Podcast #43:
Global M&A - Transforming Supply Chains for Profitable Growth

By Jim Tompkins, CEO, Tompkins Associates

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Jim:

Welcome back to the Global Supply Chain podcast series on Mergers and Acquisitions. This is Jim Tompkins the President and CEO of Tompkins Associates and Tompkins International. During our last two podcasts we have had Kim Woodward with us as he spoke about the M&A trends in the BRIC countries.

For the last segment of this Series, we turn to Gene Tyndall, our EVP for Global Supply Chain Services, who has substantial experience with the planning, evaluating, executing, and value creating work in integrating supply chains on a global basis. Gene has recently developed a Position Paper on the topic, “Integrating Supply Chains from Business Combinations”, which can be found on the Tompkins web site. Today we ask Gene some pointed questions about his (and Tompkins) points of view on “why, what, who, when, and how” to best plan and accomplishing these very important Integrations.

Gene, glad to have you with us, welcome. First, why did you (and Tompkins Associates) develop this Paper at this time?

Gene:

Thanks, Jim….Well, as you and we well know, the expected increase in especially strategic M&A activity is gaining steam.  There is substantial pent-up demand out there, along with available Capital; and, CEOs are now reporting they are more focused again on business growth than on cost reduction, although managing costs is still on the executive agenda.

Growth by acquisition can be faster than by organic means. Customers are expected to come back slowly to pre-recession spending, and to increase this to higher levels over the next few years.  CEOs and Boards cannot wait for that pick-up to outperform and meet shareholder growth goals.
With these increased deals, then, comes separate supply chains - often very different in their strategies, markets, organizations, processes, and technologies.  We know that if supply chain integrations are not done effectively – and early – then the business combinations will suffer delays in achieving their planned goals. This is about more than obtaining the expected synergies from integration – it is about leading the market, stimulating customer and revenue growth, and achieving shareholder value.

Jim:

Yes, I agree.  Gene do you believe that supply chain leaders in the respective combining companies typically sitting at the M&A and Executive table, to input supply chain considerations and plans for business synergies?

Gene:

Unfortunately, not frequently enough.  As mentioned in the Paper, when you and I chaired a Roundtable discussion on this with Member companies of the Supply Chain Consortium, some 80% stated they were unaware early of the pending deal, that they were not brought in to executive meetings on the Plan, and were not given enough time to plan the integration effectively.

This is unfortunate for several reasons: (1) when rushed into integration, supply chain people are too overwhelmed with buying, making, moving, and meeting customer product demands to devote time to establish the best possible supply chain strategy and organization going forward;  (2) when unaware of the pending Deal, they are unable to influence M&A teams (and the CEO and Board) about the true potentials; and (3) without a strong new supply chain To Be Vision, capital investments are not reserved that would maximize the value creation that powerful supply chains can deliver.

This situation can be changed.  If Chief Supply Chain Officers point out regularly the value their company supply chains are bringing to business performance, and keep top management informed on market successes due to high-performing supply chains, the case for early involvement in any business combinations will be more evident.  Focusing ONLY on cost reductions tends to place supply chains in that bucket as far as top management and M&A teams are concerned – as important as cost synergies are, they are not the key to business growth.

Jim:

In the Paper you cite the “10 Steps to Achieve Effective Integration of Supply Chains”.   Please mention those here and supply any tips to follow along the way.

Gene:

Sure.  We offered the 10 Steps as guidelines, pointing out that tough and challenging decisions need to be made during the process, which are different for every company as it works to integrate.

The #1 issue is to confirm the new business strategy.  Supply chains need to be aligned with, and help enable, the achievement of the Strategic Plan.  Too often they are not considered in this way, thus we have disconnects and untapped value.  So, the key question to ask is, how will our supply chains best help enable the business strategies?

Once the new company strategy is clear, we can turn to the Operations strategies that will drive integration and execution. These, two, need to be aligned with the business strategy – are we adding capabilities, expanding geographically, consolidating, increasing scale, or what?  What will our performance measures be for the new supply chain(s)?  In fact, what will the new supply chain(s) encompass?

At Step #3, we can start to design the new Organization – not first, not second, but after the above are clear.  Too often everyone gets so engrossed in new titles, roles, functions, scopes, and spans of control, that little progress is made.  We discuss in the Paper the key principles of supply chain re-organization.  These are important for making such decisions – as are the respective cultures of the combining companies.

Details of the Organization may change somewhat as we integrate the Processes, but it is important to get the design done so people can focus on the Processes themselves and how to make them effective.

The next step involves setting the Supply Chain Objectives – for cost management, for inventories, for facilities, for innovation, and others.    This is how the Processes are integrated – to meet objectives; NOT to meet other criteria that really do not matter.  Objectives and performance matters – whether it is for BUY, MAKE, MOVE, STORE, SELL, OR PLAN.  Without clear objectives and performance metrics, we cannot make rational decisions about Process Improvement, work flow, or integration among processes and others in the Company, with customers, suppliers, or service providers.

Steps #5, 6, and 7 are about getting the work done the right ways – the work plan, time frames, change management, and managing the portfolio of projects.  Most companies are not experts in Project Management, and managing several simultaneously, along with change management, can be overwhelming.  We offer some basic tips on this in the Paper.  

Step #8 addresses technologies.  This is not relegating this important matter until later; rather it is about addressing it once the Organization and Processes are redesigned.  Just as with the new Organization, people can easily get distracted about the technologies too early and too long during the Integration; and appropriate decision criteria are required.  What is needed and why?  What would be “nice to have” and why?  What is the 2-3 year Technology Plan we need?

Step #9 involves evaluating the Logistics Service Providers (LSPs) in use by the respective companies.  The who, what, where, why, how and the quality of services are important to review.  A plan for integration is needed to address any overlaps or gaps in services.  Of course, the Supply Chain strategy established earlier should have identified what we want with LSPs going forward

Last, and far from least, is the Communications Plan.  Everyone internal, customers, suppliers, service providers, and external stakeholders. All need to know what is going to happen and how it is going – to different levels of detail; but, communications must be clear, frequent, accurate, and informative for the audiences.  This step is ongoing, most always underused, and most often the source of problems in the supply chain.

Jim:

Wow...a lot to think about and do.   Can we offer any further tips to the audience on making supply chain integrations effective and work well?

Gene:

Throughout the Paper we offer some tips; however, as you say there is lots to do and think about, and as with Murphy’s Law, things do go wrong.

In addition to the principles and “best practices” we provide for each of the Steps, here are a few more:

1. First, M&A is a tool, not a strategy.  The combining supply chains must be part of the strategy to achieve true value creation, and this point must be over-arching throughout.
2. Second, identify the strongest people, and teams, and put them to work on the right tasks.  Learning to be better takes coaching; and building capabilities should be the long-term goal and the short-term objective.
3. Thirdly, always think of the customer.  This is more than common sense – it is about the decision criteria when stalemates occur on what to do.  We should seek better supply chains for better customer satisfaction – in fact, for customer benefit as well as ours.
4. Fourth, view the supply chain integration continuously as the opportunity to know the new company better.  The more supply chain managers know about the entire business, the more they can collaborate and help others.
5. And, view the supply integration as a journey, not a project. We realize this is difficult to do, but the world does not stand still and wait for us to integrate.  We want speed to integration – for synergies, for rapid payback, and to report progress and “when done” -- but we also want to achieve the ultimate goal – a high-performing supply chain that is gaining the company competitive advantage and continuous value creation.

Jim:

Gene thank you, one last question. It strikes me that with your breadth of experience in dealing with supply chain integration, that it would be really good to ask you what are some takeaways that you can provide our audience? I mean you’ve done integration as a consultant, you’ve done them as a CEO of a Fortune 500 company, and you’ve done them as a board member of a Fortune 500 company. So what are the things that our audience should really takeaway about the criticality of getting the supply chain done well? 

Gene:

Well, Jim, most of these we covered in today’s session and in the Paper, but let me mention three more:

-- One, would be that despite the best Plans, there will be surprises and variables that were unexpected.  The “devil is in the details” certainly applies.  The important point then is to allow for flexibility.  Do not get hung up or delayed indefinitely because following the Book got you into a problem.  Identify and deal with it quickly so it does not fester.  Re-Plan if necessary.

-- The second would be that the “balanced scorecard” approach is the best. Too much focus on one issue – such as cost reduction – without adequate attention to the others – such as customer satisfaction – may lead to a low-cost supply chain that customer’s rate low to deal with – and we know where that may lead.  Similarly, focusing too much on Technologies may bias the organization and process design.  Keep the overall supply chain value in clear view.

-- And, third, as we stated earlier, the world does not stand still and wait for your Integration.  Stick with your Plan, but be ready to adapt to changes in the business strategy, the markets, the customers, sourcing/suppliers, whatever.  And, keep the CEO, management team, and other stakeholders informed regularly of successes. 

Jim:

Thank you Gene, I think this really closes out our M&A series on a high note and really provides us with the capstone of the overall integration of a supply chain. Our next series is going to be on profitable growth. A key component that many companies are looking at as we are coming out of this recession. Exciting times and exciting discussion.

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