Supply chain issues in M&A deals

Filed in archive Practical Tips on May 13, 2008

Supply chain and operational efficiency and synergy is the motivation for many of the M&A deals today. However many of such benefit estimation don't materialize after the deal. There are a variety of reasons behind this problem: Typically the estimations are too high-level and don't take into account what really works and what not (sharing the warehouses for example takes time but changing the supplier can usually be done in short term).

Andy Sealock and Marc Tanowitz from Pace Harmon, have recently written an article in Supply and Demand Chain Executive and talked about their approach to attach M&A problems regarding SCM. In their point of view, a plan including elements below should be developed well ahead of the deal:

Step 1 - Determine Synergy Initiatives
Step 2 - Prioritize Initiatives Based on Business Impact
Step 3 - Develop Resource and Synergy Capture Plan
Step 4 - Execute the Synergy Capture Program

For example in the third step, the series of actions which should be looked at include:

Estimated Savings - the most direct measure of synergy value and generally given the most weight of all criteria
Spend - often used as a proxy for savings if savings cannot be predicted with an acceptable confidence interval
Speed of Savings Capture - the payback period or time required for synergies to be realized as a result of the project
Resources Required - the full time equivalents (FTE) personnel or other investments required to execute the synergy initiative
Business Impact - importance placed by the business on meeting the completion date for the project.
stakeholder Buy-in - degree to which business stakeholders will advocate for, support and provide sufficient resources to execute the project successfully

I will write more about this subject this week.