Dairy IT merger gets rolling

A project team is to be picked and serious planning for IT rationalisation begun now that the dairy mega-merger has received the all-clear from the government.

A project team is to be picked and serious planning for IT rationalisation begun now that the dairy mega-merger has received the all-clear from the government.

But no concrete plans will be laid until GlobalCo’s chief executive is appointed at the beginning of May, says dairy IT consultant Doug Wilson. “The CEO will be responsible [for decisions],” says Wilson, the former chief of Wang and Gateway New Zealand.

An audit and "descriptive analysis” report by KPMG Consulting, commissioned in February, has been delivered. Comprising over 10 binders of material, it summarises the IT systems of the three entities in the merger, Kiwi Co-op Dairies, New Zealand Dairy Group and the Dairy Board, but does not look at the systems of distributors in foreign countries. It found, as expected, that the companies have “fairly elaborate systems”, says Wilson, with some similarities between the board and Dairy Group.

Whether the team formed to bring about any changes will be from within the three companies’ IT departments or from outside is not yet decided, Wilson says. But some avenues appear clear. “It would make sense to rationalise the systems and settle on one,” Wilson says. “But that is in the medium term, not inevitably from day one or even day 90. We have systems that work today.”

GlobalCo’s business case does not separate out IT costs. But the report shows one-off implementation costs estimated at $100 million, including redundancy payments, systems integration, investment in new IT platforms, rebranding and associated fees. This will be broadly matched by annual cost savings of $120 million from the same catagories and others, and including $33 million saved on supply chain efficiencies and $48 million saved from staff overheads in areas including IT. Cost savings and added benefits reach a total of $310 million a year.

The main focus of GlobalCo is to integrate the manufacturing and marketing/exporting arms of the industry. That means the software and mainframe systems that currently bridge this gap – looked after by the Dairy Board – would in time be able to be rationalised, Wilson says. “There are regulatory things the Dairy Board does that sit in the middle that need to stay for the moment,” he says, referring to legislative changes still to come for the single-seller desk and quota rights.

The board has readied itself for change with an IT staff reorganisation in line with its business groups. Its consumer goods group, NZ Milk, will be held at arm’s length from GlobalCo and has former Enza IT chief Ron Peake as its information chief. The other group, the global operations and international ingredients business NZMP, will be kept within the fold with former Unisys outsourcing director Marcel Van Denassum as CIO.

Meanwhile, the government's mandate revealed Livestock Improvement, a Dairy Board unit that runs an IBM DB2 database tracking 16 million animals and listing every farm in the country, will not be transferred to GlobalCo. Instead, Livestock - a business valued at $40 million that also offers herd improvement advice - is to be set up as a separate co-operative owned by dairy farmers and sharemilkers.

The GlobalCo merger still relies on a positive vote by 75% of dairy farmers in May, a vote expected to easily pass.