Australian Supermarket giants Woolworths place business at risk as it moves to lengthen supplier payment terms  

We were disheartened to read in recent newspaper reports that supermarket giant Woolworths is seeking to extend supplier payment terms out to 60 days across its network.

The move is being spruiked by Woolworths (Sydney Morning Herald, 17 March 2016) as a means of ‘simplifying’ its processes by removing what it terms legacy contracts.

We view this as a direct attack on small-to-medium enterprises – a move that will wreak havoc in industries where faster payments can mean the difference between survival and failure. We know. We see financial stress all the time, particularly through the knock-on impacts that occur when larger companies hold out payments to their smaller supplier networks.

Moving to 60-day payment terms will place Woolworths at odds with its main competitor, Coles, where it is understood trading terms for food and grocery suppliers range between 10 and 30 days.

What’s even more remarkable is when you hold up Woolworths’ Draconian approach to its suppliers against that of America’s leading warehouse retailer Costco, who is so determined to lock in its supply chain or organic groceries that it’s begun a programme to both fund and equip farmers in return for their goods.

Speaking at Costco’s recent shareholder meeting, and reported in the Seattle Times, CEO Craig Jelinek said the retail giant could not get enough organics to stay in business day in day out, so the company was doing something out of the ordinary to sure up its future.

Rather than work against its suppliers, it’s working with them - on a scale never before seen, and in a scheme which seems startling obvious. Costco is now working with farmers to help them buy land and equipment them to grow organics, one of the fastest growing food lines in America. The nascent programme, which so far includes just one initiative where Costco has funded the purchase of 1,200 hectares of land for one of its suppliers, is expected to grow to other incentive activities to ensure the warehousing behemoth can meet the voluminous demand of its customers.

We believe Australian supermarkets should be looking to the Costco example. There are no winners in keeping your supply network at heel, but rather more to be gained by partnering with them to resolve better outcomes for all.

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