29 September 2008 | Paul Snell
Lloyds TSB will achieve around an additional £1 billion in cost savings from 2011 as a result of its tie-up with HBOS
The group said while it is too early to specify procurement's direct contribution, some savings would come through centralising and combining back-office functions, increased offshoring, cutting duplicate branches and consolidating IT.
The new superbank said it will continue with the Lloyds procurement programme, while taking advantage of greater buying power following the takeover.
Eric Daniels, group chief executive, said: "We have a great track record with the teams delivering synergies of managing cost bases. I am very comfortable with the figures we have put out. The savings are terrific and will keep us warm during the short-term."
Lloyds, whose function is run by Caroline Booth, and HBOS each spend around £2 billion a year and were both already working toward cost reduction programmes.
HBOS had a target of driving savings worth £300 million a year by 2010 through centralising procurement. In the first six months of 2008, procurement at Lloyds contributed to £118 million in cost savings and the group was confident of achieving total savings of £250 million this year. It also aimed to push half its spend through e-procurement by the end of 2008.
According to consultant Peter Smith, who was in charge of purchasing at NatWest when it was taken over by RBS in 2000, the two banks will not be able to achieve all savings simply through lower prices, as both functions are already sophisticated.
"Most of the savings will come from procurement costs tracking down as the overall headcount comes down. Fewer people should mean lower facilities management, IT, travel and uniform costs. The biggest job for procurement is making sure those jobs are done and making sure they stop paying for things."
And although there is uncertainty over job losses, Smith said: "There is a shortage of good procurement people. If you are good it will be recognised."
Peter Williams, co-founder of the NewDawn Partnership, which advises procurement teams experiencing mergers and acquisitions, said purchasing often takes a three-stage approach to savings in this situation. Establishing quick savings from current deals in the first few weeks, renegotiating deals with suppliers in the first couple of months and setting a longer-term strategy for the future.