30 September 2010 | Rebecca Ellinor
Premier Foods and British Sugar have taken an impressive journey together to achieve a model relationship. Rebecca Ellinor finds out how
Four years ago negotiations between food giant Premier Foods and supplier British Sugar were aggressive, tactical and happened only annually. This year the pair picked up the gong for the best example of supplier relationship management, and the overall award in the 2010 CIPS Supply Management Awards.
Mark Hughes, Premier’s group procurement director, says that
for the past couple of years the
two organisations have been
on a “journey”. And what a ride
it has been.
Both companies have derived huge benefits from the fresh arrangements. Among them, Premier Foods delivered
£5.7 million cost savings in two years, and British Sugar posted Premier sales revenue growth of 10 per cent during 2009 and improved the adherence to payment terms.
Furthermore, procurement’s profile within Premier Foods received a boost with an award from CEO Robert Schofield in 2009 for the most improved supplier relationship.
And research commissioned in 2009 and carried out by B2B International into the relationship yielded fantastic results. Nick Hague, commercial director at the company, said: “In all my years of reporting customer satisfaction research, I haven’t seen such impressive satisfaction scores as received by both British Sugar and Premier Foods. The strategic relationship is clearly working ,but what is evident is that there is an obvious desire to continue to improve and ‘go the extra mile’.”
The seeds of change were sown back in 2006, when the European Commission announced a major restructure of the sugar industry. Over three years it would move from a surplus position to one where it relied on imports of three million tonnes to meet demand.
Where it began
Given the change to market dynamics, the EU supply base began to consolidate in response to reform. And it soon became apparent that Premier Foods should start developing a strategic relationship with one of the four major players emerging in the marketplace.
When you count Mr Kipling cakes and Hartley’s jam among your 50+ brands, sugar is something you need lots of. In fact, Premier Foods is the third largest user of industrial sugar in the UK, and in terms of all the ingredients it buys, sugar is one of its bigger categories of spend.
Ed Blomfield, programme director, group procurement at Premier Foods, says: “We considered where we wanted to be two or three years down the line; what kind of relationships
we were going to need to have with our suppliers.
“Doing that work led us to look at things differently and develop relationships with one or two of our big suppliers.”
British Sugar was identified as the supplier of choice because the food company knew its expertise would help it drive growth and innovation.
Hughes says: “We already had a formal SRM programme up and running with nine suppliers covering 17 per cent of our spend, so we started with a tentative toe in the water with them. We both went on a journey together, because going straight from an adversarial negotiation position to talking about having joint objectives is not something you do overnight. It takes time.”
In 2007 the executive board of Premier Foods endorsed a proposal to develop an SRM approach. Discussions were held with senior management at British Sugar to see if they were willing to work towards a more strategic approach, and it became apparent that the supplier, which is part of Associated British Foods (ABF), viewed Premier Foods as a core customer.
Winning agreement
Another advantage was that when Premier Foods approached British Sugar with the idea to work more closely together, it was clear the supplier was on board and understood what was required.
“If one party doesn’t understand SRM, there’s a lot of conditioning you need to do first. British Sugar hadn’t done it before with anyone else, but it had tried. It had exponents of it in the business but hadn’t got traction. When a customer approached it, it was music to its ears,” says Blomfield.
And Premier Foods, for its part, having had some experience with SRM for several years, knew what it had to do.
“What we’ve learnt is it’s less about the process and more about the people when it comes to success. If the individuals on both sides of the relationship are not fully bought in and signed up, the best process in the world won’t work. With British Sugar, we found a team of people fully aligned with what we wanted to do and deliver, which meant we got traction quickly.”
Premier put a new buyer, Mandy Smith, in place and built its team.
To overcome the initial nervousness on the part of both businesses, they held workshops; jointly agreed a clear set of goals, drew up objectives and action plans; and appointed executive sponsors from both organisations.
Hughes says: “We each established what we wanted to achieve over a 24- to 36-month period. We set specific objectives, and bought into jointly delivering those objectives.
“For them it was about growing their business with us; and for us it was about surety of supply and taking costs out of the supply chain, which is what we did.
“We got benefit from the bigger scale of purchase, and they got the volume of business we were now doing with them.”
Trust was another essential ingredient. “You have to build trust with organisations when you’re sharing things you wouldn’t normally share,” says Blomfield. “And you have to remember that ABF, the parent company of British Sugar, is actually a competitor to Premier in a number of areas, which makes it even more remarkable.”
Appointing executive sponsors on both sides of this relationship was another vital element.
“If it’s going to work, you need someone, normally at executive or board level, on both sides signed up as sponsors,” says Blomfield. “They are the individuals who ultimately can unblock issues. With any relationship you come across blockers. There’s no magic wand – you can’t make it work overnight. You’ll need to call on resources, and on those senior people within the business to move things along.”
As well as troubleshooting, the senior sponsors hold formal joint review meetings examining progress against the objectives of both businesses, and endorse aims for the next 12 months.
Gino De Jaegher, managing director of British Sugar UK & Ireland, says the relationship between the two is going from strength to strength.
“We have a high level of trust at many levels between both businesses, and joint objectives that are delivering true value.”
So where did the largest chunk of savings come from for Premier Foods? “Consolidation with one supplier,” says Blomfield. “We had 10,000 suppliers three years ago; we’ve now got 7,000; in two years’ time we’ll have 5,000. That’s about consolidating spend with key strategic partners which delivers key commercial benefits.”
Hughes says that the £5.7 million savings are a combination of
price, logistics, efficiency and innovation projects.
Premier chose British Sugar because it is a leader in the field, and as such has excellent technical resources. And while Premier has benefited from British Sugar’s specialist knowledge of sugar, it has also gained from the proficiency of its supplier in other areas.
“We spent a lot of time looking at logistics and transport to make sure we were optimising our ordering and load patterns, and they were optimising their vehicle fleets,” says Blomfield.
British Sugar also had silo experts, and suggested Premier connect its two 30-tonne silos to boost efficiency.
“That’s a logistical improvement. It can even affect working capital, because it affects how much stock we want to hold on site and how they deliver. They can now drop off full loads to us, and schedule through the night if they want to,” says Hughes.
“If we didn’t have this relationship with them, there’s no way they would provide that support. So that’s a real value-added activity,” says Blomfield.
So can this relationship be built upon further? “Yes,” says Hughes.
“There are a number of projects on our objectives under the headings
of cost management, service level, risk management and innovation. Some are ideas, some are through
to concept development, some
are in implementation and some
are being completed.”
Blomfield adds: “There are opportunities we’ve not even listed yet. Corporate social responsibility and sustainability is a really big agenda for food businesses. We’re two food businesses that are UK-orientated, and there’ll be opportunities in there in terms of driving that agenda.”
Hughes adds, for example,
that British Sugar has green energy,
and Premier Foods is interested in how it can become more environmentally friendly as
a business. “So it’s not just
about sugar.”
Role model
The relationship between the two has evolved into a strong partnership that has delivered
value and competitive advantage to both. It has happened at a pace, while pushing boundaries in relationship management to the extent that it now acts as a role model to other key relationships
to follow.
De Jaegher describes the relationship as a benchmark for British Sugar, and one that can “easily be adapted for use with other customers”.
Hughes concludes: “We had the expertise. We’d done it in nine cases with nearly 20 per cent of spend and we had learned from those, but one party cannot do this on their own.”
Also on the short list
Atkins and Capita Business Travel; BAE Systems Military Air Solutions and DSG; Fujitsu Services and Lorien Resourcing; London Fire Brigade with Capital Ambition, London local authorities, Veolia and Care UK;
Surrey County Council and VT Group
