Unilever plans supply chain restructuring

Unilever has announced plans for a major supply chain restructuring. Patrick Cescau,  group chief executive said the business would be reorganised into a series of multi-country organisations.
“We already have the clustering of smaller countries in places like Central America and the Nordic region. It has worked well. But we now have the chance to go further – perhaps consolidating to as few as 25 MCOs across Unilever.
You may have seen our recently announced plans to combine operations in the Netherlands and Belgium. The combined business will have a turnover of €1.6billion and will operate under a single management team. In time we expect around €50m reduction in overheads.
Cescau said that over recent years Unilever had done a tremendous amount to streamline its supply chain.
“Since 2000, we closed or sold well over 100 manufacturing sites. Our fixed assets as a  per cent of turnover have reduced from 21.4 per cent in 1999 to 15.4 per cent in 2006. And our net capital expenditure has been held at between 2 and 2.5 per cent of turnover over recent years.
“But today, a simpler organisation, converged IT systems, a more focused and increasingly harmonised portfolio of global brands and products gives even greater scope for streamlining and more flexible manufacturing. Across Unilever, we have around 300 manufacturing sites and many more warehouses and distribution centres.
“Our current plans allow for the closure – or substantial streamlining – of between 50- 60 manufacturing sites across the world, as well as significant rationalisation of distribution networks. This will reduce costs and assets employed. But it will also entail investment in a more flexible, customer responsive supply chain, capable of supporting faster roll-out of innovation and better on-shelf availability.
“To give you one example, last year we established a new supply chain organisation for Europe, based in Switzerland. The benefits of restructuring mean they are able to raise their target for on-shelf availability from 92 per cent to over 95 per cent across Europe. That, potentially, is a lot of additional sales.
“The benefits of multi-country clusters, of further overheads simplification and supply chain efficiency are not restricted to cost reduction. Nevertheless, these initiatives will have a substantial impact on Unilever’s productivity and cost structure.
In aggregate, said Cescau, “with existing programmes and those that we have announced today, we expect to eliminate costs of around €1.5billion a year. by exit in 2010, compared with our 2006 cost base. Some of these savings will be reinvested behind our brands and to support innovation, but a proportion will flow through to operating margin. We expect the total programme, including disposals, to reduce headcount by around 20,000 over the next four years.”