Procurement considerations when dealing with a merger? (A PI Q&A)

Posted on July 23, 2008


Network Member Question

Aside from the basics of spend analysis and eliminating redundancy, I’m curious to hear of others’ experiences in dealing with mergers/acquisitions and how the cultural elements were addressed in terms of promoting the use of preferred vendors and the adoption of expense management policy.

What are some best practices to promote optimal adoption of the governing policies and procedures in the absence of spend management technology?

Paul Nilsen

Purchasing Manager – Willis North America

New York, NY

My Response

In Part 4 of my Changing Face of Procurement Conference Series titled Winning Strategies for Vendor Engagement, I briefly discuss an M&A case reference involving organizations within the confection or candy industry. I also reviewed the same case in the critically acclaimed series Yes Virginia! There is more to e-procurement than software (Part 2) – see the link in the Web Resources Section.

Under the heading “Candy and supply base synchronization,” I wrote the following:

How important is effective internal collaboration? Just ask a candy company in the U.S. mid-west. As the manufacturer of many leading brands, this organization grew dramatically in a very short period through a series of acquisitions. Unfortunately, an extemporal supply base was a byproduct of the transactions leaving the acquiring company with a highly suspicious, deeply segmented group of suppliers.

As expressed by a senior procurement manager for the parent organization, the biggest challenge was convincing the former suppliers of the acquired companies that becoming part of the larger pool would expose them to opportunities for increased sales.

The suppliers weren’t buying the “increased opportunity” mantra, so the transition process was incredibly challenging.

What is worth noting is that organizational leadership did not establish any degree of collaboration between the different purchasing organizations out of the gate. This “oversight” only served to fuel rather than douse the internal division fires resulting in both a practical and operational lack of cohesiveness and coordination. The result was a “territorial” struggle that “manifested” itself in a divided supply base. This disconnect and division hardly built the environment for a successful consolidation. (Note: my August 3rd, 2007 post titled Procurement’s expanding role and the executive of the future reviewed the results of a panel discussion hosted by CPO Agenda.  The 2007 article is a worthwhile read as it demonstrates the potential repercussions of excluding supply chain personnel in the early planning stages of an organization’s M&A strategy.)

The candy company case and countless other examples of failed initiatives demonstrate that effective channels of communication and collaboration between diverse stakeholders both within and external to an organization determine the likelihood of a collective “best result” outcome.

If the organization you are referring to is “found wanting” in this critical area, then no amount of data or spend management technology will make a difference. If it did, then 85% of all e-procurement/supply chain initiatives would not fail.

I have also included corresponding links to related articles on the disconnect that presently exists between purchasing and finance, as well as the myth of vendor rationalization.

Web Resources:

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