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M&As can bring in quick wins for procurement

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by Uppasna N
1 January 2017

One of the greatest challenges faced by chief executives is to make sure M&As work and help streamline their organization’s vision towards ever-changing demand trends and revenue achievements.

At times, opportunities are missed that can benefit an organization in saving costs. For instance, procurement strategies of an acquired entity can bring in cost savings as it is easier to compare supplier contracts and commodity prices rather than investments in R&D or infrastructure development.

Beyond immediate cost saving opportunities during M&As, there are several process-wise changes that could be made in the procurement division to bring about strategic sourcing options. The M&As would in fact act as a catalyst in the process of merging companies. The “make or buy” decisions can now be taken together with the combined man force and talent in hand, which makes more sense in the case of vertical integration as in the case of agrochemical space.

A study depicts that close to 20 percent of the synergy savings is drawn from the procurement department, in the chemical industry space. The cost savings are achieved not only from procurement synergies but also from improved efficiency across the organization, and the operational functioning in the procurement department.

When two well-known mattress manufacturers merged through a private equity transaction, an apparent "synergy homerun" was complicated by the fact that the two companies had different manufacturing processes that were not going to be integrated in the near term.

Through a rigorous sourcing process, the combined entity saved more than 10 percent on this strategic multi-million-dollar category with no change in supplier, service or quality, and both continued to buy unique products. By prioritizing this as a first-wave effort, the savings generated an early win and helped fund other mid-term strategies, such as sales and marketing integration.

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