Risky business

Having come from an economically shaky industry in IT, I know the pressure many companies are under at the moment and the OP industry is certainly in as much need of a shot in the arm as any other in these tricky times. Businesses are getting hit from all angles and the manufacturers are under as much pressure as everyone else. Not surprisingly, they have cold-shouldered CE’s European proposal of a 4.5% price reduction – as set out in the Solidarity Agreement letter.

This proposal is very destabilising. If one manufacturer agrees then the rest will surely have to follow suit in the same way that other contract stationers, such as Lyreco and Guilbert, would surely have to consider putting the same proposal to their manufacturers should a decent number of suppliers agree to the price cut – and you can bet that Lyreco and Guilbert will be seeking the names and addresses of those suppliers who do agree to it.

Coming cap in hand to suppliers is a gamble and as one supplier said, "bloody cheeky". A surprisingly calm CE European merchandising director Gunter Albinus told me that his company was relaxed about the coverage that would follow the release of the letter and the relatively public nature in which the proposal was made.

However, Buhrmann’s CEO Frans Koffrie recently told OPI‘s eurOPe 2002 conference: "I think power channels are not interested in a lower price level but in a higher price level, because with a higher price we all make more money."

Spot the disparity? Nevertheless, Albinus insists that the suppliers will appreciate CE’s honesty. To the manufacturers, however, it may feel like CE is taking advantage in that to some extent it has them over a barrel.

But is honesty the best policy when it comes to business? It seems 4.5% is a lot of money for CE to be having to claw back into its profit margin. The other major contract stationers must have been having quite a chuckle at the whole messy affair.

Gunter also revealed that the offer was being made to its top suppliers, allowing the bigger manufacturer to make a very important decision that could negatively impact on smaller suppliers.

Worse still is the possibility that manufacturers may feel forced to accept the price reduction, or one similar, or risk losing CE’s client base. In effect, an offer they can’t refuse.

Albinus has already suggested that the price reduction figure, clearly written in stone in the Solidarity Agreement, could be tailored to specific suppliers, hinting at a climb down from the original proposal. One thing is for sure, it seems unlikely that it will be scrapped altogether.

CE has some serious thinking to do about this proposition. If the letter was about running the idea up a flag pole to see if anyone salutes, then they are in trouble because there are not many arms in the air.

The profit margin rescue package seems to be dead in the water but, worse still, CE’s relationship with its suppliers has been, perhaps irrevocably, damaged. The "solidarity agreement" letter looks an expensive failure in more ways than one.

Don’t get me wrong, it was a ballsy move but it looks like little more than a bad joke.