Tips for Successful Post-Merger Integration for Manufacturers
Manufacturers leave value on the table by failing to integrate acquisitions properly.
As more and more companies look to mergers and acquisitions as a way to expand their operations, post-merger integration (PMI) is becoming increasingly important. PMI is the process of combining two companies into one unified entity, and while it can be a great way to drive growth, it can also be fraught with pitfalls if not done correctly. This article will examine some of the manufacturers’ most common mistakes during PMI.
Overlooking Supply Chain Integration
When two companies come together, it’s important to understand that their supply chains are no longer separate entities. They must be integrated in order to ensure the most efficient and cost-effective operations. This means that all systems, processes and data must be combined and aligned to create a unified supply chain. Without this, manufacturers run the risk of added complexity, wasted resources and decreased efficiency.
One of the first steps in integrating the supply chains is to identify any gaps or overlaps in the products and services offered by both companies. Manufacturers must decide which acquired production and logistics facilities will remain open and which will close or be combined with existing facilities. Additionally, manufacturers must consider where to place new truck lanes, how integration will impact inventory management, which equipment needs to be moved and more.
If a manufacturer downsizes too much of an acquired company’s assets and distribution capabilities, it could impact its ability to fulfill orders for an expanded customer base. The specific strategy for supply chain integration between a manufacturer and an acquired company will differ depending on the goals for the transaction – whether adding products/services, entering a new market, acquiring new customers or expanding production or logistics scale.
Delaying Integration of Processes & Technology
Manufacturers that fail to efficiently integrate people, processes and technologies from acquired companies can face several issues related to cost, operational efficiencies and more. Lack of integration is especially prevalent when the acquired company is family-owned and sensitive to changes. While adhering to any pre-deal terms to not interfere with the acquired company is essential, especially if leadership from the acquired company is kept on post-close, making no effort to integrate operations will be detrimental for all stakeholders.
One common and critical point of failure is with enterprise resource planning (ERP) software. ERP impacts everything in a business, from financial reporting to operations management to product line inventory counting. The close process is often driven by ERP systems, and disparate systems can add unnecessary complexity to the close and financial reporting. Holding onto two ERPs after an acquisition also means a company may need more visibility into all its operations and miss out on opportunities to use data to inform decision-making. Consolidating into one ERP system can help a manufacturer understand the entire company’s performance and discover new options to create value.
In cases where a manufacturer and an acquired company have vastly different processes or business models, it may make sense to leave two different ERP systems in place. In these instances, manufacturers should still incorporate critical data from the acquired company into its central system or have roll-up financial reporting or consolidation practices in place.
Missing Optimization Opportunities in the Supply Chain
In addition to operational integration, manufacturers should look for opportunities to streamline costs throughout their supply chain. Access to data from across the business – for instance, through a consolidated ERP – is critical to understanding costs throughout the enterprise.
Manufacturers should create a detailed inventory of all the components of their supply chain. This will help them identify any redundancies or inefficiencies in the supply chain and manufacturers can leverage the combined strengths of the two companies post-merger. For example, one company may have a more efficient warehousing system, while the other may have a more reliable logistics provider. By combining the strengths of both companies, manufacturers can create a more efficient supply chain.
Finally, manufacturers should take the time to review and revise their supply chain policies and procedures. This will ensure their supply chain is optimized for the new merged company.
Moving Forward Without a Unified Vision
Every company has its own culture, structure, story and goals that impact its future vision. Therefore, manufacturers need to establish a unified vision post-merger. This should include an understanding of the goals and objectives of the newly formed entity and how they align with each partner. It should also include a plan for how the newly formed company will capitalize on each partner’s strengths and use them to create a competitive advantage. Without the goals provided by a shared vision, functional leaders may find it challenging to make decisions.
Communication Breakdowns with Employees & Customers
The post-merger period is a critical time for any company. It is a time of transition and change, and it is also a time when communication breakdowns can occur. For a merger to be successful, communication must occur between all parties involved.
Customers and employees must all be informed of the changes due to the merger. Manufacturers must provide information about the merger, the changes that will be implemented and the effects it will have. If manufacturers fail to provide clear and timely information to customers and employees, this can lead to confusion and frustration, harming customer satisfaction and employee morale.
To avoid communication breakdowns post-merger, manufacturers must provide clear and consistent information to customers and employees. They must also ensure that they are actively listening to customer and employee feedback to ensure that everyone is satisfied with the changes. Communication breakdowns can be avoided with proper planning and communication strategies.
By avoiding these common mistakes, manufacturers can ensure that their PMI process goes more smoothly and that the two companies are better positioned to succeed as one. It’s important to remember that PMI is a complex process and one that requires careful planning and attention to detail in order to be successful. Taking the time to do it right can pay off in the long run. Contact an Adams Brown advisor to discuss any plans you may have to buy or sell a business.