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Tesco simplifies trade terms with suppliers to help innovate for customers

Tesco Extra store

Tesco has pledged to deliver a simpler business model for suppliers, by standardising their payment terms.

In a move which builds on progress already made to simplify and increase transparency across its business, Tesco aims to improve innovation for shoppers by encouraging collaboration between the retailer and its supply base.

Tesco will no longer use a combination of complex and varied terms and will instead introduce a new standard approach which will offer specific concessions to help small and medium-sized businesses. The move will allow suppliers to focus on the things that matter for customers.

Smaller suppliers, who deliver up to £100,000 worth of products in a year, will be paid within 14 days. Whilst medium-sized suppliers who deliver up to £10 million in product value per year, will have their accounts settled five days quicker than larger suppliers in their category.

Speaking today at the IGD Conference, Tesco’s Chief Executive Officer Dave Lewis said:

‘One of the things that made Tesco great was the little things we did to help our customers. We want to work with our suppliers to get back to innovating on behalf of our customers and these changes will make it easier for us to do that. Our customers want value, great availability and new choices. If we think about that from one end of the supply chain to the other we can collaborate with suppliers on ideas and grow together. That's good for customers. Good for suppliers. And good for Tesco.

‘To help with this process, we’re announcing the standardisation of our payment terms.

‘By introducing a new standardised policy across each category for our larger suppliers, and shorter payment terms for our small and medium suppliers, it will help us to deliver a fairer, more transparent and consistent approach across our supply-base.’

Standardisation means that in the majority of categories, Tesco will be offering shorter payment terms to its suppliers than they in turn pass onto their own suppliers. The smallest suppliers will typically be paid 34 days quicker than before. For all partners, the terms refer to the day when they will receive cash and not the day the payment is sent for processing. All changes will be in place by the end of June 2016, to enable suppliers to build plans into their annual financial planning cycle. Tesco will make no financial gain from this and in some cases this will mean additional short term investments to improve cash flow right across the supply chain.

Click here to see a table showing the number of payment days by category for small, medium and larger suppliers.

Tesco is also introducing a new Vendor Payment scheme, which offers no financial incentive to the retailer, but provides a fair and consistent deal for all suppliers, regardless of their size.

Over the last year, Tesco has simplified its business and relationships with suppliers‎, introducing a number of measures to improve engagement including:

* Creating a single Product team responsible for the entire lifecycle of a product, committed to our new code of conduct
* Adopting a transparent, long term cost-based buying model with consistent and fair standard payment terms that help grow its joint business with suppliers
* Moving to reduce the number of ways it takes commercial income from 24 to 5
* Launching a Supplier Helpline, where any issues raised by suppliers are aimed to be resolved within 48 hours
* Providing support for UK agriculture, with the development of a joint initiative with Anglia Famers - the Producer Club. The club delivers support for the day-to-day running of farms and an unrivalled combination of savings and benefits

Source : Tesco Press Release

09 October 2015

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