Executive Briefings

The Supply Chain Executive View: Prepare Supply Chains Now for Merger Activity to Follow

Although many might argue that we are not yet rebounding from the economic recession, several indicators point to a bottoming out, and even a slight recovery could be in progress. Nonetheless, our interactions with executives across many industries indicate not only a pent-up demand for acquiring or otherwise combining other businesses, but also an expanding interest in doing so. With valuations continuing relatively low, and many companies holding onto cash, the time is getting right for increased M&A activity.

The question for supply chain managers is how we will prepare for this increasing likelihood. During the 1990s, when M&A activity was at its peak, supply chains were often treated as an afterthought. Supply chain managers were among the last to be engaged, and were normally told to integrate the respective chains quickly, cheaply, and to focus only on cost reduction synergies.

Today we can expect different directions and even a different perspective on M&A evaluations. During this decade, executives have learned more about global sourcing, international sales and distribution, and the competitive factors that supply chain excellence can influence, and even drive. For most M&A planning and evaluations today, we can surely expect more focus on supply chain integration, supply chain flexibility, and supply chain synergies--not just on the cost agendas, but also on the executive agendas for profitable growth.

The strategic questions today with regard to A&A and supply chains will more likely be:

1. Is the potential combination accretive from the perspective of supply chain contributions to operating margins?
2. Will the combination yield any competitive advantages with customers, suppliers, or other stakeholders?
3. How many disruptions in our markets and in our sourcing will there be as a result of the combination?
4. How long, and what is involved, in the full integration of the respective supply chains?
5. What are the synergies in cost savings, and, in profitable growth?

These questions were rarely asked before, or if so, not in a timely manner. Supply chain managers should be prepared to respond to these earlier, and better, when your companies assess potential acquisitions or other combinations.

Questions and answers about supply chain integration, synergy, and value should be organized and evaluated within the same framework that transforms and completes improvement agendas have been addressed in recent years. This includes:

The business and operations strategy: What will be the business strategies and goals for the new company? Will we prefer to operate as the low-cost supplier, or the high service provider? Or both? Will the strategy include new target markets, new customer channels, new customer buying preferences? Will the acquisition bring new channels or international markets?

The imperative with business and operations strategies is that the new supply chains align with, and help enable, these strategies to be achieved.

Processes: Whether or not we believe our supply chain processes--plan, buy, make, move, store, and sell--are all based on leading practices, lean principles, or other measures of efficiency--the integration of another business provides an excellent opportunity to assess each mega process and its sub-processes. An objective assessment will always produce the identification of leading practices, gaps, and opportunities.

Supply chain processes can be assessed against benchmarks, other leading practices, process metrics, and business objectives. Cross-functional processes such as order-to-cash; total delivered cost; and total supply chain time (buy to deliver) should be assessed as well as the traditional processes of logistics, distribution, and inventory management.

Most companies continue to be challenged with forecasting, sales and operations planning, demand and supply management, and uncertainty. The "new economy" may well worsen these complexities, as variability is likely to be prevalent. This is all the more reason to evaluate the processes in depth and seek some degree of flexibility to adapt to new realities.
Further, supply chain processes produce supply chain performance. An M&A or business combination can change performance in many ways, whether planned or not. Supply chain managers need to get on top of the right performance measures and dashboards early, and align these with the operations strategies. These can become targets--cost, time, and quality--and give the new processes the right focus.

The imperative with supply chain processes is that the combination yield leading practices among all the processes, across all the processes, and for relating to and collaborating with trading partners, all geared to produce high levels of supply chain performance.

Technologies: One of the most challenging sets of decisions to be made is that involving which technologies to retain, which to be integrated, and which to be on the capital expenditure budget. The ERP decisions will be made by many; however, the decisions on supply chain applications and technologies should be led by supply chain managers. In as much as technologies enable processes, the supply chain process strategy and improvement agenda should be decided first. Then, technologies can help transform the processes to the desired vision.

While the major technological issues are likely to be, as usual, centered on the larger systems and applications, new opportunities can be identified for transportation management systems (TMS); warehousing (WMS); supply chain planning; global trade (GTM); and new platforms such as software as a service (SaaS); on-demand; and others.

A related, but more and more challenging issue is data management. Proliferations of SKUs, parts numbers, bills of material, and international transactions have made data quality and data management very important issues. M&A will exacerbate the data problems even more.

The imperative with supply chain technologies is that, as soon as practical, the new information technology strategy is defined, aligned with the new processes, and in place for enabling profitable growth.

People, organization, and culture: Many have learned that acquisitions, at the end of the day, lead to success or failure as a result of the quality and effectiveness of the people, organization, and cultural adaptation. Surveys have shown that this is the dominant factor and as much as 75% of the challenge. Supply chain managers will have more to do with this issue in M&A activity today than in the past, as our roles and importance have expanded. As companies are combined, not only do their respective supply chain organizations come together, but so do logistics service providers. Change management programs need to be instituted early in the process, including assessments of change readiness. Assessments of the respective cultures will identify how well they will adapt; and, how long it will take to reach cultural stability.
Questions of organization are challenging as well. The new company will need a supply chain organization that enables profitable growth.

The imperative for people, organization, and culture is that these major issues need to be addressed up front and with deep knowledge on how to accommodate them. Organizational design, change management, and cultural adaptation are central to M&A, and critical to success.

M&A, business combinations, and supply chains are all intertwined, much more than before. The upcoming flurry of activity is inevitable. Will strategic executives be ready with supply chain strategies? Will finance, marketing, and HR executives be ready with supply chain issues to resolve? And, for all supply chain managers, will you be ready with complete questions, with the ability to formulate comprehensive plans, with methods for assessments, and with a clear approach to integration?
CSCO Insights

Although many might argue that we are not yet rebounding from the economic recession, several indicators point to a bottoming out, and even a slight recovery could be in progress. Nonetheless, our interactions with executives across many industries indicate not only a pent-up demand for acquiring or otherwise combining other businesses, but also an expanding interest in doing so. With valuations continuing relatively low, and many companies holding onto cash, the time is getting right for increased M&A activity.

The question for supply chain managers is how we will prepare for this increasing likelihood. During the 1990s, when M&A activity was at its peak, supply chains were often treated as an afterthought. Supply chain managers were among the last to be engaged, and were normally told to integrate the respective chains quickly, cheaply, and to focus only on cost reduction synergies.

Today we can expect different directions and even a different perspective on M&A evaluations. During this decade, executives have learned more about global sourcing, international sales and distribution, and the competitive factors that supply chain excellence can influence, and even drive. For most M&A planning and evaluations today, we can surely expect more focus on supply chain integration, supply chain flexibility, and supply chain synergies--not just on the cost agendas, but also on the executive agendas for profitable growth.

The strategic questions today with regard to A&A and supply chains will more likely be:

1. Is the potential combination accretive from the perspective of supply chain contributions to operating margins?
2. Will the combination yield any competitive advantages with customers, suppliers, or other stakeholders?
3. How many disruptions in our markets and in our sourcing will there be as a result of the combination?
4. How long, and what is involved, in the full integration of the respective supply chains?
5. What are the synergies in cost savings, and, in profitable growth?

These questions were rarely asked before, or if so, not in a timely manner. Supply chain managers should be prepared to respond to these earlier, and better, when your companies assess potential acquisitions or other combinations.

Questions and answers about supply chain integration, synergy, and value should be organized and evaluated within the same framework that transforms and completes improvement agendas have been addressed in recent years. This includes:

The business and operations strategy: What will be the business strategies and goals for the new company? Will we prefer to operate as the low-cost supplier, or the high service provider? Or both? Will the strategy include new target markets, new customer channels, new customer buying preferences? Will the acquisition bring new channels or international markets?

The imperative with business and operations strategies is that the new supply chains align with, and help enable, these strategies to be achieved.

Processes: Whether or not we believe our supply chain processes--plan, buy, make, move, store, and sell--are all based on leading practices, lean principles, or other measures of efficiency--the integration of another business provides an excellent opportunity to assess each mega process and its sub-processes. An objective assessment will always produce the identification of leading practices, gaps, and opportunities.

Supply chain processes can be assessed against benchmarks, other leading practices, process metrics, and business objectives. Cross-functional processes such as order-to-cash; total delivered cost; and total supply chain time (buy to deliver) should be assessed as well as the traditional processes of logistics, distribution, and inventory management.

Most companies continue to be challenged with forecasting, sales and operations planning, demand and supply management, and uncertainty. The "new economy" may well worsen these complexities, as variability is likely to be prevalent. This is all the more reason to evaluate the processes in depth and seek some degree of flexibility to adapt to new realities.
Further, supply chain processes produce supply chain performance. An M&A or business combination can change performance in many ways, whether planned or not. Supply chain managers need to get on top of the right performance measures and dashboards early, and align these with the operations strategies. These can become targets--cost, time, and quality--and give the new processes the right focus.

The imperative with supply chain processes is that the combination yield leading practices among all the processes, across all the processes, and for relating to and collaborating with trading partners, all geared to produce high levels of supply chain performance.

Technologies: One of the most challenging sets of decisions to be made is that involving which technologies to retain, which to be integrated, and which to be on the capital expenditure budget. The ERP decisions will be made by many; however, the decisions on supply chain applications and technologies should be led by supply chain managers. In as much as technologies enable processes, the supply chain process strategy and improvement agenda should be decided first. Then, technologies can help transform the processes to the desired vision.

While the major technological issues are likely to be, as usual, centered on the larger systems and applications, new opportunities can be identified for transportation management systems (TMS); warehousing (WMS); supply chain planning; global trade (GTM); and new platforms such as software as a service (SaaS); on-demand; and others.

A related, but more and more challenging issue is data management. Proliferations of SKUs, parts numbers, bills of material, and international transactions have made data quality and data management very important issues. M&A will exacerbate the data problems even more.

The imperative with supply chain technologies is that, as soon as practical, the new information technology strategy is defined, aligned with the new processes, and in place for enabling profitable growth.

People, organization, and culture: Many have learned that acquisitions, at the end of the day, lead to success or failure as a result of the quality and effectiveness of the people, organization, and cultural adaptation. Surveys have shown that this is the dominant factor and as much as 75% of the challenge. Supply chain managers will have more to do with this issue in M&A activity today than in the past, as our roles and importance have expanded. As companies are combined, not only do their respective supply chain organizations come together, but so do logistics service providers. Change management programs need to be instituted early in the process, including assessments of change readiness. Assessments of the respective cultures will identify how well they will adapt; and, how long it will take to reach cultural stability.
Questions of organization are challenging as well. The new company will need a supply chain organization that enables profitable growth.

The imperative for people, organization, and culture is that these major issues need to be addressed up front and with deep knowledge on how to accommodate them. Organizational design, change management, and cultural adaptation are central to M&A, and critical to success.

M&A, business combinations, and supply chains are all intertwined, much more than before. The upcoming flurry of activity is inevitable. Will strategic executives be ready with supply chain strategies? Will finance, marketing, and HR executives be ready with supply chain issues to resolve? And, for all supply chain managers, will you be ready with complete questions, with the ability to formulate comprehensive plans, with methods for assessments, and with a clear approach to integration?
CSCO Insights