Mergers and acquisitions: Great things can be done when two become one

  • February 09, 2024

Mergers and acquisitions (M&A) require the resources of each organization involved while supporting business continuity. With a true coming together, supply and distribution networks free up working capital and generate economies of scale — reducing cost-to-serve and improving service levels. However, those processes that continue to operate in silos can make cascading network inefficiencies a significant risk.

Some critical issues to address before you merge supply chains

Merging supply chains demands a new company (NewCo) roadmap and a planned integration strategy. The roadmap should locate and take full advantage of the cost synergies available. You can find opportunities through reconfiguring existing supply chain networks and aligning business strategies and demand patterns.

Ask these questions:

  • Is it possible to develop a NewCo distribution center (DC) strategy that'll handle projected new levels of demand with the infrastructure in place?
  • Which DCs should you merge, close, keep, expand or invest in?
  • Can you co-source raw materials and finished goods?

You can also explore finding additional value through combining inbound transport from domestic and overseas sources.

Studying what you can do with the resources at hand is good, but consider what new infrastructure strategies NewCo can deploy. Is it possible to align the service policies of the formerly separate organizations? There can be a ready route to improve parameters, such as on-time-in-full (OTIF). Client movements could be consolidated. There might even be opportunities for revised lane volumes.

The frustrating challenges of merging disparate supply chains

In most M&A situations, the acquiring organization will be larger. But that doesn't make the smaller organization any less important. Integration must assess the capabilities and needs of both firms, making sure the acquired isn’t marginalized.

Product portfolios
Merging companies will have unique ways of classifying products. These distinctions invariably make the combination of functionally similar products and obviously distinct SKUs a complex undertaking.

Service level agreements
Evaluate each organization's warehouse and transportation contract rate structures and their client distribution agreements.

Distribution strategies
It'll be necessary to merge and reconcile single-echelon and multi-echelon networks, along with centralized and decentralized inventory strategies. There'll be issues concerning full-truckload (FTL) vs. less-than-truckload (LTL) vs. parcel distribution and other channels in use.

Sourcing strategies
Outsourcing or producing in-house and sourcing domestically vs. importing. Considering every variable between organizations can improve the future value of the whole.

Methodology: The evaluation of disparate assets and processes

NTT DATA’s supply chain design experts create digital twins of the existing supply chain networks to explore future strategies by testing different scenarios. They develop end-to-end optimization models that compare inbound sourcing, in-house production, warehousing, transportation networks and the demand management methods of both entities. Real-world business constraints such as production and DC capacities, channel strategies, sourcing policies and customer service policies are also included. Here's the design of a typical customer-to-DC mapping problem.

Some essential considerations for modeling M&A environments include:

Complete an evaluation of product and customer segmentation systems for each organization before aggregation. This guarantees that the smaller entity won't be deprioritized during the analysis.
Greenfield locations

Evaluate potential new greenfield DC locations based on the demand density of each business. Consider factors such as proximity to logistics infrastructure hubs, domestic vendors, import ports-of-entry and the availability of qualified labor.

Flexible design
The combination of the two organizations is an opportunity to use the best of each, bringing advantages to the NewCo supply chain. Combining two single-echelon supply chains could result in a new, more efficient, hub-and-spoke or multi-echelon structure. There's the potential for any configuration that best satisfies NewCo’s needs.

Scenario evaluations
The comparison of multiple scenarios — on a cost vs. service trade-off curve — allows NewCo to decide on the best network configuration for its business goals. Other things to consider include transition risk and the effort needed to complete the optimized network.

Where's your implementation on this effort vs. impact graph?

A real-world example — how it all happens

A leading hardware manufacturer partnered with NTT DATA to integrate a new acquisition. Both organizations had varied distribution and sourcing strategies. The parent company had larger sales volumes but high import dependencies and larger DCs. The acquired organization mostly had domestic suppliers and multiple smaller DCs.

The Client/NTT DATA team examined several digital-twin-generated network scenarios. Based on that evaluation, the team chose facility locations from a pool of existing and greenfield candidate locations, with the new network configuration designed around a new greenfield hub. This exercise combined ten DCs into a six-DC network with three hubs and three spoke DCs. The revised network resulted in a resilient supply chain that can cope with sudden exponential ecommerce surges and a projected 50% growth in demand over the next five years.

The team developed a year-on-year, four-phase roadmap in alignment with the growth strategy:

Phase one: Quick Wins — redefining DC-customer mapping and closing excess warehouses.

Phase two: Policy Changes — reconsideration of customer service contracts, inventory policies and freight contracts.

Phase three: Medium-Term Changes — expanding and upgrading warehouses and developing new DCs.

Phase four: Long-Term Changes — developing increased manufacturing capacity.

Impact on the united NewCo

  • A 4.5% reduction in annual operating expenses (OpEx) due to lower warehouse costs, fixed costs and transportation costs through optimized material flow paths.
  • Improved customer service through an 18% reduction in last-mile distances via improved allocation of DCs to customers.
  • Improving inventory deployment led to a 22% reduction in finished goods inventory value through fewer stocking locations, revised customer channels and product segmentation.

Often, M&A efforts of merging companies are limited to standardizing practices across organizations. However, a focus on finding and executing long-term transformational initiatives will derive greater benefits from the assets, technologies and resources of each.

Contact us and see how NTT DATA Supply Chain Consulting can help you perfect your M&A processes and integrate the best of both worlds. Our top supply chain talent, enabled by proven, leading-edge digital assets — tools, methods and content — deliver actionable insights and measurable outcomes to some of today’s largest and most complex supply chains.

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Shikhi Singh

Shikhi is a Senior Manager, Supply Chain Design, in NTT DATA’s Supply Chain Consulting practice. He brings more than a decade of experience that runs the gamut from management consulting, supply chain strategy and cost optimization to prescriptive analytics and team management.

Vijay Kumar

As a Manager, Supply Chain Design in NTT DATA’s Supply Chain Consulting practice, Vijay’s experience focuses on logistics and supply chain, with a proven record of excellence in process design and implementation. Vijay is also a recent recipient of NTT DATA’s Customer Success Award.


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