Alliance Boots Shifts Contract Manufacturing Strategy

Alliance Boots announced a new strategic approach for BCM, its contract manufacturing business, which includes a program to improve the efficiency and overall performance of the factory in Nottingham. This program is also designed to address a reduction in manufacturing volumes, which is the result of a fall in external market demand for contract manufacturing and an increase of regulatory compliance requirements.

The program will refocus the business on activities where it has a sustained competitive advantage, including the group’s leading beauty and skin care product brands. It will also include investment in new product technologies to enable greater flexibility and support for Boots product development, as well as building a stronger factory for the future. This will better position the business to seize growth opportunities generated by the further internationalization of the group’s product brands, including within the U.S. market.

The program will see the business exit certain unprofitable areas of third-party manufacturing. There will be a reduction of around 200 jobs over the next two years and every effort will be made to offer redeployment opportunities elsewhere in the group. The one-off cost of this reorganization will be just over £30 million, of which £18 million is non-cash. This cost, which will be incurred in 2012/13, includes the write-off of fixed assets and inventory, and the reduction in roles within the Nottingham factory.

Alex Gourlay, chief executive of the health and beauty division for Alliance Boots, says of the move, “By modernizing and improving the efficiency of our Nottingham factory, we strengthen its position for the future and make it more suited to support the increasing global footprint of our product brands. It is an important step in our continued efforts to keep contract manufacturing in the U.K., despite the ongoing challenges that the industry faces.”

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