By Christian Michalak, Managing Director at Kerkhoff Consulting GmbH
Companies merge or make acquisitions because they expect to thus realize a better starting position in their competitive environment. In terms of M&A subjects, the purchasing department is particularly important: More than 50 percent of costs relate to the purchase of goods and services. And: No corporate area is able to show results as fast. Before analysts would even find the synergy effects in the balance sheets, a new purchasing attitude has been communicated on the market. Thus, already in the very first weeks after a merger, the purchasing department will increase a company's corporate value – and it secures its long-term success by raising comprehensive synergies.
Despite having an eye on the "quick wins": The integration of purchasing organizations is a complex and elaborate process which must be started at the earliest possible time of a merger or an acquisition. It is absolutely indispensable that the six steps presented below are complied with to enable successful integration.
1. Determination of a common language
Still before or at the latest during a merger, the existing purchasing teams must meet and define their future common language. However, because of many specialized terms which are specific for a company, industrial buyers will frequently talk at cross purposes in the beginning of an integration – especially when it comes to the technical terminology. Thus, it is here important to determine in a generally binding manner what will be their language in the future. In this respect, smart purchasing managers will not simply impose their own language on the acquired organization but try to find specifically common language rules which do justice to both organizations. This is the only way to avoid any major defensive attitude by the acquired team. In extreme cases, that team just might continue to communicate as before – with the resultant major risk that the bosses will no longer understand their new employees at all.
2. Definition of the organizational structure
Once a common language has been found, the basic prerequisite for the new definition of an organizational structure has been met. Questions which those responsible for purchasing must ask themselves in this respect: How will purchasing be done in the future? Will complete centralization be aimed at? Should a decentralized model be used as the basis? How can compliance guidelines be adjusted for the purchasing department? In this stage as well, it is recommended not to use any complete "power loss strategy" in case one partner is stronger in its position than the other. Much rather, it presents a unique chance for the heads of purchasing departments to give their own department the weight it will need to meet the new challenges. In practice, the following might apply: If, in the future, the larger partner will centrally buy all basic demands, the new partner may be assigned specific purchasing competences for which it alone will be active for the entire group in the future. Optimally, these purchasing competences should also present the partner's business competences. One example: If a food manufacturer acquires a dairy company, it suggests itself to have the dairy company also procure the milk. In contrast, packaging and labels will be centrally purchased in the future.
3. Distribution of positions
Once the organization stands, it can be clarified and subsequently also communicated who will take over which position and thus responsibility in the new organization. This step is extremely important because this will be the first time employees hear about the new plans regarding the corporate organization; and any fears of losing their job can thus be allayed. That's why communication should here be direct and in individual talks – also, so that minor adjustments can still be made in operative functions. It is furthermore important to take this step quickly and simultaneously in all organizational units: Nothing is more damaging than different stages of information among employees.
4. Establishing a common culture
Employees will be more motivated through a common language and the determination of new responsibilities. On that basis, it's now important to develop a common culture. Different types of communication must here be used, and a multitude of actions is conceivable: A kick-off meeting with all buyers, an internal purchasing newsletter, all the way to special events – for example, an annual meeting with the whole team. The heads of purchasing should plan this with corporate communications and develop an action plan to establish and maintain a new corporate culture.
5. Analysis of procurement markets
The organization stands, the employees are motivated – now, the day-to-day operative business can be resumed. The next step will be to determine, with the involvement of the entire new team, how much the new organization actually buys from whom and what the actual demands look like. Which goods are procured and from which regions? In which categories had the two organizations done their purchasing so far? These categories must be harmonized, and it must subsequently be determined from which regions they will be further supplied. An analysis of procurement markets and their requirements and demands will clarify relatively fast where redundancies exist on the side of suppliers. First key decisions can here be made: Which suppliers are to supply the new organization as well, and which suppliers will not? This can present a chance for companies who, until then, had predominantly obtained their most important goods and services from only a few suppliers (single sourcing strategy). Integration can thus be their opportunity for broadening their supplier base and thus reduce their failure risk in case of a supplier's insolvency (multi sourcing strategy).
6. Communication to suppliers
Finally, suppliers must be directly involved in the integration. This begins with such everyday items as communicating the suppliers' new contacts in the companies. And that step goes all the way to immediate, new price negotiations – for example, when one supplier had formerly supplied the two merged companies at different prices. It is moreover important to adjust all supplier contracts, harmonize payment terms, and bring the corresponding purchasing modalities up to the same level.
This presentation is to be considered as an example and will clearly illustrate, on a meta level, which steps need to be taken. It also shows, however, that the integration of purchasing organizations is a very complex subject which must be taken into account and dealt with the soonest possible in an M&A process.
About the author:
Christian Michalak is Managing Director Projects at Kerkhoff Consulting GmbH which specializes in purchasing and supply chain consulting. He is responsible for cross-project planning and control of consulting contracts. |
