M&A Synergy: When Supply Chain Design Meets Procurement and Distribution

I’ve spent more years working on M&A in the software industry than I have in transactions involving companies whose business is the primary production or movement of goods. Yet as anyone who has worked in procurement or supply chain and been involved in transaction knows, the synergies that an acquiring organization can realize from a deal are often greater from targeting the “tough stuff” than simple areas alone, such as supplier rationalization and spend consolidation.

Logistics Viewpoint recently ran a broader article on the topic of supply chain design (inbound and outbound). It was written by one of the top technology vendors in the network design area. The use cases explored tend to focus on outbound issues (e.g., distribution facilities), but the application of supply chain and sourcing optimization technology to inbound supply chain network design is significant. Yet I agree wholeheartedly with the concept that supply chain network design can be used in “modeling across all stages and types of M&A activity, including: Pre-Merger, Post-Merger and Divestiture/Spin-Off.”

Take one case study cited in the article as an example:

“One of North America’s largest packaged foods producers acquired a major frozen food manufacturer. With fuel costs on the rise, the company needed to re-evaluate its inbound and outbound distribution strategies given the expanded network. Specifically, which DCs should service which customers, what was the optimal quantity and location for DCs, and at what fuel cost would this optimal network configuration no longer be advantageous?”

“The analysis showed that savings could be achieved by simply realigning which customers were sourced by which DCs, eliminating redundant shipments coming from multiple sources, and reducing expensive cross country shipments. Because of the high construction cost and costs associated with closing an existing distribution center, Memphis was not a good option to build a new distribution center. The most significant savings could be found by expanding the existing Southeast warehouse and moving the West distribution center eastward out of California.”

Aside from moving distribution centers, we have seen other approaches where supply chain network design meets M&A. We’ll explore some of these in next installment of this analysis.

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