After several years in which worldwide merger-and-acquisition activity dropped steeply, 2010 was a recovery year both globally and in the US, and this momentum is predicted to continue in 2011. The high-tech sector in particular will likely see a lot of action, with larger companies looking to expand as the market continues to gain strength.
Much planning goes into a merger from a business standpoint. What many companies fail to plan for is the aftershocks, which can long be felt in a critical area: the supply chain.
Merging supply chains is a complex process, and anyone who doubts the difficulties should consider what happens when supply chains break down: Products are delayed to market; customers experience poor service; security and compliance risks heighten; and a host of missed opportunities occur. High-technology companies already are vulnerable to these risks because they typically have short product lifecycles, high margins, and short delivery times. Any time delay in supply chain communication is all the more critical because of the unique nature of high-tech products. Add a merger to the mix, and you have a recipe for potential disaster.
That’s why it’s imperative for high-tech companies to plan for supply chain disruptions in advance of mergers. There are four key things companies can do early in the M&A process to ensure that two separate supply chains will successfully merge into one competitive advantage:
- Evaluate your supply chain scalability:
- Measure your way to success:
- Don’t leave anything to chance:
- Keep your eye on the big picture:
Many companies don’t have a current profile of their supply chains, and it is critical to evaluate your level of scalability leading into a merger. Companies should take inventory of their supply chains and ensure they have an up-to-date mapping of them, including all lanes, networks, and stocking points around the world.
At the end of the day, you want to know what aspects of your supply chain are scalable as well as the specific supply chain adjustments you’ll need to make to accommodate changes in product portfolio. To answer these questions, look at factors such as whether you own all the stocking facilities you use, and if so, whether all facilities are at capacity. If facilities are full, companies will have to plan for how to handle increased volume.
When companies merge, two different supply chains are coming in with two different sets of metrics, which must be aligned to meet company goals. Your primary focus should be how the merger affects your customers. It's especially important to measure customer impacts of any supply chain changes, such as volume of complaints, order fill rates, and on-time delivery rates, and be prepared to compare this data from month to month.
From an external perspective, you should measure service performance in the view of the customers to determine how successful the merged supply chain has been in meeting their needs. Internally, KPIs (key performance indicators) should address both the financial and people aspects of a merger. You also must find ways to measure how your employees' views and practices are aligned with new business goals and strategies, ensuring that a strong workforce is in place for the future.
Scenario planning is a crucial part of supply chain design, and this is especially true when bringing together disparate systems and processes. Start by conducting simulation exercises that demonstrate what will happen to the supply chain when a new company and new products are added to the mix.
These exercises will reveal valuable information such as where you can expect heavier fixed costs, potential bottleneck issues, and coverage gaps. The assessments also should address your supply chain partners' ability to “flex” with your company in terms of having the assets, infrastructure, and scale to adapt to new situations and needs.
The six-month timeframe immediately following a merger is a good time for companies to revamp their supply chain strategies and implement network changes. However, high-tech firms should look far beyond the six months when setting supply chain goals. For example, put facilities where you will need them in the future and not just where your customers are today. Allow your company to be more adaptable to market changes and new customer demands by building resilience into the new network. By investing in these key supply chain changes, you’ll put your company in a more competitive position down the road.