Yesterday I shared an example of one case study, courtesy of Logistics Viewpoint, involving M&A savings synergies and supply chain network design. Today I’ll share a number of examples of supply chain network design activities closer to procurement (than operations) from a leadership perspective that are appropriate for M&A situations. All too often, these types of activities fall into “post-merger” situations. But the opportunity exists, even in a clean room deal environment (if certain folks or consultants are allowed over the wall), for early planning and involvement in these types of opportunities. But even before getting started with a list of key items for consideration, it’s important to fully consider the need to different opportunity areas in tandem. For example, for a given product or class of products, keeping in mind logistics, raw materials, supplier value-added and regional finished product considerations is important – ideally at the same time, as part of the same project. It is through maximizing the right set of inputs and applying the right business constraints against these criteria that we can be most successful in M&A savings opportunities. In any event, these are various inputs that can have a potentially significant impact if analyzed individually in an M&A context – and potentially a game changing one if analyzed collectively:
- Commodity management – This includes considering raw material inputs at multiple tiers of the supply chain and the cost of floating or locking in contracts, premiums, etc.
- Inventory – How much, and who should hold it? What are the minimum safety stock requirements? Are there total cost advantages to moving to vendor management inventory (VMI) or just-in-time programs (JIT) – and for whom? Can lower-tier inventory management programs actually increase risk, as an example – or is it possible to share in the upside at this level of the supply chain as well?
- Currency – What currencies should goods/services be purchased in? Is there currency risk exposure at different levels of the supply chain? If so, how can these be offset or hedged?
- Customs/duty/tax – Is it worth bringing in either lower level feed stocks (e.g., base materials) or higher-level finished products based on prevailing customs and duties? Note, customs and duties can have a material impact on overall supply chain network design. Consider the current case of grain oriental electrical steel (GOES) and related downstream markets in the US as an example in the case of trade cases and duties.
- Supplier value-add – Value-add could include everything from simple distribution type services to having suppliers develop full components from individual piece parts and base materials. The question of “who should add what” to the individual materials, parts, components, and products as goods progress through the inbound supply chain is potentially the most complicated to consider and involves carefully understanding supplier capabilities, cost structures, and a range of other inputs (including those listed above).
This list of inputs that collectively factor into supply chain design from a sourcing perspective is just a start, of course. Taking into account logistics (including modes, distribution, carrier mix) and other areas can create an even more accurate total cost (and savings) picture in an M&A context. See also: When Sourcing Meets Supply Chain