Supply Chain M&A, otherwise known as mergers, acquisitions, and divestitures, presents significant challenges for companies, particularly within supply chain management. In our recent LinkedIn Live with JBF Consulting, Cornerstone’s founder, Brian Carlson, and JBF’s Principal, Tony Wayda, dove into the intricacies of navigating these events, especially from the warehousing and transportation perspective. Read below for a breakdown of their discussion, or click here to watch a recording of their conversation.
Key Challenges in Supply Chain M&A
One of the main pain points addressed during the conversation was that most companies don’t plan for mergers and acquisitions, they tend to come as a surprise. In many cases, when this occurs, companies have to re-evaluate their distribution center (DC) footprint, often reducing the number of warehouses to streamline operations. Though Brian once worked with a client that successfully reduced nine DCs down to three after merging with another company, he stressed this was only possible because they had planned thoroughly and an established risk mitigation plan, enabling them to move quickly and efficiently. Successfully managing warehouse operations during such transitions is critical for maintaining business continuity.
A company Tony worked with had a much harder time. After being divested, it found itself in a bind with its third-party logistics (3PL) provider. When the 3PL decided to cease providing services, the company was forced to scramble to find new providers. This not only placed operational strain on the company but also required a complete redesign of their warehousing systems and business processes. Moving to a new 3PL provider involved eliminating some custom systems that were tied to the previous arrangement. For many businesses, the integration of custom-built systems complicates the supply chain M&A process, especially when transitioning to industry-standard best practices in a new setup.
The Impact of Contracts and Procurement on Warehousing
Planning is critical, especially when it comes to software or 3PL contracts. Companies often negotiate those contracts based on the scale of their operations at the time, securing discounts by bundling freight and warehouse space across multiple divisions. But if a division is divested later on, the new smaller entity no longer enjoys those discounts, resulting in higher costs, and enormous pressure on the warehousing operation to either absorb those extra costs or renegotiate terms with providers quickly.
Reviewing software and logistics contracts in advance of any merger or divestiture is critical to an operation’s survival. Brian recommends procurement teams consider adding verbiage that would protect the company down the line, such as a temporary extension period in the event of divestiture.
People and Change Management
Brian and Tony agree: change management should not be an afterthought but a priority in planning any supply chain or warehousing project. During a merger or divestiture, the people within the company with knowledge of its processes are critical. When a company is left without critical expertise, they are forced to rebuild their internal team from scratch, an incredibly costly and time-consuming process, particularly in the midst of a supply chain M&A. Whether you’re merging operations or divesting a division, ensuring that internal teams and external partners are well-prepared for the shift is crucial to a company’s success.
Technology and Custom Systems in Warehousing
Transitioning to new systems often requires a complete reevaluation of business processes. Divested companies are forced to decide whether to rebuild their custom systems or adapt to best practices through standardized systems. This decision has direct implications for warehousing operations, especially when it comes to managing inventory, order fulfillment, and distribution across multiple sites.
The Role of External Forces
Beyond the internal challenges of undergoing a merger or divestiture, organizations can also be severely impacted by external forces like market conditions or government regulations. For example, businesses could face delays in divestiture due to national security concerns. Unexpected events like these can throw off even the most meticulously planned warehousing transition. Brian and Tony agree that regularly reviewing contracts, warehousing setups, and distribution models—even when no changes are on the horizon is critical. By proactively identifying areas of potential risk and inefficiency, companies can avoid scrambling when the unexpected happens.
Supply Chain M&A: Final Thoughts
Mergers, acquisitions, and divestitures pose significant challenges to warehousing operations. Whether it’s managing multiple distribution centers, transitioning to new systems, or dealing with the human side of change, there are no easy solutions. The best approach is to plan for the unexpected, ensuring that contracts, systems, and teams are equipped to handle whatever the future holds.
Supply chain managers have their plates full, optimizing transportation routes, managing warehousing and distribution centers, and tracking shipments to ensure timely delivery. They don’t always have the bandwidth to ensure current practices are preparing them for any unforeseen changes down the line, that’s where Cornerstone can help. With expertise in supply chain planning and experience vetting over 80 supply chain software solution vendors, we can guide your next transformation. Ready for your next step in supply chain success? Let’s talk!