Procurement considerations when dealing with a merger? (A PI Q&A)
Network Member Question
Aside from the basics of spend analysis and eliminating redundancy, I’m curious to hear of other’s experiences in dealing with merger/acquisitions and how the cultural elements were addressed in terms of promoting the use of preferred vendors and the adoption of expense management policy.
What are some best practices to promote optimal adoption of the governing policies and procedures in the absence of spend management technology?
Purchasing Manager – Willis North America
New York, NY
In Part 4 of my Changing Face of Procurement Conference Series titled Winning Strategies for Vendor Engagement, I briefly discuss an M&A case reference involving organizations within the confection or candy industry. I also review the same case in the critically acclaimed series Yes Virginia! There is more to e-procurement than software (Part 2) – see the link in the Web Resources Section.
Under the heading “Candy and supply base synchronization,” I wrote the following:
How important is effective internal collaboration? Just ask a candy company in the U.S. mid-west. As the manufacturer of a number of leading brands, this organization grew dramatically in a very short period of time through a series of acquisitions. Unfortunately, an extemporal supply base was a byproduct of the transactions leaving the acquiring company with a highly suspicious, deeply segmented group of suppliers.
The biggest challenge as expressed by a senior procurement manager for the parent organization was convincing the former suppliers of the acquired companies that becoming part of the larger pool would expose them to opportunities for increased sales.
The suppliers weren’t buying the “increased opportunity” mantra and as a result, the transition process was challenging to say the least.
What is worth noting is that the degree of collaboration between the different purchasing organizations was not clearly established from the beginning. This only served to fuel rather than douse the internal division fires resulting in both a practical and operational lack of cohesiveness and coordination. The end result was a “territorial” struggle that manifested itself in a divided supply base. This is hardly the environment for a successful consolidation. (Note: my August 3rd, 2007 post titled Procurement’s expanding role and the executive of the future reviewed the results of a panel discussion hosted by CPO Agenda. This will be a worthwhile read as it demonstrates the potential repercussions of excluding supply chain personnel in the early planning stages of an organization’s M&A strategy.)
What the candy company case as well as countless other examples of failed initiatives clearly demonstrate is that effective channels of communication and collaboration between diverse stakeholders both within and external to an organization determines the likelihood of a collective “best result” outcome.
If the organization to which you are referring is found wanting in this critical area, then no amount of data or spend management technology will make a difference. If it did, then 85% of all e-procurement/supply chain initiatives would not fail.
I have also included corresponding links to related articles on the disconnect that presently exists between purchasing and finance, as well as the myth of vendor rationalization.
Web Resources: Please contact author to obtain reference material relating to this article.