Blog #8: Physical Infrastructure Rationalization/Consolidation – Distribution Networks
For M&A activities that are focused in the same geographic market, a quick glance at a map would seem to suggest multiple synergy and savings opportunities, including:
- Common supplier locations
- Distribution centers located in close proximity to each other
- Transportation routes that travel down the same highways
- Deliveries made to the same or nearby customers
However, as tempting as it might be to jump into a strategy of consolidating distribution centers and merging freight onto common routes, a deeper analysis here is prudent. Many of the anticipated savings from consolidated operations and transportation often fail to materialize due to other factors that are often not recognized when forecasting integration synergies. Some of the elements that could negatively impact full savings realization include:
- Differences in inbound supply chains
- Differences in packaging requirements
- Differences in documentation requirements
- Differences in legacy host systems interfaces
- Differences in returns policies and processes
- Differences in order cut-off times and delivery schedules
- Differences in service level commitments
In one instance in which two global automotive companies merged their service parts distribution networks in the U.S. market, only four of the primary twelve business processes within the warehouse could be fully integrated despite a common WMS platform. The remaining eight activities had to be performed in parallel due to the various differences noted above.
In our next blog in this series, we will review the need and benefits associated with performing a detailed distribution network analysis to validate a physical distribution integration initiative.