Your supply chain is what can make or break your manufacturing business, and it must run smoothly to ensure M&A success. Here’s how to do just that.
Knowing how to prepare your supply chain for pre and post-M&A (Merger & Acquisition) activity can be beneficial in the short and long run to the new company or entity that is to be formed. This is because it has one of the most remarkable impacts in a post M&A environment when compared to other business functions at your company. With a merger, the need to get everything in line is crucial so that both businesses can blend seamlessly, that may mean checking out a 409a price for a valuation of both businesses, so when they merge, people can know how much it will be to purchase a share, or how much their share costs now.
You need to be well prepared with various strategies to improve supply chain resilience prior to an M&A event, and that way ensure that the aim of merging or acquiring a company is achieved. The aim is to make a profit and ensure that the supply chain is still getting customer orders out. Meanwhile, you are spending less money to get the order out.
Let’s take a quick look at how to prepare your supply chain for an acquisition or merger activity.
What is a Supply Chain Exactly?
A supply chain is a network created between a company and its suppliers which enables the company’s goods to get to the final consumer.
There are different activities, information, people, and resources. All of which all facilitate the production and distribution of the product or service to the final buyer. It can lead to expense reduction which helps to yield more profit.
Why Prepare for an M&A Transaction?
You should prepare for an M&A event because a well-prepared supply chain team can help in improving the earnings which the new entity is in dire need of and, therefore, facilitate its profitability.
If the team can make this possible, then you would’ve successfully saved yourself from letting people go.
Let’s break each element down:
The aim of any M&A event is to make more profit from the new entity that will be formed, and profit is made by either cutting expenses or generating more revenue. However, generating more revenue is not the most feasible on the short term basis.
The near-term revenue of the new company when merging occurs is mathematically expressed as the addition of company A and B subtracted by any overlap. In case of an acquisition, the revenue is the addition of Company A and B minus their overlap.
When faced between the decision of generating more revenue or cutting expenses, the latter is better because it can increase short-term earnings. As such, some companies may start looking into human capital consolidation to see who is out of their job. The supply chain needs to be optimizing correctly in order to help in cutting these expenses.
In the same vein, the failure rates of M&A initiatives are extremely high and as such, great preparation has to be put into yours. This and many more are some reasons why you should prepare for a merging and acquisition event.
Who Should Prepare for an M&A?
The acquiring company and the company that is to be purchased need to prepare for an M&A event, because in the end, their supply chain list will be compared to ascertain the suppliers that should be cut off in order to reduce expenses.
If your company is the acquirer or the acquired, you may not know.
You can tell whether your company is drowning in debt. Or if your company is swimming with enough money so it might be the acquiring company. Whichever is the case, great preparations needs to happen by you and your supply team.
Guide on How to Prepare Your Supply Chain for an M&A
For the part that matters the most, it’s a guide on how to prepare your manufacturing supply chain for an M&A event. It includes the following:
1. Identify the Triage Team
If you’re the supply chain lead who will look into the M&A event, there is a need to identify your triage team. The triage team is a quick reaction force that calls the larger team to action.
It may be beneficial for the triage team to include stakeholders from sections such as manufacturing, legal, finance, engineering and so on. Some roles of the triage team include:
a.) Determining the Scope and Size of the M&A Event:
This particular team will always be ready to look into the scope and size of the M&A event and then make recommendations to the manufacturing supply chain integration project task force on the action that is to be taken.
In terms of the scope of the M&A, it will determine if your company is the acquirer, it’s about to be acquired, or one of its divisions will be merged. When it comes to size, the triage team needs to determine if this is a local acquisition where only a single facility will be affected or it is a global acquisition.
b.) Determining Members of the Larger Team to Act:
The triage team will also determine the members of the larger team that needs to act.
Their selection should be based on the scope, functions, and geography that will be impacted by the acquisition process. Some of these can be supplier management, logistics, IT, sourcing, etc.
c.) Maintaining On-time Delivery and Customer Satisfaction:
The triage and supply chain teams need to ensure that customers get what they want, when, and less expensive to meet their demands.
This is because during the process of creating a new company, customers will still send in their orders and the goal of a post M&A environment is to ensure that there is still on-time delivery and customer satisfaction.
2. Create an M&A Supplier Database
Before the merging or acquisition takes place, a simple but robust M&A supplier database that will also pass for a post-merger document has to be created. Digitizing these documents with the help of document scanning services can enable you to create a spreadsheet containing information on your suppliers, such as:
- Location
- Annual spend
- Termination notice
- Contact information
- Supply agreement (yes/no)
- Agreement termination date
- Is there an early termination clause (yes/no)
- Is there any termination without cause (yes/no)
- Are the products/services proprietary/unique (yes/no)
The list needs to rank spending and then rank again on the most important functions.
The aim of the ranking is to discover the least important functions that are more expensive. As well as the more important functions that are inexpensive. For instance, a chip supplier’s hardware which is proprietary but inexpensive.
The discovery is possible by also making the list searchable, sortable, and filterable using certain criterion.
Keep in mind that both companies planning to merge or acquire one another need to create the list. Then their individual supply chain integration project teams will compare the list to ascertain the supplier base that is to merged to form a new entity.
Create a Supplier Base
A comparison of both lists will immediately point out indirect suppliers. They provide janitorial services, office supplies, landscaping, travel services, phone and Internet services. It is beneficial to hire professionals from third-party firms like TVIT that can assist you with their Microsoft certified technicians. This could help you to use your funds for the core operations of the company. These could be hit before heading to direct spend suppliers such as raw material suppliers, contract manufacturers, etc.
Furthermore, the roles and responsibilities of supply chain team members, triage team members, and your supplier database should also be documented using a supply chain M&A playbook. The purpose is to ensure that processes remain the same as different people move in and out of jobs.
It is needful to know that suppliers will want to know where they belong in the newly formed entity. The information may be tempting to reveal, but you should to keep it a secret.
Thus, do not easily be swayed by a Starbucks coffee because one way of having an effective post-M&A activity is to keep some details out of the limelight.
Conclusion
These are the simple steps on how to prepare your manufacturing business for pre and post-M&A activity. By following these guidelines, the new entity that will be formed can help to yield more profit that is intended.
These steps for manufacturing are all it takes is to optimize the supply chain. It helps to cut down the expenses and take away the need for human capital consolidation.
Your customers can still be served despite the change that is ongoing and operations can still be handled efficiently.
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