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The Role of Supply Management in Acquisitions: What about supply base risks?

The role of supply management in enterprise strategy, particularly in the area of acquisitions, is suddenly getting more important.  The C-Suite is recognizing now that when ac acquisition occurs, the “savings” that will occur that “increased volume leverage” are certainly not automatic.  In fact, a lot of complex maneuvering is typically involved in merging the two supply bases, optimizing the size of these suppliers, and updating contracts, spend analysis systems, P2P systems, etc.  Also, the need for understanding the risks assocaited with the newly acquired suppliers is not insignificant.

I was recently speaking with a senior procurement officer at a large medical devices organization.  He recounted an incident in which he was working with the CFP to assist in an acquisition.  The company was at the offer stage, and he was reviewing the list of all suppliers the target was using.  In this type of acquisition, which is common in medical devices, the typical protocol isbe to bring the organization’s supplier in, finalize the deals, and transfer production to current or new facilities.  While the CPO was reviewing the supplier list, he asked an associate to run a standard D&B report on 18 of the acquired firms’ critical suppliers.  Of this list, 2  had very poor scores, and in particular, had accounts payable that were much larger than industry standards.  He shared this information with the VP who was managing the acquisition, who indeed noted that this was very useful information. 

Useful indeed!  Two days later, one of the two companies announced it was going into bankruptcy!  The company is now struggling to put in mitigation plans, as one of their core single sources of materials is no longer shipping.  Suddenly, this CPO is being asked to be part of every new acquisition and decision in the organization!   

The basic and fundamental role of procurement in acquisitions is certainly something we will see more of in the future.