There’s never been a more important time to work well with partners – Serco found out the hard way

In 2006, the Guardian newspaper described services company Serco as “the biggest company you’ve never heard of”. That all changed last October.

The company, responsible for running a multitude of public facilities, from prisons to trains, had been called in by the UK government and asked to make savings.

But rather than reduce margins, it wrote to its suppliers: “I am asking you to offer us a rebate of 2.5% [exclusive of VAT] on Serco’s full-year spend with you for the 2010 calendar year in the form of a credit note.

“Like the government, we are looking to determine who our real partners are that we can rely upon. Your response will no doubt indicate your commitment to our partnership.”

When the letter was leaked to the press, the government, Serco’s biggest customer, was not impressed. The company was forced into climbing down and apologising. But the damage was done, and the company’s shares fell sharply.

Asking suppliers to share some pain is hardly a new practice, but the clumsy way in which Serco went about it and the government’s negative reaction, hit the security group’s reputation badly.

As we have emphasised many times, risk managing the supply chain is better conducted through a genuine sense of partnership, especially if there is a danger of the affair becoming public.