Inside Supply Management Magazine

The Value of Supply Management in Acquisition Integration

January 14, 2019

By Kimberly Broniek, MBA, CPSM, C.P.M.

We all know how supply management can directly impact a corporation’s bottom line. But just think how quickly the function can make a financial impact if practitioners are involved immediately after an acquisition.

Opportunities offering the biggest impact — which, in some cases, can be quick wins — include:

Align synergy suppliers for cost savings. It is all in the data. Create a list of the acquisition company’s suppliers of direct and indirect materials and the annual spend figures. Compare this list to the acquiring organization’s supplier list and spend. Determine the overlap, whether it’s (1) the same suppliers or (2) the same commodity, like office supplies. Combining spend and negotiating/renegotiating with suppliers based on higher volumes often results in an immediate cost reduction. This is especially true for indirect materials, where engineering and/or customer change approvals are typically not required.

Gain process efficiencies through technology. There is significant benefit to having aligned enterprise resource planning (ERP) systems, not just for financial reporting but supplier visibility related to KPIs and processes. One of the best practices I’ve experienced is a focus on ERP integration in the first months of an acquisition. A common ERP brings alignment to (1) the process of adding parts and suppliers, (2) approval processes, (3) standard cost practices, (4) supplier-quality visibility by rejects, (5) supplier on-time delivery and (6) standardized payment terms and terms of purchase.

Align KPIs and terminology. Many companies overlook a basic foundational requirement that I call “talking the same language and walking in the same direction.” With a new acquisition or an organization seeking to centralize, there must be agreed-upon definitions of supply management terminology and KPIs. For example, how is supplier on-time delivery defined? For one organization, it is zero days early and zero days late; for another, it’s three days early and zero days late. How cost savings is reported also can differ according to how savings and cost avoidance are defined.

Having an agreed-upon set of definitions upfront in an acquisition enables alignment of expectations and reporting. To move in the same direction, all parties must agree on KPIs necessary to drive the supply chain in the best direction for the organization. We have all heard the saying, “What gets measured gets improved.” Identify the supply chain areas that need improvement. Or, if you’re not sure what needs improving, track metrics to obtain a baseline during the year after the acquisition. Metrics should be established as quickly as possible after an acquisition but can be changed over time for continuous improvement.

Supplier partnerships. An acquisition always comes with its own set of suppliers — a doubling in total number of suppliers is not atypical. Look for opportunities to partner with the best of the suppliers and eliminate those that are not top-notch. To achieve supplier reduction, cost savings and long-term partnerships, focus strategic-sourcing efforts around commodities. Align with the best or key suppliers through long-term agreements — this will help move your organization to a more strategic function.

Present yourself as “one face” to the supplier. A company that has been acquired is like a puzzle piece that helps complete the picture. The acquired and acquiring company need to present themselves to a supplier as one company — a complete picture. Suppliers would like for companies to continue doing business as they have always done and continue a separate-companies arrangement. This would enable a supplier to keep its margins and not have to offer volume discounts. Companies should not continue to act like separate operating units. Leverage your new purchasing power: Make an impact with quick-win opportunities and develop strategies for longer-term improvements.

While acquisition integration can be challenging, it can present rewarding opportunities for supply management.

Kimberly Broniek, MBA, CPSM, C.P.M., is global leader — strategic procurement at II-VI Incorporated, a Pittsburgh-based optical products company. She also is director of ISM—Pittsburgh’s Emerging Professionals and Executive Advisory Council.