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mergingMost mergers and acquisitions fail to live up to expectations. All too often companies focus on quick-fix cost-cutting opportunities and ignore the long-term, strategic supply chain implications. Following these steps will help you avoid that trap.

Took a look at a recent article by Harpal Singh, Ph.D.

All about establishing an effective and efficient consolidated supply chain. Post-merger activities—such as closing plants, laying off workers, and reducing wages—end up disrupting the supply chain, poor operational performance and reduced revenue. Trade short-term cost-cutting measures for long-term issues like redundancies and synergies. Big hitters are streamlining the sales organization, merging product offerings, and consolidating the production of intermediate components. There are even lower hanging fruits (inventory)  between  a manufacturer and a distributor. So look at improving the planning processes.

Before anybody changes ANYTHING, somebody needs to fully analyze the structure. Identify and set to the side any clearly redundunt businesses. Then make a list of improvement opportunities, duplications and synergies.

Been there and done it:
This whole process sounds like building a Supply Chain Control Tower!
Scrambled my tail off a lot of years ago (1986) with the GE/RCA merger.
Ok, back to Dr. Singh's points:

Mistake 1: Choosing the wrong metrics
One way or the other we need to measure the same way. Sounds easy, but it isn't. It is all about definitions and interpretations: "On-time orders" in one firm might mean on-time deliveries to the customer; in another, "on-time orders" may mean on-time shipments.

Companies should choose those metrics that can be supported by available data, provide a useful level of precision, and are backed by common definitions. Best to measure are : financial performance, supply performance, and delivery performance.

Don't include assigned overhead components as they represent  a pre-merger organizational structure;  better to use variable costs.

Measure inventory and receivables to show quick cash that the firm needs for its operations. Don't use inventory turns with a vertical supply chain consolidation (for example manufacturer merges with a distributor).

Mistake 2: Trying to consolidate systems too soon
Assessing the legacy supply chains requires consistent data. Legacy systems could/might go on for quite a while. Instead, look for tools to consolidate transaction systems and build a common database. Then this database can be used to resolve duplicate data descriptions and meanings. This way, management reporting continues without expensive system redesign.

Mistake 3: Paying too little attention to the planning processes
Having conquered common metrics and consistent data, now :

  1. Review the existing organizational structure and identify improvement opportunities;

  2. Assess each pre-merger entity's competence in five key areas: understanding demand, managing inventories, planning demand, planning production, and scheduling.

Planning processes are best assessed by looking at:

  1. Integration:  Simultaneous planning of purchasing, transportation, inventory, and manufacturing indicates a high level of integration.

  2. Optimization: The greater the sophistication,  the higher the level of optimization.

  3. Acceptance: If the processes are not institutionalized, companies do work-arounds that ignore the longer-term consequences.

Transactional integrity refers to how soon the transactions within the ERP system are updated (real time versus not-so-real time). Data visibility is all about what the supply chain planners see.This will tell you which transactional systems should be modified or eventually be replaced.

Mistake 4: Defining the end state but not the steps to get there
You know the starting point, you know what you want in the end. You cannot do it all at once, so set a project plan using measured steps.

To accomplish this, a joint team should be appointed to recommend both short-term savings and longerterm productivity improvements. Typically, such a team will be led by the supply chain organization, with representation from finance, manufacturing, logistics, and information systems. Include members of both the “green team” and “red team. Always consider best of breed products and solutioins from both sides of the merger.

The team's charter allows short-term improvement projects that require a minimal investment but promise quick payoffs in terms of delivering cash. When this does not happen, separate, uncoordinated initiatives tend to sprout in different parts of the organization because of the pressure to quickly create financial benefits.

Mistake 5: Failing to consider the degree of disruption
Don't move too fast even if benefits look big. Mistakes are hard to recover from. Try and accomplish customer-focused projects first and, of course, keep the customer aware of what you are doing.

A careful post-merger assessment and project-prioritization process will keep the new company focused on achieving long-term productivity gains instead of chasing short-term cost savings. Last modified on Monday, 20 October 2014
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