Hello everyone
I was having a discussion the other day about how corporate business has changed over the years and why it has changed for the worse.
I am going to tell you from experience how a company changed one thing and how that one simple thing changed 1000's of lives over night. We will call this company A, who is a dominant Blue Chip company and has offices around the world. They are in retail where I have worked in for many years. It has always been a dog eat dog sort of world where everyone is fighting for their fair share. They used to have a fair set of scruples on how they did their business but that has changed. I put it down to their senior management ,where they work on bonus schemes with incentives.
Company A has changed tact and where suppliers were given 14 or maybe 30 day payment accounts they have now moved to 45 and 60 days. Why have they done it? Basically they can sell the goods before they pay, not affecting their interest accumulating in their growing bank accounts. They already make between 40 and 60 percent if you count the rebate system which is based in their favor. This has a knock on affect for companies B and C.
Company B is a sourcing company and an agent for company A. They have been doing business for over 20 years and have a strong relationship and a sound name in the retail industry. They use lots of various manufacturers for whom they represent. These manufacturers are a group that make up company C.
Company B has been informed of the change in payment from 14 days to 60 days which is now basically 90 days. 60 days from invoice. This company is now in financial trouble and the cash flow is now under financial strain. A company without cash flow as we all know is a company under severe stresses. How does company B survive this crisis? They use company C and stretch their payments out to 60 days now as they have no choice. Retrenchments will happen in company B in order for them to survive.
Company C is made up of a lot of small businesses, most of them small family operations and have been around for years These businesses unless they have a vault full of cash are going to suffer first. Retrenchments will take place and basically everything falls apart at the seams. The entire network of businesses that they rely on for supplies comes to a grinding halt. Some will be forced to shut down or be swallowed up by other companies who are looking for a cheap deal to expand.
This is a scenario that I know has happened to a friends company in the last 6 months and it is not a one off. Every company supplying company A has been affected in this way. It is not a recession but actually helps to create one. It is the decision made by a new management board trying to make even more profit. This I find very short sighted as not only will products become inferior as cost saving needs to happen and corners are cut. The one who misses out is the consumer as they are paying the same price for something that isn't quite as good. When does this madness stop and will it stop?
I have thought about this for some time and what it boils down to is the management boards are a lot younger now. These university graduates with little experience in life are trying to get as much money in bonuses as fast as they can. They don't care about the consequences down the line and probably don't even know the repercussions that they are causing by agreeing to a decision in a board room. If they just kept it simple and could see that every action has a reaction in life whether it be good or bad, but at least see it. They are all blinded by greed.