Diageo scales back global function

2 July 2003
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03 July 2003 | Geraint John

Drinks giant Diageo is reducing the size and influence of its global procurement function after concluding that multi-country aggregated deals are not the big prize it expected.

Two of the departments based at its London head office, "demand", which handles advertising and marketing spend, and "indirect" will make 10-15 per cent of their staff redundant.

The third, and biggest team, "supply", which buys production items such as packaging and glass, will see a 20 per cent reduction in numbers over the next few months.

Procurement managers at a country level - particularly in its three biggest markets of North America, Great Britain and Ireland - will now take more of the decisions about how to spend over £2 billion a year on goods and services.

Responsibility for purchasing some categories, including HR, is being removed from the centre altogether.

The reorganisation coincides with a cost-cutting review of all Diageo's head-office functions ordered by its chief executive, Paul Walsh, earlier this year. The company, which makes premium brands such as Smirnoff vodka, Guinness and Bailey's liqueur, has been under pressure from investors to deliver greater shareholder value.

A Diageo spokeswoman confirmed that changes were taking place in procurement and that some jobs would go, but declined to give details.

However, sources inside the function say the main driver is a recognition that global deals for things like facilities management haven't worked.

One told SM: "The key issue is where the aggregation point is. With hindsight, we were wrong about how many categories and deals we could do globally."

But they insisted that, job losses aside, the reorganisation was "not bad news for procurement. Nobody is saying we haven't delivered our savings targets. This is a natural evolution, as we look for new ways to add value."

A former manager agreed that the move was "a forward step". It would defuse some of the tensions between the UK and US operations, and clarify reporting lines and responsibilities locally.

He added that the global function was "an expensive resource", with many of the 50 or so staff enjoying annual salaries of £80,000-plus, as well as some of the most generous pensions, bonuses and other perks in industry.

News of the reorganisation explains why the appointment of a new group procurement director was halted at the eleventh hour in March. The function has been leaderless since the previous post-holder, Bob Kickham, left last summer to take up a job in Diageo's US business.


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