Weekly Blog by Philip King, CEO of the ICM - 'The case of the pickled onion'

I belong to a Vistage Chief Executives Group which provides its members with the opportunity to hear expert speakers, to share issues with other Chief Execs from different unrelated sectors and industries, and coaching. I attended a session yesterday with a workshop on negotiation run by Malcolm Smith.  He was one of the best speakers I've heard and his style, passion and energy were very impressive.  A couple of things seem worthy of mention.

We hear a great deal about large retailers exploiting smaller suppliers by demanding long and extended payment terms, and one of the things I always say is that this behaviour isn't restricted to the issue of credit. Buying power will manifest itself across all areas including credit terms, margin, price, rebates, packaging and so much more.

Malcolm shared a story from earlier this decade about how a supplier in the US was put out of business by the behaviour of a large retailer.  I don't want to go into too much detail here but, in essence, a small supplier won a contract to supply the retailer with its pickled onions which would retail at their almost standard price.  Buoyed by the prospect of massively increased sales, the company expanded by setting up new processing plants and scaling up to meet the expected demand and everything went well.  Two years later, after a process involving merchandisers, auditors (who were on the supplier's site for eighteen months), and procurement experts, the selling price was reduced to less than half and the quantity for that price was increased from a small jar of a few grams to one the size of an aquarium that was too big to carry in one hand and was branded as a 'gallon jar of pickles for $2.97'.  Not surprisingly, we were told, the company went out of business and I guess it's a case of the classic ‘if it sounds too good to be true, it probably is’.

I understand how difficult it must be to resist the demands of a large customer when that customer might be the gateway to a brilliant future but, if the ultimate price is too great, what's the point?  I've been quoted frequently saying that businesses shouldn't just roll over.  First say no, then get back to the table and negotiate what can be obtained in return, before finally walking away if that's the only option.  Accepting business, however good it seems, at suicidal terms can only be a recipe for disaster.

One of the things Malcolm talked about yesterday was the need to have a list of ‘tradables’ that could be introduced to prevent the negotiation being only about price.  I was delighted that one of the key ‘tradables’ on his list was payment terms – "yes, I can reduce the price by x% if you guarantee to pay me within 14 days rather than your standard 30, 60, or 90 days".  The thing he clearly understands that so many businesses, politicians and others do not is that payment terms are as much a part of the overall business transaction as price, colour, delivery or anything else.  When payment terms are left to be discussed after everything else has been put to bed, the only loser is likely to be the supplier!