The Groceries Code Adjudicator (GCA) may be a relatively new body, but they’re not hesitating to regulate major grocery chains and their supply chain ethics. For example, we were met with news earlier this year that Tesco is facing a formal investigation by the GCA, after suspicion arose that it breached regulations on supplier contracts.
New legislation means that soon the GCA will have the power to impose fines of up to 1% of a retailer’s annual UK turnover, which for Tesco would mean over £400 million. As the power of the GCA increases, the voice of the supplier is likely to get heard more and more. Soon, failure to comply won’t just mean bad publicity for retailers but also hefty fines. Tighter regulation on the supplier/buyer relationship might mean that change is in the pipeline for the procurement process. How might grocery retailers respond?
Alarm bells are likely to ring on the contract management front. With GCA compliance to contend with supplier contracts may require a constant review and close auditing.
“Procurement could face new pressure to overhaul supplier contracts en masse, dealing with the need for new contract terms. Automated contract management may be the best way to ensure long-term compliancy.”
Daniel Ball, Director, Wax Digital
Communication between the supplier and retailer may not have been effective or balanced up to now, but the GCA’s power to fine might change this. Grocers may choose to be more transparent with their suppliers. For example, using a supplier portal can give their suppliers easy access to up to the minute product, order and payment information. Hopefully, this would mean fewer complaints to the GCA.
Grocers could also benefit from fully integrated Source to Pay processes, which would ensure that the full supplier relationship, from on-boarding, to ordering, to invoicing and payment, is tracked and managed against agreed and compliant terms.
Waitrose and Morrisons both recently announced falls in annual profits. The GCA’s increased power could add to struggling profits now that grocers have less freedom to stall supplier payments. The cash flow of grocer’s may require more frequent and closer scrutiny, meaning that clear order to cash visibility will be doubly vital.
While most will be evaluating the cost benefits of compliance versus non- compliance, grocery chains would be wise to consider how improved procurement processes can help their business performance and keep them within the GCA rules.