Double Supply Chain Punch: Managing Outsourced Logistics, M&A Activity

Are you thinking about outsourcing more of your logistics operations but are already getting headaches thinking about what kind of IT tracking systems you'll need to pull it off? Has your company been recently acquired or bought someone else, and now you're dreading the supply chain integration task that lies ahead?

You're not alone. Many others have these things on their mind, too, and are equally at a loss at knowing what to do. But it's not just you. Generally, the inability to properly address these issues affects a company's ability to meet order requirements.

A recent study conducted by Peerless Research Group on behalf of Supply Chain Management Review and Logistics Management magazines for Oracle Corp. and Capgemini talks to some this.

As fellow EBNer Nicole Lewis points out in her analysis of the study, Increasing Costs, Complexity Afflict High-Tech Supply Chain, customer satisfaction, supply chain complexity, and rising costs continue to put companies under great performance pressure. In short, they pose significant order fulfillment challenges for even the best performing companies.

Just part of the challenge

Outsourcing logistics is one thing, but how do you manage the  complexity of integrating logistics in an M&A situation?

Outsourcing logistics is one thing, but how do you manage the
complexity of integrating logistics in an M&A situation?

Buried treasure
But, there were a couple other points buried in the report that caught my eye. They are sort of side issues that supply chain managers never seem to have a enough time to deal with, but if they're left unattended they could cause considerable nervous-making disruptions. However, if they are controlled and dealt with well, they could turn into competitive opportunities. If.. if… if…

Let's take the outsourcing logistics issue first. As the survey notes and as anyone doing this for a living knows, increasing transportation costs are one of the biggest expenses supply chain managers have to confront regularly. They're even more costly than raw material, labor, and manufacturing process costs. Inevitably, this is pushing more people towards an outsourcing model.

Of the 589 global manufacturing, high-tech, and retail supply chain executives surveyed, just over one third of respondents said they expect to increase outsourcing of production and warehousing tasks, while 46 percent will subcontract more transportation and logistics activities.

Inevitably, too, the survey notes this means companies will need IT systems that are flexible enough to manage this change. The report doesn't go far enough in saying how exactly companies will find, implement, deploy, and use these flexible systems, but you can bet supply chain, logistics, and IT teams — everywhere in the world — will be called on to figure that out.

Merger mania
If that wasn't pain-staking enough, brace yourself for this one. Merger and acquisition activity wreaks even more havoc on supply chain systems. And guess what? While companies may be good at the front-end of closing an M&A deal, there's a huge gap in what happens on the back-end of the deal, when the heavy-lifting IT stitching together is supposed to happen.

The survey points out that roughly one-half of the companies studied have either been acquired by or have purchased another company sometime within the last five years. In the high-tech sector, that number's even higher — one out of three high-tech companies surveyed has undergone a corporate shake-up in the last few years, according to the report.

Key integration activities, obviously, should have focused on merging ERP backbones, cross-selling products across divisions, and/or merging sales channels — areas that could have increased visibility, driven more sales, and given companies more control on overall supply chain practices.

Reality tells a different story, though. Only 34 percent of respondents plan to merge sales channels, and only 19 percent plan to cross-sell products. ERP got more love — about half of the respondents said they will merge into a single ERP system, while 22 percent said they would run separate ERP instances.

The survey authors rightly suggest that not addressing these issues begs the questions:

  • What opportunities are companies missing for better customer penetration?
  • What infrastructure could they put in place to better capture synergies from the merged companies?

My question is how are you blocking this one-two punch and getting your house in order to deal with these headaches?

I'm guessing you'll need more than an aspirin.

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