Measures of commercial compliance on the part of global brands and retailers are significantly and positively correlated. The conclusion is from the first annual Better Buying Commercial Compliance Tracker which measures an enterprise’s adherence to minimum levels of performance—not cause “obvious and avoidable harm”—in the course of its purchasing practices.
THE TRACKER: Developed as part of Better Buying’s participation in the Sustainable Terms of Trade Initiative (STTI), the tracker provides a baseline measure of the extent buyer purchasing practices meet the definition of commercial compliance as found in the STTI White Paper published in September 2021.
- Commercial compliance refers to a buyer’s adherence to the minimum level of performance outlined in key recommendations set forth by manufacturers as central elements to the terms of trade they wish to do business under.
- These recommendations encompass “purchasing practices that do not cause obvious and avoidable harm to manufacturers” in buyers’ supply chains.
- Better Buying hopes to incorporate measurement of commercial compliance into its existing Better Buying Purchasing Practices Index (BBPPI) in order to provide an annual assessment of the status of commercial compliance.
- This will allow brands and retailers that subscribe with Better Buying to see their levels of compliance and track progress that is being made.
- The survey will also be available as a standalone module for those brands and retailers who do not subscribe to the BBPPI.
KEY TAKEAWAYS: Some points to be noted:
- 238 supplier ratings from 38 different countries/regions were received, with responses from 10 countries/regions comprising 74.5% of the total data.
- 84 different buyer companies were rated. Rated buyers included large and small companies headquartered in North America, Europe and the United Kingdom, Australia, and Japan.
- Eighty-eight per cent of suppliers received orders directly from the buyers they were rating. The remainder received orders through a third party (7.4%) or both ways (4.6%).
- The commercial compliance score for this year’s ratings cycle was 29.4.
The practices with best compliance included:
- Buyers paying full price as agreed in the purchase order;
- Buyers not extending payment terms without supplier approval;
- Terms of the order specifying when ownership and responsibilities are transferred from the supplier to the buyer.
The practices with poorest compliance included:
- Buyers allowing prices to be changed when external costs fluctuated by +/-5%;
- Buyers updating forecasts at least monthly;
- Prices covering all costs of compliant production including a reasonable profit for suppliers.
Measures of commercial compliance were significantly and positively correlated, meaning that when buyers complied with one key recommendation, they were more likely to comply with many others. And when buyers were non-compliant with one key recommendation, they were likely to be non-compliant with many others.
- While buyers are well-equipped to fairly address issues that arise in verifying and addressing quality disputes and delivery claims, they are much less likely to have policies in place that fairly address compensation for unused capacity and late payments, fair distribution of profits when prices are revised, and force majeure events.
RECOMMENDATIONS: Significant improvements are needed by buyers to be in compliance with the key recommendations issued by STTI.
- Especially high impact areas to work on include compliance with paying in full, allowing changes to prices to be made when costs fluctuate, paying prices that cover all costs, and confirming capacity, which are all significantly correlated to compliance with every other key recommendation.
- The patterns of behaviour observed with most practices either being compliant or not increases the possibility for suppliers to easily identify and avoid non-compliant buyers who will strain their business relationships with their suppliers and add to the pressures on workers in global supply chains.
- Better Buying will continue to monitor findings about these relationships in subsequent ratings cycles to see if they hold.
- The findings related to policies and processes for how buyers handle non-compliance suggest that while buyers are well equipped to fairly address issues that arise in verifying and addressing quality disputes and delivery claims, they are much less likely to have policies in place that address compensation for unused capacity and late payments, fair distribution of profits when prices are revised, and force majeure events.
- The shortcomings found represent opportunities for buyers to collaborate with suppliers to create workable policies respectful of the business relationship between true partners.
ABOUT BETTER BUYING: The Better Buying Institute reimagines supply chain sustainability, leveraging data to strengthen supplier-buyer relationships, with the goal to accelerate industrywide transformation of buyer purchasing practices so that buyers and suppliers create mutually beneficial business relationships.
WHAT THEY SAID:
The correlation of a number of practices related to pricing may help solve the issue of paying living wages. Brands committed to that goal should pay much attention to these in their work with suppliers. These and other measures are high impact areas for the industry to focus on, and Better BuyingTM stands ready to help brands and retailers begin measuring their commercial compliance so they can identify and mitigate areas where they are deficient.
Marsha Dickson
President and Co-Founder
Better Buying Institute
