As more organizations recover from the recession and enter The Great Comeback phase, one of the potential disruptive strategies they may deploy is Mergers & Acquisitions. The combination of organizations seeking to bounce back and the loosening of the credit markets make M&A feasible again after a 12-month hiatus.

However, we need not forget what we have learned over the last five years of M&A. The prime lesson being that M&A can be a major success or a major failure – it definitely depends on how you approach the process.

In a recent article by Russ Banham in Chief Executive magazine, he presents his "Six Deadly M&A Sins." I hear you, Russ, and can speak in detail about more than a few of these sins.

Through the successful acquisitions that Tompkins Associates has supported for both strategic organizations and private equity organizations, we have witnessed many of these sins up close and personal. Steve Ganster and Kent Kedl with our Technomic Asia division can talk for days on woes stemming from mergers and acquisitions in Asia and China business.

But let me focus here on two particular sins that can kill the value of a supply chain in the M&A process.

Deadly Sin #3: Less-Than-Diligent Due Diligence

Due diligence in M&A is so very basic, but honestly, still not done well. Consider the following essential due diligence questions for 1) Sourcing Due Diligence 2) Supply Chain Network Due Diligence, and 3) Supply Chain Systems Due Diligence. These questions below must be fully answered to avoid committing a deadly sin.

1. Sourcing Due Diligence

Level of sourcing understanding of trade agreements, duty and customs and impact on total sourcing cost?

Application of sourcing clusters?

Any challenges on classification, valuation, marking, anti-dumping duties or intellectual property?

Customs compliance risks?

Trade action threats?

Any customs and border protection exposure or disclosures?

2. Supply Chain Network Due Diligence

Proper number and location of facilities?

Correct mode of transportation and appropriate carriers?

Effectiveness of transportation management?

Proper inventory policies and reasonableness of inventory turns?

Proper decisions on insource vs. outsource?

Competitive discounts on transportation?

Appropriate DC level of automation?

Competitiveness of factory and DC efficiency and productivity?

Reasonableness of freight spend?

Validity of inventory valuation?

3. Supply Chain Systems Due Diligence

Is the right IT infrastructure in place?

Are the right supply chain applications in place?

Are the supply chain applications being used to the fullest?

Are the supply chain applications properly integrated?

Are the supply chain applications being used correctly to support day-to-day operations?

Where are the inefficiencies resulting from poor utilization of supply chain applications?

Deadly Sin #4: Post-Merger (Dis) Integration

Don’t forget the "Top 7 Keys to Supply Chain Integration" when doing an acquisition:

1. Supply chain strategy for the integrated business

Due diligence before the acquisition

Understand and create a mitigation plan for any out-of-line costs

2. Operations strategy

Keep the plan consistent with larger strategy

Identify and integrate untapped supply chain potential

3. Organization of the integrated supply chain processes

Thoroughly articulate the desired result before beginning

Identify overlap, gaps, and contingencies, along with…

4. Functions or levels to outsource

Understand and differentiate core functions

Be honest about where others can do it better

5. Differentiation through supply chain performance

Fulfillment of many M&A opportunities resides in the supply chain

Not just economies of scale, but innovation

6. Supply chain technologies utilization

Understand the opportunity and plan for the implementation

Not a silver bullet

7. Employing change management

First 100 days and long-range plan

Reassess assumptions, miscalculations and new opportunities

Overall, if you remember that it’s about adding to the value of the supply chain rather than taking away, the M&A process will go much more smoothly.

More resources on M&A:

M&A Strategy –
http://www.tompkinsinc.com/operations/mergers-and-acquisitions.asp

 

China M&A: An Interview with Dr. Kim Woodard on mergers and acquisitions in China –
http://www.technomicasia.com/blog/2009/10/28/china-ma-an-interview-with-dr-kim-woodard-part-1

Photo credit: Lel4nd