Boots to invest £250m in its supply chain

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Boots has announced that it is investing £1.9bn in its Boots The Chemists chain, including £250m in its supply chain and community pharmacies.

The funds, which came from the sale of Boots Healthcare International, will invest in three key areas as Boots improves its community chemist estate, modernises and automates its supply chain and restructures its IT arrangements.

The supply chain revamp will see a modern automated £70m warehouse built in Nottingham to supply the retail operation. 700 smaller stores are expected to receive substantial investment as Boots attempts to reinforce its position as a provider of healthcare in local communities.

Setting out the investment plans, Boots chief executive, Richard Baker said: “This is a major step forward in our plans to build a better Boots. The successful sale of BHI has allowed us to return £1.4bn to shareholders and accelerate our future plans. Our small stores have been under-invested and are important to the communities they serve.”

He also went on to say that: “Our proposed supply chain investment is based on proven technology delivering greater productivity and lower operating costs. This will allow us to compete even more effectively while delivering a better service to our stores.”

Boots has confirmed that it has started consultation with its employees on a proposal to introduce an automated facility which would significantly reconfigure its supply chain.

In the last two years Boots The Chemist has re-engineered its retail supply chain, freeing up people in stores by transferring sorting and picking work back up the supply chain to our regional and central warehouses. This proposal will see the creation of a centralised automated order-picking warehouse in Nottingham and the replacement of 17 existing regional warehouses with a similar number of simpler lorry docking facilities.

Boots says that the reconfigured supply chain will further reduce stock holding, improve productivity and lower property costs. When completed, the reconfiguration will result in job losses, estimated to be around 2,250, although Boots did say that: “Where possible Boots will seek to re-deploy, relocate and re-skill to reduce the number of redundancies.”

The cash cost of these changes will be around £250m with an additional £45m of asset write-offs. Capital investment will be around £120m with the first £50m falling in 2006/07 and the remainder over the following three years. Revenue costs of around £90m, and £45m of asset write-offs, will be treated as exceptional in the current financial year with no impact on trading profit. The remaining revenue costs of around £40m will also be treated as exceptional and will be charged over the following 4 years.

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