Pernod Ricard looks to save €400m through SKU reduction and operational efficiencies

By Erin Smith

Published: 07 September, 2016

Pernod Ricard is looking to save €400m as part of its 'operational excellence roadmap' intiative that is being rolled out between fiscal year 2016 through 2020, which includes SKU reductions of up to 30% in some regions.

Gilles Bogaert chief financial officer of Pernod Ricard said: "In the supply chain many things are happening within Pernod Ricard in terms of sales and operations planning and in terms of the reduction of portfolio complexity. We are rolling out an initiative across the whole group to reduce the number of SKUs and in some countries it will be reduced up to 30%."

According to Bogaert, the reduction in SKUs will provide both focus for improved sales opportunities, but also with reduce inventories levels will provide a cost savings.

He said: "It allows us to be more focused on the SKUs, with better velocity and hence a better salesforce potential. And it also makes the supply chain more simple with positive benefits on inventories and the cost to serve. We want to reduce lead times within the group between the production and the distribution and which provides a cost to serve optimisation."

The 'Operational Excellence Roadmap' was rolled out in the H2 of FY2015. "The operational roadmap we launched over a year ago it is one of our key business priorities. For sure we want to grow the top line but we want to be very serious and very active about operational excellence. This roadmap is about being more efficient in our operations," said Bogaert.

The roadmap also includes an improved A&P spend through leveraging digital media buying as well reduction in manufacturing costs. Some of the savings will then be reinvested back in to media buys to help further support brands and also roll out new innovation projects.

Bogaert said: "All of this will allow us to deliver some savings mainly in A&P, gross margins and in particular the cost of good sold and to a lesser extent structure costs. We are targeting €200m savings between year 2016 and 2020. Around half of this will be reinvested back into A&P to sustain our key brands and innovation projects. From a cash stand point we will, in the same period of time, have a €200m savings particularly within working capital thanks to supply chain improvements that will allow us to reduce our inventories within Pernod Ricard."

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