Virgin Media: Procurement Transformation

The newly formed company knew that its success would depend largely on its ability to achieve significant post-merger synergy savings.

To achieve this ambitious goal, Virgin Media set its sights on improving efficiencies and trimming expenses across the company, including its third-party spend on goods and services.

Accenture worked closely with Virgin Media’s procurement resources, key internal customers and finance representatives to identify third-party spend savings opportunities across the business in excess of £150 million (US$300 million) over three years.

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Mergers and acquisitions is one of the quickest routes through which companies can scale their operations and expand their market position. Yet mergers and acquisitions are not without risk, as evidenced by a 2006 Accenture survey, carried out with The Economist Intelligence Unit, which revealed that fewer than half of recent mergers and acquisitions deals achieved the expected synergies.

In 2006, the newly formed Virgin Media knew that its success would depend largely on its ability to achieve significant post-merger synergy savings, estimated by the company to be £250 million (approximately US$500 million) between 2006 and 2008.

To achieve this ambitious goal, Virgin Media set its sights on improving efficiencies and trimming expenses across the company, including its third-party spend on goods and services. While many companies choose to handle supply chain issues later in the merger process, Virgin Media believed that procurement and supply chain management were among the first areas that needed to be addressed.

Resources from Accenture’s Communications, Media and Technology operating group, as well as the Accenture Supply Chain Management service line, were deployed to help Virgin Media develop a procurement program that would serve as a key pillar of its post-merger optimization efforts. Accenture and Virgin Media structured the 18-month project, named Supplier Contract Renegotiation (SCORE), around two main areas of focus: post-merger, third-party spend reduction and procurement transformation.

Accenture worked closely with Virgin Media’s procurement resources, key internal customers and finance representatives to identify third-party spend savings opportunities across the business in excess of £150 million (US$300 million) over three years. Based on this assessment, the joint team applied a strategic sourcing methodology—which included supplier evaluation and selection approaches—to develop a structured savings delivery program.

Carried out by teams aligned to Virgin Media’s key business units, the program focused on implementing four distinct savings strategies:

• Applying the lower of two existing prices from legacy contracts to all existing and future purchases.
   
• Identifying one supplier for each product category from the merged company’s supplier base to provide all goods or volume services.
   
• Exploiting the combined volumes of the merged companies to achieve lower prices for all goods and services procured from a supplier.
   
• Identifying ways of transforming the types of products and services that are purchased to enable long-term cost reduction through domestic and low-cost country sourcing.

In addition, Accenture developed a data management tool to integrate historical spend information with data from current and future budget plans. This tool let Virgin Media not only identify additional savings opportunities, but also analyze and manage its supplier spend much more effectively.

With Accenture’s help, Virgin Media has established a highly effective procurement capability with a track record for exceeding savings targets. By the end of 2006, the SCORE program had generated third-party savings substantially in excess of the goal set by the Virgin Media management team. This represented an overall performance of 150 percent of the annual target, with savings spanning every business unit.

Using the momentum generated by this notable success, by August 2007 the savings delivery program had continued to generate a sustainable pipeline of third-party savings. This significantly exceeded the even more challenging targets set for the second year of the program.

Based on the success of the SCORE program in 2006 and 2007, Virgin Media confidently estimates that the procurement savings achieved will deliver significantly in excess of 60 percent of the committed organization-wide post-merger synergy target of £250 million (US$500 million).

Trevor Coleman, group procurement director at Virgin Media, is delighted with the success of the project and the substantial results it continues to deliver: “From my point of view, and from my team, the program was a huge success. From the targets we were looking to achieve in the first year we exceeded those targets by over 50 percent and that drove substantial savings out of our business.”

The fact that Virgin Media is on a path to high performance via procurement excellence is further endorsed by the Chartered Institute of Purchasing and Supply—the leading professional body representing the field of purchasing and supply chain management—which recently gave Virgin Media a Silver accreditation in recognition of its transformation.

The success of the program is due, in large part, to the spirit of collaboration fostered on the project. From the very beginning, Virgin Media and Accenture adopted a partnering approach that called for the creation of joint project teams, aligned to business units.

As Trevor Coleman explains: “The spirit of cooperation enabled Accenture to add its long-established industry and procurement expertise to the business insight of the internal resources, forming an effective team that has been successful in delivering significant business benefits to Virgin Media.”

Virgin Media effectively used Accenture to navigate the complex post-merger world, resulting in a successful business outcome that has helped it to deliver against its post-merger savings commitments and transform its procurement capability.