Where M&A and Procurement Intersect – Accenture Spend Trends Q3 2014

The macroeconomic outlook in the quarterly Accenture Spend Trends Report is unfortunately likely to fly above the heads of many of those for which it was intended. Chief procurement officers (CPOs) and other executives – as well as the next generation of analysts and category managers – are likely to appreciate every word of it (as do we)! But few old school buyer and supply chain types enthusiastically or proactively follow GDP price trending, sentiment indicators and the like. However, at least the heart of Accenture’s category analysis will apply to them.

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Still, there are some great nuggets in the up-front section of this quarter’s report including a section on M&A – which has far reaching ramifications for procurement and, in fact, can become a self-sustaining trend because of the greater impact procurement and supply chain activities can have on making transactions accretive and generally more attractive to do in the first place.

Mark Hillman, the lead author of the report, observes:

“The M&A market continued its robust pace, driven by factors including continued low interest rates, record cash levels, strong currency in the form of stock prices and tax optimization (so- called tax inversion) strategies. In a newer twist, however, the last two quarters have seen an uptick in corporate spin-offs (Hewlett-Packard and eBayTM/PayPalTM are just two examples). In some cases, activist investors are driving for change, and in other cases, corporate boards are looking to enhance shareholder value by separating business with differing growth rates, and therefore different valuation profiles. These separations create challenges for the management of procurement at the resulting entities, but also opportunities for organizations who are clients of these firms.”

Here at Spend Matters, we’ve covered the intersection of procurement and M&A for sometime. In a recent column, we observed that the earlier procurement can insert itself in a transaction, the better. We also note that, “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. “

Consider the following areas – as taken from our “Ideas for Supply Chain Design, Mergers and Procurement” article that ran earlier this year:

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?

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).

M&A and procurement is a critical topic that we should all be versed in. For additional reading, please see related stories below.

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