15 April 2004 | Andrew Golder
Retailer Boots is set to sign a multi-million pound deal with IBM to outsource all of the administration of its indirect procurement operation.
Dave King, head of operational purchasing, said the contract is due to be finalised in May. It covers £52 million of non-strategic categories such as stationery, couriers and lab supplies.
It also covers the transactional procurement and accounts payable processing for all goods-not-for-resale activities worth around £650 million annually.
By the third quarter of 2004, IBM will have moved Boots's requisition and purchasing to a new base in Scotland while the accounts payable department will be outsourced to India.
As part of the deal, 35 office staff will be made redundant after helping with the hand-over of the requisition purchase and accounts payable departments to IBM.
Chris Lovatt, head of Boots strategic sourcing unit, said no purely strategic sourcing staff would be transferred to IBM because Boots has a shortage of this type of staff and wants to concentrate efforts in new spending areas including goods-for-resale procurement.
Boots's budget on goods for resale is more than £2 billion a year. The company has already cut costs in indirect transactional procurement over the past two years but decided that further efficiencies would be best met by outsourcing. Lovatt said: "The fact of the matter is while we could have squeezed another half a per cent, someone else could save significantly more."
King added: "To cut operating costs, we have already centralised people and reduced numbers, re-engineered processes and introduced purchasing cards. We are also currently implementing SAP across the company.
"The next level would be automating additional processes, which would mean an outlay on technology or moving jobs offshore, but Boots does not have the time or resources to get into that sort of thing."
The decision to outsource and reduce costs follows the launch of its "Getting in Shape Initiative" in 2002 to modernise the business and save £100 million. The initiative also means 900 jobs will go at its Nottingham head office.
In 2002, Boots and IBM signed a 10-year, £710 million IT outsourcing agreement that was estimated to save Boots £13 million a year. As part of that deal, IBM manages Boots computer infrastructure, in-store systems, data networks and telecommunications.
IBM also installed new point-of-sale systems in the company's 1,600 stores and transferred more than 400 Boots workers.News focus: Tackling indirect spend