By Dhinesh Selvaraj
Mergers and Acquisitions (M&A) is a common phenomenon these days, involving consolidation of companies or assets. For instance, the recent acquisition of Broadsoft by Cisco Systems will help Cisco provide broader solutions to its clients and grow, in terms of subscribers, product portfolio, revenue, and size. It takes a lot of detailed financial analysis, and a huge negotiation process, involving many M&A firms – investment banks, law firms, accounting firms, consulting & advisory firms, before successfully sealing the deal, to perform post-merger integration activities.
After either a merger or an acquisition, there are huge opportunities to leverage through supply chain integration and consolidation, namely:
- Economies of scale
- Improved customer service
- Service / SKU / Part number conversion to improve sales
The parent company would try to make significant efforts in reducing costs and pursue one or more of the following:
- Corporate restructuring
- Supply chain integration and network optimization,
- Operational improvements to break even on acquisition costs.
When performed effectively and efficiently, a post-merger supply chain integration could lead to significant reduction in supply chain costs, which helps to breakeven on acquisition costs faster. So, the first step in performing the integration process is an assessment to understand the functions / areas that can be merged. Understand the levers that need to be considered while performing the integration. From a supply chain standpoint warehousing, logistics, systems integration, and end to end network design must be considered.
To do it the right way, a network model replicating the current state network should to be created including all products/parts, supply base, manufacturing centers, distribution centers/warehouses and logistics network of both the parent and the acquired firms. Feasible scenarios should be identified, which would bring significant improvements to the resulting supply chain network, in terms of customer service, and total supply chain costs; for instance:
- What happens to total cost when the supply chain network of the acquired is absorbed by the parent?
- What happens to supplier performance when the supply base for similar parts is resourced and/or consolidated?
- Can we significantly improve service levels by keeping some of the warehouses open from the acquired?
After validating scenario results, implementing changes to the network will be quite challenging, both from a process and physical integration standpoint.
CGN Global recently helped a heavy equipment manufacturer successfully complete the integration of its aftermarket supply chain network with the acquired firm, to improve service, sales, and cease the legacy aftermarket supply chain, as well as save millions of dollars in total annual cost. The client wanted to launch an enterprise wide aftermarket supply chain integration, to consolidate all acquired parts inventory and manage the distribution and sales, through the existing well-established and more comprehensive aftermarket network. This would lead to all benefits that were previously mentioned.
The parts integration process and team, along with our consultants, were considered a separate factory that converted and superseded legacy parts into the client’s current aftermarket supply chain. CGN was responsible for establishing the process, and improving the overall operational performance of this factory, by building efficient tools and solutions.
At CGN Global, we build fast paced, effective and efficient solutions to solve the identified root causes. Our 20 plus years of experience and expertise in problem solving, and solution building, have helped our clients successfully improve the EBIDITA, through significant reduction in total supply chain costs, by completing the integration swiftly and accurately.
How do we integrate?