29 March 2007 | Antony Barton
HMV Group is overhauling its buying and supply chain operations in an attempt to achieve £40 million annual savings by 2009-10.
The three-year transformation will see joint purchasing between the music outlet HMV and book chain Waterstone's, together with amalgamated IT and finance. This, the company plans, will provide £6 million savings in 2007-8, rising to £16 million in 2009-10.
A source close to the group said a further £20 million would be saved annually from consolidating the two supply chains. The two high-street names spend a combined £120 million a year on "goods not for resale". The group buying function will increase purchasing power and eliminate duplicated buying.
The group announced the plans as it issued a second profit warning in four months. This followed a 3 per cent fall in like-for-like sales in the nine weeks to 10 March.
The company has not revealed whether there will be redundancies as a result of the changes, but SM
understands that only a small number of employees will be affected.
Other supply chain changes include scrapping the direct-to-store delivery systems. Instead, so-called cross-stock consolidation centres will be established with suppliers delivering to centralised distribution centres, where goods will be packaged for one consolidated daily delivery to stores.
There will be separate consolidation centres for each of the chains. Waterstone's is currently tendering the outsourcing of its consolidation centre and a client should be decided in autumn, with all centres ready by March 2008. HMV will be operational by autumn 2008. The process is phased to minimise disruption.
In a statement Simon Fox, HMV Group chief executive, described the revamp as "radical and far-reaching". He recognised that supermarkets and internet retailers were undercutting prices and said the brands "have not adapted quickly enough to the way customers are now buying and consuming media".
Stephen Wills, head of procurement at insurance company Axa UK, oversaw the consolidation of four purchasing functions in 2003. He told SM
that although combining buying functions should create a strong department, it could also have a negative impact.
He said: "It's important to move swiftly, so procurement staff aren't disrupted or left unsure of their role."