Relationships With Suppliers And Customers: A Risk Particularly For New Co-ops

Economic trading risks can also endanger the autonomy and independence of co-operatives.

Since the Statement on the Co-operative Identity was articulated and the Co-operative Principles were reformulated by the Alliance in 1995, there has been an enormous growth in the power of giant corporations and organisations in global supply chains. the size, scale and global operation of such enterprises enables them to exert influence throughout the supply chain. this has recently been demonstrated by 'pay and stay' arrangements, whereby major producer companies require suppliers to pay-back a percentage of the contract value in order to remain approved suppliers. Such arrangements present major challenges to co-operatives and other small producers that supply these huge, market dominant, companies.

Autonomy and independence can be compromised by becoming over-dependent on supplying a single purchaser of a co-operative's product or services, and, equally, from over-reliance on dominant sources of supply.

There are particular dangers to the autonomy and independence of newer and growing co-operative enterprises. Producer co-operatives can be attracted by the volume of contracts offered by a major buyer, but may inadvertently become over-dependent on such a contract and vulnerable if a major buyer subsequently seeks to inflict substantial price reductions.

New forms of co-operatives providing community services in the sectors of the economy that might formally have been provided by public authorities can be particularly vulnerable to arrangements where contracts are awarded for a fixed time period, after which they must compete against much larger organisations who are prepared to use predatory pricing to prevent a successful co-operative competitor emerging.

Sound business management practices can help manage these risks. risk mapping and risk analysis can be used effectively to identify commercial and other risks, assess their impact, look at risk avoidance and mitigation strategies, specify who within the co-operative has responsibility for managing the risk, and what action may be taken if a particular risk crystalises. Where commercial risks cannot be avoided effective risk management is advisable.