06 January 2000 | David Arminas
Reckitt Benckiser, the world's largest household cleaning products manufacturer, will renegotiate contract terms with suppliers to make savings.
December's merger of UK firm Reckitt & Colman and Dutch company Benckiser means there will be a "mobilisation" of all parts of procurement and distribution in an effort to seek "substantial savings", said Mark Henderson, planning and logistics director.
In 1998, the separate firms had combined sales of £5.65 million and a staff of 21,400. The new company aims to save £75 million in all areas by 2001.
R&C focused on regional supply chains covering several countries, particularly in Europe, while Benckiser's were more country-by-country orientated, said Henderson.
"We also had different trading terms and these will have to be renegotiated," he said. "This could be extremely difficult, but it is the norm in business these days, not the exception."
The Reckitt Benckiser operation is in line with similar recent global mergers. "In terms of procurement, there will be opportunities for rationalisation," said Deborah Hough, supply chain analyst with consultancy Cap Gemini.
"But this does not mean that 'good' suppliers should get lost," she added. "The company will probably go through a segmentation exercise, classifying the suppliers it needs by cost and strategic value to the company."
Hough said that, in such mergers, there are usually opportunities for exploiting some of the latest e-procurement software for low-cost tactical supplies. "The high-cost strategic area is where suppliers will be tightly scrutinised, but past performance and delivery to service level should ensure the 'good' suppliers are retained," she said.
R&C has been down the supplier-consolidation road before. In 1996, when it began the move from country-by-country based procurement to an inter-regional and global set-up, over £20 million worth of savings were made on an annual spend of £200 million in 1997.
Assessing its results that year, auditors Merrill Lynch believed Reckitt was a truly global company.
While integrating supply chains in a merger is one of the most obvious ways to make large savings quickly, many companies can't take advantage of all the possible savings, said Michael Carnall, founder of MCC consultants and chairman of CIPS's Supply Chain Group. "Even in major multinationals, the person in charge of procurement at the top is not usually a supply chain director, but a financial director," he said.