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Expert Comment: Professor Jan Godsell

JanGodsellSupermarket price war 'hitting food supply firms’: It doesn’t need to be like that

There is an unfortunate inevitability that the difficulties faced by the supermarkets resulting in the increased intensity of the price war are being passed onto their suppliers. However, if the boards of the supermarkets were to truly understand the principles of good supply chain management they would realize that there was another, and better way. In the words of the 1980s band Erasure, It doesn’t need to be like that.

Fundamentally, the UK needs to start paying the true price of food. We have become accustomed to buying food at such low prices, that it would appear the supermarket is offering them as a ‘loss leader’. On the surface it might appear OK, if the supermarkets offset the loss against more profitable products. All too often their planned ‘losses’ are passed onto their suppliers. Furthermore, it gives consumers the wrong idea about the true price of food, and sets unrealistic expectations.

Whether it is paying the predominantly female workers within the store, the same as their male counterparts in the warehouse, or the suppliers the true cost of the product without large discounts, penalty payments, rebates and poor payment terms, we need to calculate the true price of food to make sure that everyone across the supply chain, from the farmer to the consumer gets a fair deal.

If we were to take a truly end-to-end perspective, with the supermarkets as a responsible interface between the consumer and the rest of the supply base, sustainable every day low prices could be achieved.

Supply chains essentially work by balancing demand and supply. For things to be as cheap as possible we need demand to be as stable as possible, so that we can make them as efficient as possible across the entire chain without the need for costly buffers. Many products have an inherently stable demand pattern as we consume them in the same way almost every day or week. We are inherently creatures of habit. This stability gets disrupted by promotions. We think promotions give us a good deal, but the reality is they cause chaos and confusion across the supply chain and someone has to pay for it usually the suppliers at the end.

The supply chains for fresh produce may be more supply led. The harvest of strawberries may be determined by the weather. Perfect growing conditions could result in a bumper crop, which could result in waste unless creative ways of stimulating demand can be found. This could involve lowering the price of the product, or suggesting in a very short time frame new ways in which the product could be used, possibly endorsed by a celebrity, or awareness raised by the media.

There is so much potential to genuinely provide the nation with food at the lowest sustainable price, whilst ensuring a fair return to all along the supply chain. It just requires those in the supermarkets, those with the power to connect demand and supply to think and act a little differently.

Find out more about supply chains at:

Fri 31 Jul 2015, 12:24 | Tags: Supply Chains WMG Comments Jan Godsell