Securing Suppliers
Salmac Sales Limited was founded in 1985 selling farmed salmon on a commission basis.
In 1992, Andrew Walker took over as managing director and, in the early part of this decade, the company evolved into a distributor trading a wide range of Scottish seafood. The objective was to increase sales volume in order to grow the company's margin income.
Salmac's core products are now prawns and scallop meat as well as salmon, and the company has offices in Aberdeen and Boulogne-sur-Mer, France. The company employs 15 people and turns over approximately £20 million per year. Just over a third of its sales are to the UK, with the remaining two thirds to export markets including Ireland, France, Belgium, Spain, Italy and the United States.
The success of the company is due largely to the approach Andrew has taken with his suppliers and the open and transparent relationships among them all.
Andrew proposed to a group of farmers that if they guaranteed him their entire product, he would remit payments of actual sales values less costs and a standard Salmac margin percentage.
The farmers agreed to this approach and it has worked well for all involved. Salmac takes approximately a 3% margin - around 6p if the salmon sells for £2 per kilogram, 9p if it makes £3.
This ensures Salmac has secure access to large volumes of salmon of consistent quality and, because of the volume, means it can afford to restrict the margin it takes.
At the moment Andrew is supplied by four farmers who produce around 2500 tonnes. Over and above that, Andrew buys on the open market to meet customer demand. The farms are all large, independent enterprises, whose product is approved under either the RSPCA's Freedom Food scheme or the Soil Association's organic scheme.
The suppliers are happy with these arrangements because they make more than other farmers. They are also part of an open and transparent chain where each party knows exactly what the other is gaining.
When Salmac ceased simply to broker salmon, the company also began trading in prawns. It now buys from more than a dozen producers around Scotland, all of whom buy directly from the boats and pack the prawns ready for selling on.
Again, to secure supply, Andrew looked for a new approach. Andrew set up a joint venture in partnership with one of his potential suppliers. The company, Select Shellfish, buys directly from the boats and the produce is all supplied to Salmac.
Key points from this case study
- trust and openness are essential to maximising the opportunity
- a fair division of profits means that all those in the chain benefit
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