by Leo King

Cadbury focus on cuts, including IT in fight to save it from Kraft

Dec 14, 2009
IT LeadershipIT StrategyManufacturing Industry

Cadburyis to slash its £70 million annual costs of technology services, and improve processes, as it seeks to strengthen its position against a hostile takeover bid from Kraft.

The move is part of a raft of procurement and operational moves aimed at fending off Kraft’s approach.

Cadbury today urged shareholders to reject the takeover bid, accusing Kraft of trying to buy the company “on the cheap”. There was no benefit to the proposed takeover, even in operational terms, it insisted.

Cadbury is examining procurement costs as a key area for strengthening its business position. It identified IT support as a major target for change alongside spending on packaging and food ingredients.

At present, Cadbury buys technology support locally, but it wants to move away from this model and make more use of its global scale. A new procurement manager, appointed in July, will coordinate the changes.

Andrew Bonfield, chief financial officer, today told investors that up to two-thirds of the company’s spending, including IT, “does not deliver the full benefits of effective procurement”.

The company is targeting a 16 to 18 per cent overall operating margin by the end of 2013, and over five per cent annual revenue growth, aided by swift improvements to its buying habits. “By aggressively managing our activities, we believe procurement can deliver over half of our total savings within cost of goods sold,” Bonfield said.

The confectionery giant is attempting to build a “world class” global procurement operation, which will “consolidate our scale and deliver quick wins”, he said.

Cadbury said it had completed extensive work to improve its supply chain and other key operations. It is aiming to be “more commercially aggressive in the way we work and make decisions”.

Changes to its supply chain and manufacturing, as well as to the company’s overall structure, had made it “a strategically advantaged, financially strong business”, chief executive Todd Stitzer said.

The company is also working to improve the technology it uses, saying that, in addition to strengthening its brands, this would provide a “good foundation” for revenue growth. Technology centres of excellence would help its speed and efficiency in product innovation, as well as time to market, it said. It is also targeting “faster, streamlined” decision making.

Processes are also under the microscope. So far, process improvement efforts have normally taken place at a local level, such as at individual manufacturing plants, the company said. Now it is now targeting “continuous improvement” across the group.

In 2005, Cadbury began rolling out SAP enterprise resource planning software as part of a £500 million efficiency bid. But implementation problems held up the rollout, causing an excess of stock and costing the company dearly.

As Cadbury attempts to keep rival Kraft at bay, it is reported to be in discussions with Hershey, which it sees as a better match. Both Hershey and Kraft are also major users of SAP.