Alliance Boots strategic approach for contract manufacturing

Date : 03 April 2013
Alliance Boots has announced a new strategic approach for its contract manufacturing business.

Focus on efficiency to drive growth

Boots Contract Manufacturing (BCM) is a standalone business within Alliance Boots and is Europe’s leading health and beauty contract manufacturer producing more than 400 million units annually including consumer health and beauty products as well as special medicines.

Alliance Boots approach is to focus on improving the efficiency and overall performance of BCM’s UK factory in Nottingham as well as to address a reduction in manufacturing volumes, a result of a fall in external market demand for contract manufacturing and increases of regulatory compliance. The cost of the re-organisation will be just over £30 million.

The programme looks to invest in new product technologies, enabling greater flexibility and support for the retailer’s product development and building a stronger factory for the future. There will also be a refocus on activities where it has sustained competitive advantage such as the group’s beauty and skin care brands.

As expected, the business is also to exit third party areas of manufacturing which are unprofitable. This will result in a reduction of around 200 jobs over the next two years but the retailer looks to offer opportunities elsewhere in the group. Currently 1200 factory workers are employed by the group and involved in the production of products such as the No7 range of cosmetics. Currently 45% of products are manufactured for Boot’s own stores ad 55% for third parties.

Our view

Alliance Boots international expansion revolves around is Boots brand heritage. Following the strategic relationship with Walgreens, expansion of Boots brands in the US must be a strategic imperative for the business. The changes announced by Alliance Boots will allow the business to seize growth opportunities. Modernising and improving the efficiency of the Nottingham factory can only help support the increasing global footprint of Alliance Boots’ brands.

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