Things are really heating up out there. And I don’t just mean the sweltering summer temperatures we’ve been experiencing lately in my area of the world.

I’m also thinking about how across almost every industry today, the business climate is hot with opportunity for merger and acquisition (M&A) activity. Executives are looking for business combinations to take advantage of undervalued assets. 

This anticipated M&A activity is not business as usual, however. More attention is being paid to the value that can be gained from combining organizations and assets. Supply chain executives and managers should be aware that when M&A occurs, a big part of the challenges ahead will come from integration of processes and supply chain technology, as well as and finding value in the supply chain.

With the level of M&A activity expected to rise, supply chain integration is a key value-driver. We often refer to “supply chain integration,” but what does that really mean? I think we use the phrase ‘supply chain integration’ so much that we might have forgotten what it actually means. When we over-use a phrase like this, it becomes jargon, and once in a while in this blog, I examine common business jargon we use all the time and dig deeper into what it really means.

End-to-end, a supply chain is made up of six processes – Plan, Buy, Make, Move, Store and Sell. Integrating supply chains for the purpose of creating a merger or acquisition involves putting these parts together, renewing the way we define “supply chain integration.” 

Integration calls for planning, such as using benchmarking assessments, organization or re-organization of the processes, and change management as required. Not only do supply chains have to work end-to-end, but also create value and integrate smoothly with other businesses as they are combined together.

In his white paper, Integrating Supply Chains from Business Combinations, Gene Tyndall writes that, “Supply chains are increasingly finding themselves in competition with each other, rather than companies competing with each other. This trend in itself should motivate companies to get the supply chain integration right, make it sustainable, and create value.” 

As M&A becomes even hotter (as we expect it to do) and executives explore more business combinations, supply chain leaders will need to be ready to respond to the spotlight that’s sure to fall on the value and cost reduction that spring from supply chain. M&A means the supply chain can create new value for organizations, and planning for supply chain integration is a major part of creating cost savings.

Stay cool out there as we head into late summer … but keep hot on the trail for profitable growth.

Download the White Paper - Integrating Supply Chains from Business Combinations: Principles and Best Practices of Mergers and Acquisitions

“What’s wrong? I’m not getting the results promised from this supply chain transformation.” I can’t tell you how many times I have heard this phrase in some form or another over the past few years.

Here’s the secret to success – change management done right and from the beginning through the life of a new supply chain process is the ONLY way to get the results promised from the transformation.

Managing change while simultaneously pursuing supply chain transformations is not only essential; it is also a very important step in achieving Supply Chain Excellence. But change management, if not accompanied by a rigorous process of sustaining change, is of very little value.

I am beyond frustration on this topic. Twice in the last six months, we have helped a client make substantial improvements to their supply chain only to have our proposal for sustaining these changes rejected and then the client returns to us three months later complaining that the changes implemented were not sustained. In one word, wow!

The fact is that most supply chain executives have greater demands upon their time then they have time, and if a process of sustaining the improvements is not installed to maintain supply chain enhancements, rarely will they stick. Once the supply chain executive jumps to the next project, if a sustainability process is not put in place the changes will often be relaxed and so too will the results.

In the two examples given above – one was an inventory improvement and the other a transportation improvement – in which for a very small investment (less then 10% of the full engagement) the sustainability effort was rejected. In both instances, we wrote to the supply chain executive and told him he was making a mistake.

As time has now proven, he did in fact make a mistake and now he wants us to come in and pursue the sustainability effort, when in fact what needs to be done has not become much broader then our sustainability effort. What is now needed is reinstallation of the changes. And, let me point out here that reinstallation of change is much more difficult then the installation of the change.

Very briefly, the four key components of sustaining supply chain change are:

1. Assure that all new people who become involved with the supply chain transformation receive training in the upgraded supply chain processes and buy into the need for change.

2. Assure that all people involved with the supply chain transformation are audited for process adherence and receive refresher training as necessary.

3. Track results, set an expectation of continuous improvement and monitor the progress.

4. Stay engaged with the transformation, as a sponsoring supply chain executive and an agent of change, and actively pursue process adherence and results consistent with expectations.

I’d be interested in hearing your experiences with change management. How do you ensure success with supply chain transformations?

Go!Go!Go!

Jim Tompkins

More Resources 

Integrating Supply Chains from Business Combinations: Principles and Best Practices of Mergers and Acquisitions

 Photo Credit: Redvers

Chris Ferrell, Associate Director of Tompkins Supply Chain Consortium, almost needs no introduction. He has written a few guest posts on the Go!Go!Go! blog, and he really knows his way around the transportation industry. Today, he has some insights for us on the new numbers from the DOT’s Bureau of Transportation Statistics that were just released on Wednesday.

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Last month the Tompkins Supply Chain Consortium published an Executive Briefing on the state of (U.S.) domestic transportation and its usefulness as an early indicator for the overall economy. As I say in that report, the first tangible signs of how things are likely to play out on a macro-level will show up in transportation. 

For contrast, think about manufacturing and distribution networks – while less constrained than ever, they still require long lead times to fundamentally change. And at the same time, planning activities are company-specific and, by design, rarely available for public scrutiny. But for transportation, obligations are few and all the data one needs for analysis is publicly available.

Since the Executive Briefing was written, the DOT’s Bureau of Transportation Statistics has published two additional months of data, and the news is not promising. 

The May 2010 number ended a streak of consecutive months with growth and, in fact, erased all the gains made in April and some from March as well. And the year-over-year gain of 4.4% is offset by the fact that May 2009 marked the absolute bottom of the Great Recession. Another month or two of decline and you won’t have to be an economist to see that the oft-predicted “W-shaped” recovery will already be three-fourths complete. (I’ve added the yellow W to TSI-Freight/GDP chart to show you the potential outline of events.)

If this potential scenario becomes a reality, a vulnerable transportation industry that has already been reduced considerably could be decimated (literally a 10% reduction in total capacity) just prior to a steep and sustained recovery. 

Although I would like for everyone to remain optimistic, I encourage you to be aware of the numbers and plan for the future of your company. To that end, I’d like to leave you with a link to a recently published article in Logistics Today that discusses some of the long-term projections of the transportation industry and the different challenges shippers will be facing down the road.

So while your organization goes about the process of securing adequate capacity at the most favorable price for the forthcoming fall busy season, you may do well in the long run to verify your service providers’ financial health and to remember that we could be months away from the shoe being on the other foot – a robust economy being hampered by a capacity-constrained transportation industry for quite some time. But that’s just my opinion. What do you think?

-- Chris

More Resources:

Domestic Transportation Executive Briefing: The Industry is Moving Once Again

Transportation Sustainability Hot Topic Report

I’m part of a team that recently developed the Top Ten List of Issues/Opportunities Facing High-Tech Companies. 

Looking at the current parts shortage in high-tech, it’s clear that many companies have not been successful in planning their Great Comeback strategy, and today they are presented with a real challenge. Right now is the greatest opportunity for major growth in the last 30 years in the high-tech industry.

 

Companies that come out on top will be the ones that master their capital the best in this new “format” of doing business, with added variables: global outreach, margin erosion, scarcity of capital, rapid currency fluctuation, etc. Most of the challenges relate to working capital, hence the criticality of managing it well.

When M&A activity was at its peak, supply chains were too often treated as afterthoughts. Supply chain managers were among the last to be engaged, and they were commonly told to integrate the respective supply chains quickly and cheaply and to focus only on cost reduction synergies and the required controls. Today, we can likely expect different types of executive directions and quite possibly a different perspective on M&A evaluations.

Many companies have come to recognize that the successful execution of business and/or supply chain strategy depends largely on the effectiveness of the organization – the people, the culture, and the ways in which people and teams interact. This is particularly important in the high-tech world, where product life cycles are relatively short, speed is a critical success factor, and company performance depends so highly on the right products (and services) being provided at the right times, at the right costs, and bundled with excellent services.

 

Basic forecasting and inventory management policies for stocking, safety stock and cycle stock are inadequate for firms with high rates of SKU evolution – which exists in the high-tech industry. The inadequacies are especially exacerbated when the SKUs have short product life cycles or multiple, sequential super cessions, each with a slightly different market.

 

High-tech companies thrive on innovation, creating products that are “first to market,” “feature rich,” “easy to use,” “low cost,” or sometimes simply “trendy.” Success comes from gaining a leading and sustainable position in the served markets. To achieve this position, a strategic market plan combines market and competitor intelligence, an assessment of the addressable opportunity, and a penetration strategy. 

 

The past 18 months have seen many high-tech companies evaluating their supply chain footprint, reducing suppliers, changing suppliers, and pushing to receive quicker payment, while leaning heavily on payment terms.  This has left many supplier relationships management dampened, broken and, in many cases, severed. 

 

In the last six months, demand has significantly returned to an industry with inadequate supply. For members of this supply chain and their customers, the risk to supply continuity is extremely high, and in many products, allocation has been enacted. Industry analysts predict that demand outpacing supply will continue through 2010 and 2011.

 

The high-tech sector, by its very nature, is considered relatively flexible – adopting to constantly evolving business models, which brings this sector to the forefront of the sustainability movement. However, focus on the 5 R’s (Reinvent, Redesign, Reduce, Reuse, and Recycle) and Product Lifecycle Management (PLM) are driving fundamental shifts in thought processes in the industry. 

 

Very few, if any, other industries necessitate the level of supply chain visibility and collaboration amongst trading partners that is required in high-tech. Timely and accurate information is the only way that high-tech companies can improve forecast accuracy, balance costs and service levels, and keep small problems from becoming large, global ones.