today:

Flat fees – ‘pay to stay’ 

Also known as ‘supplier assessment charges’ or ‘supplier investment payments,’ these are flat charges which companies levy on suppliers either as a requirement to be on a supplier list, or packaged as an investment into hypothetical future business opportunities. It is often indicated that non-payment will result in de-listing. New research has indicated that more than a quarter of a million (260,000) businesses could be facing so called ‘pay to stay’ charges after five per cent of businesses surveyed said they had been asked to make a payment by a customer or face delisting.

Excessively long payment terms – ‘pay you later’ 

In 2011 the EU issued a directive requiring all businesses to pay their suppliers within 60 days, or face interest payments on money owed. However, the UK implementation of the directive allows businesses to agree longer terms “provided it is not unfair to the creditor.” This has led to many companies insisting on payment terms of 90 or even 120 days. In effect this becomes an interest free loan from firms in the supply chain to large companies with excessive payment terms.

Exceeding payment agreements – ‘late payment’ 

As well as insisting on long payment terms, many companies are routinely exceeding agreed terms, or changing terms retrospectively to allow them to miss agreed payment dates. Also thought to be common is the practice of extending payment dates if money is owed on, or close to, the end of a financial reporting date in order to smooth a big company’s balance sheet.

 Discounts for prompt payment – ‘one for you, one for us’ 

Prompt payment discounts are arbitrary discounts big firms give themselves for paying early or even just on time. For example, a firm that has agreed to pay 120 days following receipt of an invoice may also apply an automatic discount of 3% if they pay on or before the 120th day.

Retrospective discounting – ‘balance sheet bonuses’ 

Some firms seek to apply retrospective discounts to outstanding money owed to a supplier. This involves the company effectively changing the terms of the contract signed with the supplier after a contract has been agreed. Methods used to extract these vary, but include threats of de-listing, withholding payment, ‘marketing contributions’ and previously unagreed discounts applied to specific volumes of business. John Allan, National Chairman, Federation of Small Businesses, said: “When the public think of their favourite brands, they are unlikely to connect them with the sort of immoral payment practices which are becoming all too common across an increasing number of industries. “However, it is clear that whenever these examples come to light, the public shares the same sense of moral outrage as the small firms that have to put up with them on a daily basis. “The Government has indicated that they are prepared to do more to improve the culture of payment practices in the UK and they are right to do so. “The sense I get from talking to our members is that small businesses are fast approaching the breaking point. They are no longer prepared to put up with these sharp practices. Brands that think they can continue to squeeze their suppliers with impunity may get a nasty shock when what they are doing comes to the attention of their consumers.”

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Green hydrogen electrolyser and car refueler arrive at Milford Waterfront

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PEMBROKESHIRE COUNTY COUNCIL says it is leading the way in renewable energy with a collaborative £4.5 million project exploring the vital role hydrogen could play in a decarbonised energy future.

Milford Haven : Energy Kingdom (MH:EK) is a two-year ‘detailed design’ project, completing in 2022, exploring what a renewable energy based Smart Local Energy System could look like for the Milford Haven Waterway – including the concept of a Hydrogen Fuel Cell Electric Vehicle (HFCEV).

The aim is to gather detailed insight into the whole energy system around the Waterway, looking at how to make, using and distributing hydrogen financially viable within the different energy sectors of buildings, industry, power and transport.

The MH:EK team will investigate the potential of local renewable energy, including solar, onshore wind, future offshore wind and biomass for decarbonised gas transition.

One element of the project involves a consumer trial of two Riversimple ‘Rasa’ HFCEV’s. The MH:EK team is building a green hydrogen electrolyser and refueler on Milford Waterfront – and this will be used to produce green hydrogen on site to fuel the two trial HFCEV’s.

The project will demonstrate the practical application of hydrogen technology. The aim is to test the feasibility of two hydrogen powered Rasa cars. They will be built by Welsh company Riversimple, and operate as fleet cars in and around the Haven.

Pembrokeshire County Councillor Cris Tomos, Cabinet Member for the Environment and Welsh Language, said: ‘We welcome the progress made by the partnership, particularly in view of recent news that new petrol and diesel cars will not be sold in the UK after 2030. This innovative approach will help us to switch to a low carbon future and promoting sustainable transport as we respond to the climate change emergency.’

Work is underway and should be operational for the trial in July. A hydrogen-ready smart hybrid heating system is also being designed and will be installed and tested in an operational Port building.

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Castell Howell Foods highlights sector concerns over Covid recovery

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THE HOSPITALITY sector may be opening up, but transport and supply issues are hampering the industry’s recovery – according to Castell Howell Foods.

One of the UK’s largest independent food wholesalers, Castell Howell, has taken the step of contacting customers to highlight the significant challenges faced by the sector as it recovers from the pandemic.

While there is relief at easing lockdown and optimism for a busy summer with bookings for UK ‘staycations’ and leisure activities, pressing issues remain.

Shortages of key staff and problems faced by some suppliers have resulted in the Welsh wholesaler being forced to make some “uncomfortable” decisions and changes to its operation, including having to pass on some supply chain price increases.

In particular, a shortage of qualified delivery drivers has meant the Cross Hands based business has had to be resourceful to maintain its delivery frequency to its customers. To help bridge the gap in the short term, other Castell Howell staff who hold an HGV licence have been temporarily redeployed to the transport department. Among them are area sales managers.

Castell Howell Sales Director, Kathryn Jones, said “Unfortunately, due to the drastic reduction in sales in 2020, our workforce decreased by over 100 colleagues. Whilst we now need most to return to the workplace, many have found alternative employment; this is a common theme across the supply chain.

“We have been actively advertising and recruiting for several months. However, as highlighted in the press, there are over 75,000 vacancies across the UK for HGV drivers alone.

“We too are currently short of drivers, especially Class 2 HGV. Driving a multi-drop vehicle for Castell Howell is a very different proposition to driving a limited drop schedule. Consequently, as you can imagine, it has been challenging to fill these vacancies.”
Stock availability is also an issue, as some suppliers struggle to manufacture under new social distancing rules. Delivery to Castell Howell from suppliers is also being affected by the UK-wide shortage of haulage drivers.

Kathryn Jones said, “To build up buffer stocks, we are increasing our volume of orders, especially for commodity lines. We aim to mitigate future stock shortages the best we can. We are constantly seeking substitute products from manufacturers who have the capacity to deliver. However, this is becoming increasingly more difficult.”

Castell Howell has made changes to its ordering process to improve its own deliveries, with earlier cut-off times.

“These changes go against the grain and were extremely difficult decisions to take. However, it is imperative to implement these in order to continue operating under these difficult circumstances whilst still maintaining a high level of service. We are very grateful to our customers for their support, patience and understanding.”

For Castell Howell, the difficulties arising from the pandemic were exacerbated by the loss of business with SA Brain & Co. This loss occurred following the Welsh company’s deal with brewery giant Marston’s to operate SA Brains pubs from January 2021.

Before that date, Castell Howell had been the sole supplier to SA Brain since 2008, including supplying 80 of the Welsh brewery’s managed public houses.

Kathryn Jones said, “However, despite the challenges in the supply chain and deliveries, we remain optimistic that the sector in the UK will work together to navigate through these unprecedented times and have a successful summer.”

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University to host industry summit online

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SUPPORTING industry’s recovery from the impact of the pandemic is a key priority for the University of Wales Trinity Saint David (UWTSD).

The University has a track record for working with industry through knowledge transfer, research innovation, workforce development and by providing a ready pipeline of skilled students and graduates, in partnership with employers.

In addition, UWTSD’s MADE Cymru initiative was established to support manufacturing industries in Wales to adapt to the challenges of Industry 4.0.

The initiative, funded by the EU via the Welsh Government, aims to support the economic recovery of manufacturers in Wales by offering part and fully funded training to businesses to upskill staff, as well as research and development that improves processes and products to reduce waste and costs.

In addition, UWTSD and MADE Cymru have organised an Industry Summit to be held online between June 8-10 to inform, engage and inspire businesses during this critical period of post-Covid recovery.

Expert speakers will be sharing their insights including James Davies from Industry Wales, Carol Hall, Regional Investment Manager, Development Bank of Wales, Chris Probert, Innovation Specialist, Welsh Government and Geraint Jones, Knowledge Transfer Adviser at KTN.

The line-up also includes Welsh manufacturers who will be sharing their own experiences, including Tim Hawkins, Managing Director, Markes International, Julia Chesney-Roberts, Commercial Manager, Riversimple, Angus Grahame, Founder of Splosh and Jacques Bonfrer, Co-Founder and Team Lead, Bot-Hive.

There will be guest talks from circular economy expert Eoin Bailey and lean author Daryl Powell and an opportunity to find out about the range of services offered by the University.

Graham Howe, Executive Head of the MADE Cymru project at UWTSD says: “This Industry Summit aims to explore issues and challenges facing manufacturing in Wales so that we can work together with employers to find solutions. 

“We always start with asking a manufacturer what their biggest problem is today and look at how we can help them with it.

“We aim to unravel potentially confusing challenges like these. Our approach begins by looking at what companies need to increase their productivity and competitiveness.

“We aim to lead the businesses we work with through a journey of continuous improvement – a journey that makes the most of Industry 4.0 technologies and their ever-growing digital capabilities to help solve the specific problems faced by each company.

“All of the feedback we receive from businesses shapes our curriculum – we want to produce employable, digitally literate graduates who can contribute to their workplace from day one”.

Alison Orrells is CEO and Managing Director of Safety Letterbox and has been one of the organisations participating in the MADE Cymru initiative.

She said: “It was important to keep innovating and investing to set us apart and come out stronger. It’s been intense but we had a game plan – now it is all about business future-proofing, being agile, collaborations and being adaptable.”

Covid-19 has affected every part of a business and shifted the focus from production to survival.

UWTSD recently led a round table discussion with Welsh manufacturers about the future of manufacturing in Wales.

That discussion found that their outlook is positive about the future.

Manufacturers accelerated their adoption of new technologies to enhance and optimise production.

With many employees on furlough, managers took the opportunity to rethink and invest in better IT, particularly communications, training and diversified into new product areas. They looked to local colleges and universities to help shift perceptions of jobs in manufacturing and demonstrated the career opportunities and pathways available.

They also loosened their reliance on overseas imports and looked for suppliers in the UK to minimise future risk of disruption.

All sessions of the Industry Summit are free to attend and places can be booked on the UWTSD website: https://uwtsd.ac.uk/made/made-cymru-industry-summit/

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