Boots goes on march to cut cost with outsourcing deal

Published on Tuesday 31 May 2005 12:02

HIGH street health and beauty giant Boots has signed a near-£400 million outsourcing deal in a bid to slash costs, with some of the work finding its way to India.

The firm, whose main retail division operates through 1400 branches across the UK, will put some of its back-office operations into the hands of privately-owned processing group Xchanging.

Two weeks ago, the chain, which is struggling to compete against the onslaught of the supermarkets and deal with the recent spending slowdown, revealed an 11.4 per cent slide in annual profits. It also warned that this year would also be tough in terms of trading, adding that it saw nothing to change its "cautious" sales assumptions.

And earlier this month, Boots chief executive Richard Baker, unveiled plans to axe 500 posts at the group's head office in Nottingham.

The seven-year deal, reported today, will see products and services unrelated to its core retail business outsourced to Xchanging, involving the likes of admin and flight bookings for corporate travel. Money would be saved, for example, by limiting employees to certain hotels on company trips.

Xchanging - whose other customers include the likes of Deutsche Bank and United Biscuits - will also look after some of Boots' marketing, resourcing and facilities management. And it will handle some of its invoice processing at its Nottingham headquarters.

Much of the work was previously done in-house but the deal will involve Boots spending about 58m a year to save more through efficiency. Any savings will be split between Boots and Xchanging.

Julian Coles, director of Boots' sourcing and purchasing, said that the deal would deliver efficiencies for the retailer.

David Andrews, the chief executive of Xchanging, said: "Because we've got such a huge amount of spend we can start getting economies of scale that a particular company would not be able to make."

Mr Andrews said that eventually some of Boots' accounting work would be relocated to Xchanging's Indian processing centre.

Mr Baker said recently that Boots had been through a period of dramatic change over the past year as it sought to fight its corner in the high street trading wars.

As well as its latest deal, the firm has also invested 200m in price cuts and just completed its biggest store opening programme for years.