Research shows that many merger and acquisition (M&A) deals fail to deliver the promised combined company value and that the opportunities to leverage and optimize the supply chain are often not fully realized, especially in the short term. In this article we will review post-M&A integration best practices in the areas of people, systems, supplier consolidation and distribution that have been shown to deliver significant immediate and long term value and avoid integration delays and supply disruptions.
As we discussed in previous articles, you should push back on the pressure to immediately focus on cost cutting at the expense of implementation of well-thought-out long-term strategic supply chain opportunities. This practice is often referred to as “going slow to go fast.” Typically, supply chain and other shared services are seen as overlapping activities of the two previously independent companies, and are thus targets for head count reduction. This is especially true should the financial performance of the combined company fail to deliver value as quickly as projected.
Therefore, as has been emphasized in prior articles, it is important that you identify key personnel who possess extensive supply chain knowledge and the related systems as soon after close as possible, if not before. Once identified, steps should be taken to capture and document this knowledge and, if applicable, retain those individuals. Once the critical transition people have been identified, along with alternates, the transition team’s next task should be identification of all critical functions and activities, not positions or people, which will be required for both the transition phase and the future supply chain organization. Time lines should be developed using these critical functions as a guideline to execute the transition phase and full integration into one combined company.
Experience has shown that you should plan for a minimum of 90 days, with a target to complete at least the transition phase in no more than six months. Once the executive committee and stakeholder departments have been vetted and approved, you can begin the task of deciding the best people available to execute these tasks, regardless of which company they originate from.
A number of people may be critical to the transition, and many will be seen as the best candidates for the combined company’s supply chain organization. That list should be firmed up within the first 30 to 60 days to minimize risk of departure or pressure for headcount reduction. This time is also needed to assess members of the acquired company who have no history of performance with the acquiring company.
The hard truth of this process is that those individuals who are not identified for positions in the future one-company organization will be considered redundant and may be subject to the company’s policy or terms of the M&A agreement regarding retention and dismissal. The reality is that the value proposition for combining the companies included the savings from eliminated redundancy, which included headcount reduction, so it will come.
As the supply chain leadership team, using this process will give you a greater chance of success with the team you assemble, rather than one made up of those left after reductions are made, that do not consider optimal long-term supply chain performance as the overriding decision criteria.
Data Integrity System Consolidation
World class supply chain performance is largely driven by well-functioning integrated business planning processes, not the ERP system or software that supports that process. Therefore, your initial assessment should be integration of the overall planning and supply execution processes and the data that supports them, as opposed to immediate software replacement. Even if built on the same platform, no two companies’ legacy systems will be configured the same. There will be differences in product numbering and naming conventions, transactional flows, definitions, metrics and reporting.
Although consolidation to a single system is an important goal of the combined company, these projects tend to be expensive, lengthy and overwhelming. An alternate recommendation would be to first build a standalone database that combines data from the multiple systems required for supply chain reporting and performance metric calculation and tracking. This approach provides combined company data much quicker than full system consolidation, and will ultimately enhance the consolidation project by:
- Creating a repository of the data so that it can be analyzed for duplicate product identifiers, differences in naming conventions (or lack thereof) and other transactional discrepancies. Addressing these and other data integrity issues will be required before systems can be consolidated. A separate database allows you to complete the information needed without the pressure to bring the consolidated system live, perhaps prematurely, to meet an ill-conceived timeline. Discovery of these types of discrepancies post-system replacement or consolidation can be financially disastrous and do irreparable harm to customer relations.
- Applying singular metrics to transactional data to assure consistency in interpretation of that data as defined by the combined company. An example would be “on-time orders.” Does that mean it shipped on-time, or was delivered to the customer on-time? It is important that you measure and publish only the metrics that are quantifiable, can be supported by available data and have consensus definition by the combined company. Otherwise, you create the risk of sending mixed and sometimes wrong or misleading information on the company’s performance.
- Providing visibility to these and other discrepancies prior to committing seemingly never-ending dollars and personnel to a system consolidation project.
- Reducing the cost, shortening the time line and eliminating many of the pitfalls and delays associated with these projects.
Bottom line is, you should not rush to consolidate supporting systems such as ERP or supply chain-specific software solutions due to the high risk of supply chain disruption, corresponding impact on customer services and cost.
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