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Creating things that don’t exist

Walmart and Google are entering the voice-shopping market – alongside the other big online players, Amazon and Apple.

Walmart’s goal is to “create customer experiences that don’t currently exist“. Is that a good thing?

It is almost certain that Walmart will have conducted extensive market research to see whether people actually want it and how to do it most appealingly.

What is far less clear is whether they have thought about how to create these new experiences responsibly. It is entirely possible that people will love it all, but that it will change the shopping dynamic in some adverse way (less ‘family time’?). Or it may dramatically improve life for the time-poor.

Either way, the actual social impacts of such a move should be explored.

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Supplier abuse

Tesco has been roundly criticised by the Grocery Code Adjudicator over its treatment of suppliers. The adjudicator investigated “the length of time taken to pay money due to suppliers, unilateral deductions from suppliers and an intentional delay in paying suppliers”. The findings leave no doubt that Tesco was engaged in substantial supplier abuse. In fairness it has to be said that, miraculously, Tesco is now ‘a very different company’ from the one described by the adjudicator, according to its CEO.

Yet the real issue is not just Tesco’s practices, but those of all the supermarkets.  I doubt that Tesco is unusual, it is just that since its wider financial malpractices were exposed, it became an easy target. The problem is that there are so few supermarkets that it is no wonder that they exploit their suppliers. And given the opportunities for suppliers to find new customers is so limited, it is understandable that they make few complaints.

But the problem goes even wider than this. While supermarkets may be repeat offenders in terms of supplier abuse, many large companies also work hard to maximise cashflow at the expense of suppliers. Very lengthy payment periods built into contracts are commonplace.

Who is going to bite the hand that feeds them when there are so few hands to go round?

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Can you audit your way out of slavery, or do you have to pay the price?

Channel 4’s report on conditions for fruit packers reveals regular, awful treatment of the workers supplying the supermarkets.

No doubt all the supermarkets’ suppliers are regularly audited to guard against just this sort of exploitation. So what has gone wrong? The immediate answer is that the ‘unannounced, random audits’ were not nearly random or unannounced enough. In these circumstances, the only audit that will work is the one that the company does not know is happening. Channel 4 is really providing just this sort of ‘mystery audit’ service for the supermarkets.

But all auditing is operating after the fact. To prevent exploitation happening in the first place, the causes have to be addressed. And the deeper cause here is the relentless downward pressure on prices that the supermarkets exert on their suppliers. Saying each year ‘next year we will pay you 5% less for the same product’ will lead to slavery. If the supermarkets really want lower costs, they should work with their suppliers to figure out how it can be done without exploiting anyone.

Or just pay what decent work costs.

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Asda: discounting women?

It may not be quite two women for the price of one man, but Asda appears to have a problem with equal pay. The wider Walmart group, of which Asda is the UK arm has a long history of troubled labour relations – but you might expect a better outcome in the UK, since it is the only country in the world in which the company recognises unions.

On this issue of equal pay, the normal PR approach appears to be unraveling. Despite the prominent news coverage of the group action against the company, there is no press release on its website relating to the issue. Moreover the company response to the issue seems to be confined to this statement: “A firm of no-win, no-fee lawyers is hoping to challenge our award-winning reputation as an equal opportunities employer. We do not discriminate and are very proud of our record in this area which, if it comes to it, we will robustly defend.”

It is sad to see that what the company is concerned with is just its reputation, not its actual equal opportunities performance. The logic of this is that if it continues to perform well in good employer rankings, all is well, irrespective of any suffering on the ground.

There is a lesson in this for all those companies that are driven by reputation: if you focus on reputation, you will fall on your face; if you work on your performance, you may be graced with a better reputation.

 

 

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Tesco: capitalism at the end of the road?

Tesco seems to have been cannibalizing not only its own supply chain but also itself – or at least its own accounting practices. Its accounting was designed to push up profits. And that relentless push for profits has also lead to ever-increasing pressure on supermarkets’ supply chains. As a result suppliers pay in every sense to have their products sold in big stores. The awful results of this for small suppliers in the developing world are well-known. Now we are aware of the awful results for Tesco itself.

Of course it is unlikely that Tesco is alone in this. All the big supermarkets tend to treat their suppliers badly. So should we assume that all of them are also indulging in creative accounting? It would not be very surprising if they were.

Tesco’s aggressive accounting culture expresses the hungry logic of unfettered capitalism. And how much future can there be for a capitalism that starts trying to consume itself?

Well, capitalism may not be quite at the end of the road quite yet, but it is certainly at the end of its tether. Tesco’s behaviour is an example of the sort of things companies find themselves doing when capitalism is pushed too far.

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Time for in-sourcing?

The new accord between retailers and unions on worker safety clearly represents progress. Particularly because it involves unions directly. But it also raises big questions on how far there is to go.

Firstly, of course, how many retailers will actually sign up to it? That has been the media focus so far. But then, what about countries other than Bangladesh? What about Vietnam, Turkey – or even the UK?

And the focus of the accord is on textiles and garment manufacture. Beyond that there are health and safety concerns in many other sectors also.

And of course the big omission is pay. Given the assessment that doubling the wages of workers would add only 2p to the price of a T-shirt, isn’t it time that retailers took their responsibilities more seriously? Perhaps it is even time to consider in-sourcing?

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Horse-riding lessons

How can you supply horsemeat responsibly?

The UK has a long history of food scares and scandals – think mad cow disease, salmonella and listeria. But the horsemeat affair is on a different scale and appears to involve a significant part of the European meat supply chain. It also goes beyond health, raising several important issues. The most important being about transparency: processed meat foods do not necessarily contain what it says on the label. And you have to wonder whether the non-processed cuts of meat are what they are sold as.

This has real implications for corporate responsibility. Last year Tesco donated £74.5m to charitable causes at the same time as its lengthy supply chain was compromised. Yet corporate responsibility should begin with core operations rather than charity – and there is little more core than a functioning supply chain. Yet after 20 years of outsourcing, companies in a number of sectors are being forced to realise that responsibility cannot be outsourced. The retailers involved in the horsemeat affair are doubtless considering legal action against their suppliers – all the way down to the abattoirs. Yet even if it is proved that it is all the fault of one party in the supply chain, that will do almost nothing to restore the retailers’ reputations with the public back home.

The main lesson seems to be that the complexity of modern supply chains means that a universal traceability system is essential. And it clearly needs to be more robust than that currently in place for meat supply, even if the reason the supply train has broken down is due to retailers piling on the pressure.

A further lesson for all of us, retailers included, might be: ‘buy local’. Those retailers that source primarily within the UK such as Morrisons and the Co-Op, seem less vulnerable. At least for their own-brand products and particularly where they retain a vertical structure and own their own farms.

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Making corporate responsibility personal responsibility

Taking personal reponsibility for bank failure is one way the size of banks could be limited. And according to the director of financial stability at the Bank of England, there might be a need to do so.

One way to limit both company size and appetite for risk is to tie the fortunes of directors and shareholders directly to the fortunes of their company. This could be accomplished by removing limited liability for companies above a certain size. Removing limited liability would mean that directors and shareholders would be personally liable if things go wrong. So removing it above a certain size of company would provide strong pressure to keep a company under the size limit and generally to behave with more caution.

But what about other companies? Non-bank companies may not be quite so structurally important to the economy, but if Walmart or Tescos collapsed, people would go hungry…

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Every little bit of transparency helps

If you want shoppers to use fewer plastic bags, is it a good idea to give them away free? Manchester University, with a little bit of help from Tesco, thinks so.

Manchester University has produced a report on the effectiveness of different policies for plastic bags. It concludes that giving them away is a good idea. However it appears not only that Tesco supported the university department involved to the tune of £25m but also that senior Tesco management contributed to the report. Furthermore, although their contributions were acknowledged, their link to Tesco was not. The authors of the report now admit its conclusions were biased.

Whatever the report was intended to achieve in the eyes of the world, the lack of transparency involved means that it will have failed.

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The Supply of IF's

Now we have a new code for companies to pay (small) suppliers properly – that is according to the terms they agreed to in the first place.  This will be good news, if there is anything like a fixed contract between them. And especially:

– if the big supermarkets sign up to it

– if their suppliers have managed to negotiate a fair set of terms to begin with.

That’s quite a lot of ‘ifs’.