Northern to slash supply base by half

Northern Foods is aiming to slash its supplier base by 50% from 8,000 to 4,000 suppliers over the next two years as part of a radical cost cutting programme.

The company, which recently imposed a 5%, non-negotiable discount on goods ordered from suppliers after May 31, will also step up its use of online auctions to buy raw materials as part of a centralised procurement strategy led by David Ratnam.

Communications director Hilary Baker declined to comment on how the rationalisation process would be conducted, but said that Northern was holding “strategic discussions with our top 100 suppliers about raw materials sourcing going forward”

Investec analyst Nicola Mallard said that in the first instance, suppliers that did not respond favourably to Northern’s demands for a 5% discount from invoice prices would be the first to go.

She added: “After that, it’s a long drawn out process as Northern’s businesses have traditionally operated as separate business units. When they look at what butter they are using at two sites, it may be that they are using slightly different products. They could rationalise that and use the same butter and the same supplier across both.”

Separately, an initiative to reduce waste by 50% at one of its plants over a six-month period was now being rolled out across the business, said Baker. “SAP implementation at all Northern Foods sites and the upgrade to MySAP has also made it possible to monitor progress allowing us to compare manufacturing performance on a like-for-like basis.”

Northern posted a 6.7% drop in pre-tax profit to £80.2m on sales up 2% to £1.42bn in the year to April 2.