Telling the truth about SME life today

Pay to play: Good procurement practice or unethical behaviour

Pay to play is where a company issues an ultimatum to all (or a group) of its suppliers to provide some sort of immediate benefit, perhaps a percentage-cost reduction or even a lump sum of money, in order to remain a supplier for the future. 

Such initiatives are not new; in fact they have been around for many years, but suddenly they seem to be making the headlines.

Given the right spin, populist media can easily appear to be exposing giant global corporations guilty of oppressing the weak and vulnerable supplier. We saw this recently in the UK when Premier Foods were singled out and demonized by the media for allegedly poor procurement practice relating to such a scenario. 

So, are pay to play schemes acceptable procurement practice or do they constitute bad or unethical behaviour on the part of the buyer

The short answer is, it depends.

It depends upon the balance of power, the degree to which a company needs or at least wants to be seen to act responsibly, and the degree to which the company is prepared to risk jeopardizing supply or encountering negative publicity.

Is it ethical

Lets have some perspective here: in reality, how weak and vulnerable are suppliers And surely any supplier has the choice to walk away  

Organisations need to consider their position and whether their power in the market place is so significant that it demands they act responsibly. 

For example, a supermarket that works with lots of small family suppliers perhaps whose livelihood depends upon the retailer for a route to market might exploit their superior power in these relationships and demand more. The small supplier would have little option but to agree or risk losing the business.

True, it could be argued that the small supplier has left themselves vulnerable by such reliance upon a single retailer, but it is also the position that many small suppliers find themselves in, especially early in their evolution. 

So, to avoid the risk of negative publicity, loss of security of supply through unsustainable price points or maybe even to do the right thing , any buyer should be compelled to act responsibly.

Continue reading on page two…



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