Manufacturers are `ripping off’ suppliers by offering unprofitable contracts, distribution company Charles Baynes claimed this week.
John Perkins, chief executive of the Coventry-based industrial supplier, said: `Single-source supplying should benefit the manufacturer and supplier. But a lot of firms are not passing the benefits on, and keep asking for dramatic cuts in costs.’
Single-source supplying, where a customer buys all or most of its requirements from one company, has grown in recent years as manufacturers concentrate on core businesses.
Some original equipment makers are offering contracts with gross profit margins of under 10%, compared to 20-30% previously, Perkins said. `This isn’t an appealing prospect for us. You may find that at that level the supplier will be unable to fulfil the contract. Some competitors have taken on contracts with narrow margins and large penalty clauses. There could be a lot of fallout.’
* Baynes competitor Haden McLellan plans to sell its process engineering business to focus on distribution. The Infast fastener distribution arm was its best-performing business in the first half of 1999.