Case study

Code clarification: payments for failure to meet target service levels

Requesting supplier payments for failure to meet target service levels which are not set out in supply agreements is recognised as not being consistent with the Code.

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Theme of case study

Seeking supplier payment for failure to meet target service levels.

Code reference

Paragraph 3(1) Variation of supply agreement and terms of supply.

Retailer(s) involved

The Co-operative Group Limited.

Summary of the issue

The GCA was approached about suppliers being required to make compensation payments to the Co-operative Group Limited for failure to meet target service levels against actual performance. The Co-operative Group Limited was reported to have said that, there had been an associated loss of profit that was due to be reimbursed. It was reported that the request was not supported by evidence relating to performance nor that an agreed service level target was in place.

Handling

The GCA raised the issue with the Co-operative Group Limited and it was discussed at the quarterly meeting on 20th November. A response was received on 16th December 2013.

Outcome and/or GCA decision

The Co-operative Group Limited advised the GCA that following an internal investigation into the service level issue it was found that this type of request originated from one category and from one buyer only. There were no other requests from other buyers across the trading department similar to this. The buyer who sent out these emails has been further trained on the Code and the correct procedures to follow and has subsequently sent out retraction emails to those suppliers who received the request initially. The Co-operative Group Limited stated that: “We do (and will continue to) ask for loss of profit support but only on individual instances where a supplier does not comply with our terms and conditions”.

The Groceries Code Adjudicator is pleased to note that it has been recognised that the practice is not consistent with the Code, the practice has been stopped and all affected suppliers have been notified.

Date concluded:

January 2014

Published 14 March 2014