Merging and Integrating Global Supply Chains

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Merging and Integrating Global Supply Chains
Bill Polk Research Director, Industry Value Chain
Strategies Dave Brown Research Director,
Enterprise Strategies
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Agenda

• MA relevance and statistics
• Organization and structure
• Guiding principles
• Role of IT
• Reasons for success and failure
• Recommendations
• Panel discussion

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MA relevance and statistics

• MA is a fast path to new products, markets, and
  technologies.
• Globally, a deal occurs once every 3.6 minutes
• It involves all industries industrial sector led
  the way in 2007 volume of deals, followed by
  high-tech, financials, and CPG
• Over 85 of North American life sciences firms
  have been involved in MA over past five years.
• Nearly one-third of global companies of less than
  1B in revenue intend to complete a cross-border
  MA in the next 12 months.

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MA relevance and statistics (continued)

• Over 33,000 deals done globally in 2005, 2006,
  and 2007.
• Dollar volume decreasing, yet deal volume
  increasing.
• 80 to 90 of all North American firms are family
  owned 30 of those will change hands in next
  five years.
• North American firms remain attractive to
  European, Middle Eastern, and Asian firms
• However
• More than 50 of all MAs fail to create
  shareholder value.
• Up to 50 of the merger premium is recouped
  through successful supply chain integration, yet
  in most deals supply chain executives are brought
  in late in process.

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Organization and structure

• Two-tiered structure consisting of contractual
  negotiations and integration execution.
• Negotiation team begins T-9 to T-12 and focuses
  on legal and financial
• Key operational executive and multidimensional
  ops team begins T-6 to T-9 and execute the
  premise of the contract, including determination
  of synergy targets during due diligence
• Approach the integration jointly (both companies)
  on three fronts
• Country/region
• Functional (IT, procurement, distribution, etc.)
• Process (procure to pay, order management)
• Can IT support a procure-to-pay process in
  Germany?

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Organization and structure (continued)

• Centrally manage the integration team, but staff
  and execute it in a distributed manner.
• GM and CFO of every region/division/business
  defines measures of success in steady state
• Key integration executive ensures alignment with
  synergy targets
• Readiness reviews asking three questions
• Can you receive and operate? (acquiring)
• Can you send and operate? (acquired)
• Can you meet terms of the contract? (joint)

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MA lifecycle
Source IBM
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Guiding principles

• The beginning is about the end
• Understand the value proposition and focus effort
  on achieving it
• Influencers brand, supply chain leverage, size,
  location
• The soft stuff matters most
• Leadership, speed, communication, culture
• Assimilation instead of annexation
• Involve the right people at the right time
• Multiphased process and organizational structure
• This is a process
• Define and use a Standard Operating Framework
  that is clear and repeatable, yet flexible
• Optimize over time with new data and learnings

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Role of IT

• Get involved early and appropriately
• Play the staff advisory role throughout the
  process
• Focus on three broad areas
• Communication framework
• Process rationalization
• IT stuff
• Establish an IT Standard Operating Framework
• Have a well-defined process for how you will
  assess the acquired companys IT capability and
  combine the organizations and assets
• Establish a finite number of end statesbe
  different only where you need to be different
• Architecture is an enabler, but not the most
  important consideration
• Schedule activities in phasesremember, speed
  matters

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Reasons for Failure

• Harming your customer relationship
• Not giving supply chain a seat at the table
• Simply buying revenue
• Not retaining key talent
• Going too slow
• Overly rigid integration governance process
• Making the merger a zero-sum game
• Trying to make process changes while integrating
  companies
• Running companies as two separate entities
• Proceeding too fast with asset optimization

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Reasons for Success

• Right leadership/integration leader influence
  and lead, dont dictate and lead
• Outside-in thinkingdo no harm to brand or
  customer
• Clarity of purpose
• Clearly and early on set and communicate labor
  optimization planquickly establish who are the
  key people (not just C-level!) and retain them
• Ensure cultural issues are understood and
  factored into process
• Focus on key levers when establishing execution
  plan
• Procurement/strategic sourcing and
  rationalization of supplier base
• Inventory management
• Asset management/optimization

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Recommendations

• Treat MA activity as process, not an event
• Make sure that folks clearly understand the end
  objective
• Focus efforts on achieving this as quickly as
  possible, because speed does matter
• Support this with a Standard Operating Framework
  that is well understood
• Establish an issues threshold to encourage
  decision making
• Treat people with dignity
• Communicate, communicate, communicate
• Get the appropriate people and functions involved
  at the right time
• Multi-disciplined and multi-phased process
• Use a tool that fosters collaboration, but do not
  substitute technology for the human touch when it
  is required

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Questions and Answers