December/January, 2004

From the Editor

More Than Nickel's And Dimes

There has always been a mystery, and some would say an injustice, in the way buyers and sellers get paid. The largest and most responsible buyers deal every single day with representatives of manufacturers, distributors and brokers who share a common trait: The salespeople get paid more than the buyers. This fact is at the root of both a lot of corruption and a lot of resentment.

One can try to find substantive reasons for this disparity. The salesperson’s contributions to a company are quantifiable, both in terms of sales and gross profit, while a buyer’s contributions are more ephemeral. A corporate executive may know that a particular employee bought $10 million of ham but that doesn’t tell the executive what that employee’s contribution was. After all, he could have overpaid slightly for the ham or not gotten the best quality for the money, or he could have cost the chain money through buying from suppliers with excessive rejections or inefficient service.

Of course, many salespeople primarily get paid based on performance, often earning commissions, bonuses or profit shares that can account for the bulk of their compensation. This “pay for performance” means they share the risk of bad times with their employers.

Though all these explanations have some truth in them, they avoid the big truth, which is that compensation is, like any other market, set by supply and demand. The supply of people willing to be big buyers is vast, whereas the supply of those willing to submit to selling them is far more limited.

This is because, compensation aside, buying is a much better job than selling. It’s an awful lot more pleasant. A big buyer is always a genius, always right, always treated respectfully, always gets his phone calls returned, always has his requests for meetings granted, everything is done around his schedule — and this doesn’t include the unofficial perks, such as invitations to great sporting events and shows.

Salespeople, on the other hand, may enjoy their work and the challenge of it, but the job is fundamentally less desirable. Phone calls are not returned for months; worse, they have to be at the beck and call of customers every time something goes wrong with an order.

All sales are tough, but in the supermarket industry and particularly in perishables where one is selling parity products, a salesperson lives every day at the sufferance of big buyers who can toss you aside for any reason ... or for no reason at all.

The recent mad cow find in the United States raises an interesting question about the nature of procurement at retail. For some years now, there has been a controversy regarding the use of sick and injured cows for meat. These are called “downer animals,” and Congress has on several occasions come close to banning the sale of meat from these animals. Each time, however, the beef industry has been successful in holding off the law.

As with any policy change, there are costs and benefits to be weighed. With at least 200,000 downer animals each year, the cost of banning the use of this meat is substantial. Of course, the bans on buying U.S. beef imposed by foreign countries and the decline in consumption caused by consumer reaction to such meat being in the food supply is very expensive as well. It may well have been penny-wise and pound-foolish for the U.S. beef industry to oppose a ban on using downer animals for meat.

Be that as it may, that is all politics and public policy. A more interesting question is why hasn’t even one single major supermarket chain imposed such a requirement on its own meat supplies?

Food safety controversies today rarely deal with acute food safety issues — the “eat this and you die” kind of threat. Instead, the actual controversies tend to be systems-oriented, in which decisions are made to change the whole food system to reduce some risk in an incremental way.

Because the cost is immediate and obvious and paid by specific, identifiable people (usually producers) — whereas the benefits are delayed, uncertain and accrue to the general public — there is a bias toward inadequate action in the political arena.

A supermarket chain is, however, not nearly as constrained in its actions as the government.

Surely, given that reasonable people can differ in their opinions, it seems odd that not one major supermarket chain took a proactive approach to protecting its own meat supply and, consequently, its own customers.

What explains this? Ignorance? A hesitation to rock the boat with suppliers? Or simply a lack of acceptance that a buying organization requires preemptive thinking about procurement? Perhaps executives don’t realize that an organization can benefit by having higher standards than its competitors; that buying isn’t only about price, quality and service, but also about positioning a company to face the future.

Buyers should be paid more. It would reduce corruption and would open up a whole world of professional opportunities as buyers realize that to keep their positions, they have to become more than they previously were.

Of course, buying organizations need to broaden their expectations of procurement so that the emphasis isn’t on saving a nickel a pound nor on getting a higher fee, but rather on helping each retailer approach procurement as a strategic exercise of corporate positioning rather than mere tactics.  DB