Physical Infrastructure Rationalization/Consolidation
The third primary aspect of the M&A challenge focuses on how to best leverage the combined physical infrastructure of the two former companies in a manner that results in the most cost effective and customer focused solution going forward. Companies must carefully analyze and quantify the holistic impacts of physical integration and consolidation scenarios, including one time transition costs, in order to fully understand the on-going implications of these actions on the firm’s bottom line financial performance. This level of analysis can be time-consuming and often is contrary to senior management’s desire and pressure for quick wins and realization of merger synergies.
Typically, there are three primary areas that physical infrastructure initiatives focus on:
Let’s examine each of these areas in greater detail.
Given that a primary driver of many M&A actions centers around expanding the company’s product offering, some high level manufacturing strategy and capacity analysis has likely already been performed during the Due Diligence phase leading up to the deal. Determining what products will be manufactured at which facilities and how those products will be distributed to the market is a key component in the newly merged enterprise’s future success.
However, prudent companies should perform a comprehensive analysis that captures current and future running costs, required investments and one time transitions costs, including movement of equipment, transfer of tooling, labor separation or relocation costs, and on-going lease obligations. Once fully implemented, the firm can realize the optimal benefits of a manufacturing footprint that cost-effectively supports the enterprise’s product and volume requirements and has the capability to flex its capacity as market conditions change.
In our next blog in the series, we will begin to examine the challenges and benefits of consolidation of the physical distribution network. Find out more about Ciber’s Supply Chain Strategy services.