Unilever has instituted a new supplier management team to accelerate the pace of its tough IT cost reduction programme.
The household goods manufacturer, which makes products including Marmite, Dove soap and Domestos bleach, is attempting to cut 40 percent from IT operational expenditure from 2007 to 2011, and it has so far carved £960 million from costs.
It s new team was established at the start of the year in order to drive the most value from suppliers and projects. It also wanted to improve relationships with suppliers and understand their needs better.
Unilever has completed an SAP ERP system rollout with supplier Accenture in western Europe, and is now concentrating on other markets, under the One Unilever programme.
Mike Royle, enterprise services director at Unilever, told delegates at today’s Forrester Services and Sourcing Forum in London that the supplier management team, called Unilever Global Sourcing, was crucial because “over 50 percent of what we spend on IT is on outsourcing”.
The team is comprised of around 25 people and is focused on supplier management, sourcing strategy, handling contractual issues, and implementing best practice. It also works with IBM for extra assistance on supplier management issues.
“We used to have a really fragmented approach to technology, with many suppliers. You could say we were oversupplied,” he said. This was owing to the company’s many acquisitions, as well as its organic growth.
“The challenge is cutting costs while getting the most long term value and quality from services, especially as there’s no slowdown in our acquisitions or our new business launches,” he said. “The team creates end-to-end sourcing design, with account plans for tier one, tier two and tier three suppliers, to help with this.”
The company also sets and regularly reports on key service metrics with each supplier, and promotes good relationships and a cultural fit. “The key theme is making our multi-supplier ecosystem work, and we need to understand them and what drives them.”
Unilever has moved to cut suppliers “dramatically”, after at one point using 160 vendors for 1,200 applications. Its main focus is now working on one platform, SAP, as the base for a smaller portfolio of standardised applications.
It has cut 20 percent from application costs by moving to “one or two” key related service suppliers, Royle said, and has cut 30 percent from testing and upgrade costs by moving from 10 suppliers to one in this area.
Its main service providers include BT for networks; and HP, Dell and Unisys for servers. Its enterprise services and applications are delivered by a mixture of HP personnel and its own in-house staff, and it is working with VMware on server virtualisation. Unilever is also in discussions with Microsoft for a potential move to some cloud services.
To achieve effective long-term cuts, the team worked with executives to set a strategy, as well as defining critical services and reducing investment in non-key areas or where there was a low risk.
It also forecasts requirements in areas such as storage, a high-growth area, to make better-calculated investments. It is offshoring increasing amounts of “level two” support, while keeping higher level skills in-house.
“The idea is to play the longer game and not just be reactive,” Royle said.