Tesco boss Dave Lewis has pledged to simplify the way the supermarket does business with suppliers as part of his efforts to change the behaviour at the group in the wake of its accounting scandal last year.
Speaking at the IGD conference in Westminster this afternoon, Lewis announced plans to speed up payments so its smallest suppliers, who deliver up to £100,000 worth of products a year, are paid within 14 days – typically 34 days quicker than before.
At the same time the company will also standardise its payment terms to larger manufacturers and suppliers are all paid with the same number of days, depending on the product categories.
This means that businesses supplying Tesco with fruit, vegetables and meat, for example, will be paid within 23 days, compared with 28 previously.
It will also move to reduce the number of ways it takes commercial income from 24 to five and will set up a helpline where any issues raised by suppliers are aimed to be resolved within 48 hours.
“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,” Lewis said.
“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,” he added.
The changes, which will be in place by the end of June next year, come after Tesco became embroiled last year in an accounting scandal over how it booked commercial income from suppliers.
Tesco has been paying suppliers later and taking money from them earlier than it should have, leading it to overstate profits in the first half of last year by £326m.
The revelations prompted the grocery code adjudicator, Christine Tacon, to launch an investigation into the supermarket’s treatment of suppliers earlier this year, and to decide whether it had breached the Groceries Supply Code of Practice.
In June, suppliers rated Tesco as the worst of the major supermarkets at complying with the government-backed industry code that ensures fair treatment of manufacturers.
However Lewis has insisted that its relationship with suppliers has improved over the year as the retailer continues to turn itself around. As part of its overhaul, Tesco has also shrunk its supplier base as it axes the number of product lines it sells - in an attempt to secure better deals with fewer partners.
The move was welcomed by businesses. John Allan, national chairman for the Federation for Small Businesses, said:
“We are pleased to see Tesco has listened to our arguments, and made improvements to its payment practices towards its smaller suppliers. The new standardised and clearly defined payment terms should provide a far more reasonable payment framework for small firms. It will allow them to have more confidence when doing business, giving them the ability to plan ahead more effectively."
Tesco will report its first half results tomorrow, a year on from when Lewis was parachuted into the business and its profit black hole was revealed. Bernstein analysts are predicting a like-for-like sales decline of around 1.6 per cent.
It will also be the first set of results for Matt Davies, the former Halfords chief executive, who has been brought in to head up Tesco's UK business.