Finding the post integration savings:
M&A Integration – the moment of truth for purchasing professionals?
Finding the post integration savings: It is always a telling time for procurement professionals when two or more organizations integrate, and the books opened for their respective contracts for goods and services.
In our experience, those organizations that have invested in best procurement practices and taken a strategic view of procurement always outshine those who have not, and typically go on to play the dominant role in the relationship.
There are three primary areas post-merger to finding savings:
- The price paid for like goods and services
- Economies of scale
- Differing levels of supply management effectiveness
Let’s take a quick look at each:
1. Price comparison for same goods and services
These are the easiest and quickest savings to realize and should be done from day one. This task requires a simple contract comparison to identify:
- Price differences
- Specification differences
- Discount structures
- Volume commitment
- Terms of contract that constrain resourcing activities
- Other none price financial incentives/benefit
- Service standards
2. Increased Volume
If volumes increase significantly, this provides an excellent opportunity to re-bid or renegotiate the business, to obtain improved pricing to reflect the increased spending
3. Sourcing Effectiveness
There are likely to be differing levels of sourcing competence and effectiveness when two or more organizations integrate. This can be due to one organization having a superior sourcing strategy. In any case, both organizations will benefit from adopting proven best practices.
Procurement must have a well-structured approach to identifying, prioritizing and realizing these savings. Spend analysis is the proven best practice methodology to identifying savings. Prioritizing activities results in a plan for waves of sourcing activities and waves can be prioritized by comparing benefit with the ease of implantation for different categories. In executing these waves, it is important not to lock in the company for too long, as this may prevent later waves from realizing even larger benefits later on.
Nuff said …