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Extended payment terms - clout versus collaboration

By Herb Shields | 06/13/2013 | 3:42 PM

Over the last several months, the Financial Times(June 2) and The Wall Street Journal (April 16) have published articles that report on the movement by the consumer products marketing and manufacturing companies – P&G, Mondelez, etc. – to extend payment terms with their suppliers up to 120 days.

As a Purchasing professional with experience in the consumer products industry, I question this approach for a number of reasons:

  1. The major global marketers have the clout to make this happen, but it’s clout not collaboration.  How can these companies talk about the importance of collaborative relationships with suppliers on the one hand and then tell them they won’t get paid for 120 days?
  2. In addition to the obvious benefit to P&G, etc., the other beneficiaries are banks and factoring companies.  I found the comment that “P&G will help its suppliers get low interest rates” really astounding – they recognize that suppliers cannot afford to finance P&G’s business, but that’s ok.
  3. Consumers – all of us- will eventually pay for this.  The suppliers are already being squeezed through the consumer products supply chain that starts with the retailers and extends back through the marketing companies.  The finance costs for the extra 60-90 days is an added cost to the system which they cannot absorb.
  4.  It will get much worse once interest rates go up. 

 

I hope that some readers will comment on this.  Maybe there is a piece of the puzzle that I am missing, and if so, I would like to hear what it is.

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The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Herb Shields

Herb Shields

Herb Shields has run Chicago-based HCS Consulting since 2000, helping clients across multiple industries and in higher education improve their supply chain strategy and execution. Shields has more than 30 years as an operations executive for capital equipment, automotive, electrical machinery and consumer products companies. As vice president of materials management at consumer goods company Helene Curtis, Shields led the supply chain organization that helped Helene Curtis win "Vendor of the Year" awards from Wal-Mart Stores and Target Corp. Shields has a B.S. degree in Electrical Engineering from Clarkson University and did graduate work in business at Bowling Green State University.



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