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4 Steps to a Successful Post-Merger Supply Chain Integration

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:

  1. Evaluate your supply chain scalability:
  2. 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.

  3. Measure your way to success:
  4. 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.

  5. Don’t leave anything to chance:
  6. 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.

  7. Keep your eye on the big picture:
  8. 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.

6 comments on “4 Steps to a Successful Post-Merger Supply Chain Integration

  1. Barbara Jorgensen
    April 6, 2011

    Hi Alan,

    In addition to the strategic aspects you mention, how important is it for the merged compnaies to be on a common IT platform? I've heard various opinions about this over the years: some believe it is sufficient that the systems “talk” to one another; others believe one system is the only way to go. As a 3PL, does UPS have any observations to share?

  2. prabhakar_deosthali
    April 7, 2011

    As far as my experience as IT manager goes, it is very unrealistic to expect that the merging company will have the same IT platform as the principle company.  It does create initial hiccups – especially in supply chain. The main mismatches arise because of   Different item coding schemes which means the item masters cannot be merged., inventories of common items can be clubbed together, shortages cannot be accurately found across the companies. Similar problem is with Vendor codes.

    As IT manager what my team had done was to develop a bridge between the two IT systems which will map one system's data onto another systems data structures and vice versa. We were successfully able to operate the merged company without either changing its IT systems. 

     

    At the later stage both the companies migrated to a common IT platform.

  3. Barbara Jorgensen
    April 7, 2011

    That is helpful to know. I know the IT platform is not a deal-breaker, but I've also known companies to shut down for four days to do an IT migration. As long as it's transparent to the customer I'd consider it a success

  4. itguyphil
    April 7, 2011

    That's a pipe dream mostof the time. In a best-case scenario, the customer might not realize something's down. But more often than not, something breaks during migrations. In most cases, if 80+% of production is alive, it's a good exercise.

  5. Alan Amling
    April 12, 2011

    Barbara posed an interesting question regarding the importance of the merged companies being on the same IT platform.  The most preferred scenario is that the IT platform strategy would be decided prior to the merger during the due dilligence.  It is likely the companies will be on different platforms.  Whether to migrate to one platform or meet communication needs through integration will depend on several variables, including; the state and qulity of the competing IT platforms, how similar or disimilar the product lines of the merging companies are, the size and scale of both supply chains and how the post-merger company IT strategy and business strategy (seperate products, under one brand, service levels offerered, sourcing, supply chain performance targets, etc.) 

    General speaking I've seen the most success with companies that make the tough decisions early and migrate to one IT platform.  In good companies this happens with senior management buy-in.  This approach will get people to work faster as the have a common goal and reduce concerns about the future and turf battles.  This should happen aggressively, but not wrecklessly.  Too short and problems will occur both technically and from a user perpective.  Too long and the migrations get protracted, costs increase and the value of the merger decreases.

  6. mario8a
    April 18, 2011

    Hi

    I'll consider a high risk to try to manage the merged company as part of the current supply chain system, a recovery plan must be stablish to oversee the lack of compatibility between both systems prior to the merge, however some companies will have a bigger lost on investment when they try to implement a system in less than two years. a transition plan must be develop with 20%-80% relationship in terms of maininting the supply chain in both companies up and running.

    I've seen some unsuccesful merge specially when the bigger company invest a lot of money on managing the supply chain using the same methodolody that works for them, however software applications such as AGILE and Oracle will be a great help but the ROI will take some time.

    re-qualifying supplier, components, sub-assemblies, FG, is part of the merge as much as part of the supply chain integration.

    Regards

     

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