- Procurement Systems – Not only the software that is being used, but also the way that it is integrated into the forecasting/planning system—or not—as well as the accounting system. All of these could be standalone and require duplicate data entries, and be difficult to keep in sync, much less integrate into the acquiring company’s system.
- Special Handling and Storage Requirements – These special requirements could impact both your upstream and downstream supply chain. In addition to higher freight and handling cost, they could require capital investment as well as extensive validation and regulatory submissions if changed. This is especially true for fragile and temperature controlled products.
- Expiration and Obsolescence – Like special handling and storage requirements, this could impact both upstream and downstream inventory. In addition to financial impact of unplanned disposal, it can cause disruption in supply and thus affect your newly acquired customers. An easy method for assessment is to include a minimum shelf life in your review of inventory, as well as balance of that inventory based on the historical demand curve.
Downstream Supply Chain
You can’t let the customer feel your pain. This is especially true post-close due to heightened concerns that customers may have related to the merger or acquisition. Your review should include the identification of issues related to the target company’s historical performance, as well as how you will assure a scalable and reliable order-to-service process post-close that will meet and exceed customer expectations. To do this, you need to assess:
- Forecasting, Planning and Inventory Management Systems – These represent the voice of the customer and your ability to meet their demand, as and when expected. Like the procurement system, these may each be standalone, increasing the opportunity for failure and additional cost to keep them in sync. Be cautious of forecast accuracy claims at product family or product line levels, as they can be subject to manipulation and misrepresent serious issues at lower levels. You may also want to see results of the last several cycle counts or physical inventories for both number and trends of errors. You should also include the same level of scrutiny as the upstream inventory for expiration and obsolescence.
- Order Entry and Customer Service Systems – Failures here can be an indication of deeper issues in forecasting, planning and inventory systems. Key concern in this area is integration with the supply and inventory systems. Just imagine committing delivery to a customer, only to find that not only is it not in stock, but will not be for an extended period of time.
- Outbound Logistics – This should include both method as well as special handling requirements and restrictions. As with inbound, this is especially true with fragile and temperature-controlled or monitored product. Also, be mindful of the freight handler, as it may be a company with which you do not have favorable shipping terms, but is critical for on-time delivery to the customer. “Next day delivery” has numerous definitions, and performance metrics will vary by carrier.
- Product Registration – In some countries, the regulatory approval and registration process can be expensive, restrictive and take years to complete. The time to discover issues in this area is during due diligence, not when you are about to launch a major market expansion. In addition, issues found in this area may have a major impact on the financial feasibility of the merger or acquisition.
Your company wants to sustain uninterrupted and efficient product supply, post-close. To avoid costly disruptions, as well as poor post-close customer service and financial performance, it’s imperative that you identify supply chain risks during due diligence. This should include review of the people, processes and supporting systems for upstream and downstream supply chains.