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Consolidations: More May Not Mean Less

by smartsourcingblog

The global economy is at a point now where more companies are considering mergers and acquisitions for various strategic purposes - and one of them is often perceived savings from consolidating purchasing and supply management functions. And while it is generally true that consolidations can generate significant savings, the execution is always harder in practice than it is on the org chart. It's a case where more does not always lead to less -- in this case, lower costs. Here are a few things to consider:

Knowledge is power. Conduct baseline assessments of supply management functions in each location or division. At a minimum there are likely differences in systems. In a worst case, there could be a huge mismatch where one division has a purchasing department fulfilling a purely administrative function while another has a supply management operation that operates at a strategic level working with cross functional teams driving innovation and quick market responsiveness. No easy blending in that situation.

Change is hard. Expect resistance both passively and actively. Some people will naturally prioritize saving their job over saving money for the firm. Others will just find adjustments to new procedures difficult. Create cross functional and cross-location teams to work on projects, and use specific stakeholder engagement strategies to help team members understand and work with each other.

Parts are parts - or not. Not every category of purchase is suitable for centralizing under a corporate purchasing center. What may seem like a commodity may have subtly different specifications for different locations. Analyses of where to source ought be based on the total cost of ownership - not necessarily a simple benchmark price.

Look for the low-hanging fruit. There are often significant savings in indirect categories where the ownership of the spend is dispersed. In your baseline assessment, identify those areas where a quick change can make a big difference. When executive management sees savings it is more likely to provide the support you need to implement more complex, long-term supply changes.