Spend Matters welcomes this guest post from Eleonore de Montjoye, of GEP.
M&A advisory firms will often provide savings targets for a procurement department’s post-merger integration, which in practice is often not fully realized. Procurement does have the potential to bring tangible and rapid P&L benefits from a merger or an acquisition, but this can only be done with the right approach and expertise.
It is essential to consider procurement strategically, rather than as a hunt for immediate gratification, and to understand and align on top-level business strategy. This must result in a phased plan to guarantee the best benefits for the new organization.
To obtain the best results, the new organization must be aware of the challenges in its new procurement organization, and must know how to prioritize categories effectively.
The procurement organizations of the two companies need to be holistically assessed and organized to the sustainable benefit of the new organization.
To understand these challenges, it is best to start broad, with the assessment of the overall culture, then hone in towards process-specific details such as contractual situations. First of all, assess the business culture. The more alike the better, as this affects the procurement organization. If both legacy companies have different approaches to managing suppliers, it will be difficult, and will take longer. In such cases, harmonizing procurement organization for the new company is a high priority.
The complexity of processes in each legacy company, and how these can align, must be assessed before agreeing to targets that seem overly aggressive. Elements such as the contractual situation or supply risk can affect the ease of sourcing and overall estimated time to realize savings. Hence processes should be harmonized and mapped accordingly to provide a solid base for procurement savings in the new organization.
The optimal new procurement organization will be the result of coordinating best practices from each legacy company. For example, if one of the companies has exceptional compliance tracking, this should be expanded across the new organization. Placing the right knowledge where it’s needed, such as in category lead positions, will favor sustainable and ongoing savings. Similarly evaluate knowledge gaps to reallocate positions as a step in the implementation of a post-M&A organization. Leadership should consider these factors when drawing up plans for achieving post-M&A savings.
To sustain efforts, you need to ensure that you have the best tools to track the implementation and steady state post-M&A. This is a good opportunity to push for better procurement management tools, including procurement software that will enhance the productivity of category managers and buyers on a daily basis. Ideally, contract management, RFXs, spend analysis and e-auction should be integrated in a single platform to enable continuous learning, best practice tracking and greater productivity across the new company.
Some Categories Should Take Precedence Over Others
Given time and resource limitations within the procurement organization, it is often preferable to phase sourcing efforts. Starting with Indirect initiatives can yield some quick wins. Requirements in this space tend to be similar across companies, and generally involve fewer constraints, simpler specs and qualification procedures, and greater opportunities from increased volumes. Indirect categories typically provide shorter time to realization, to the satisfaction of the c-suite and shareholders. This is why categories such as professional services, travel, or IT and telecom should be prioritized.
Direct initiatives can yield substantial savings but can take more time to realize. Obtaining savings from direct materials after a merger or an acquisition typically requires more time and effort, especially when M&A is a means to diversification. Volume gains will only be obtained where the two legacy companies source the same product, which is rarer in practice than anticipated. Senior procurement leaders should take this opportunity to work with their operational counterparts to streamline this as much as possible to aid future sourcing efforts. The ease of sourcing will also differ in both legacy companies and will need to be harmonized in the new organization to ensure the realization of savings.
Through mergers and acquisition, procurement can undoubtedly be very beneficial, but the how is often overlooked, and this highlights the importance of a strategic mindset and careful planning, both of the organization and on a category level.
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