Kraft identifies £380m direct operational savings from Cadbury merger

Kraft has said it will slash $550 million (£379 million) directly from operational costs after its £11.5 billion acquisition of Cadbury last year.

Out of $675 million (£430 million) total savings from the merger, including marketing and sales savings, some $300 million will come from day to day operations. An additional $250 million costs will be cut from “general and administrative” expenses.

The news came as Kraft reported that Cadbury helped boost net revenues to $11.3bn for the first quarter, a 26 percent increase. Irene Rosenfeld, Kraft chief executive, said: "Everything we've seen so far has only reinforced our decision to acquire Cadbury." But she gave no details on rumoured job cuts.

Kraft faces a mammoth SAP integration task as it integrates the businesses.

Changes to IT and back office operations will lead to part of the operational efficiency improvements, to be generated over two years, it is understood. Other factors may include process, manufacturing and supply chain improvements. The company expects integration to cost a total of $1.3 billion (£827 million).

A vast chunk of the IT integration is likely to focus on SAP, used by each of the two companies as their enterprise resource planning platform. A merger could involve the migration of large amounts of data onto Kraft’s SAP ERP system, followed by the centralisation of processes.

In recent years Kraft ran a large project to implement the SAP ERP 6.0 system, which SAP billed as one of its largest global ERP implementations. The project began in Europe and then was extended to Kraft's home market, the US. In 2008, Kraft also began using SAP NetWeaver master data management to integrate information from a range of legacy systems into the new SAP ERP system.

Kraft said in the past that SAP ERP would help it with standardising, optimising and automating processes, cutting operational costs in areas such as manufacturing, purchasing and the supply chain. By 2008, the ERP system was taking data from 11,000 Kraft staff, and was holding seven terabytes of information, linking in to 1,750 other applications. SAP is also the basis for shared services at the company.

Cadbury has a more chequered history with SAP. In 2007, before a demerger from drinks company Schweppes, Cadbury admitted that a troubled SAP implementation over the previous two years had held back its financial performance, contributing to a £12 million deficit on its balance sheet and leading in part to large job cuts.

Cadbury is now running SAP ERP, linking in to the data of over 12,000 users. It also runs an SAP human resources platform. Separately, Cadbury outsources its datacentres to HP.

Copyright © 2010 IDG Communications, Inc.

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