6. Balance short-term priorities and long-term goals
A common pitfall in renegotiating contracts with suppliers is a heightened focus on capturing near-term (one-two year) savings. Companies instead could adopt a longer-term “partnership” view that accounts for the buyer’s total cost of ownership in longer-term horizons. This helps achieve the right balance between investor expectations and long-term value creation. Most organizations also place a high emphasis on supplier pricing and often overlook the hidden elements in Total Cost of Ownership (TCO). Deploying a combination of levers - managing demand, managing supply and improving processes, compliance and controls – helps increase value delivery.
Transactions also provide a good inflection point to review NewCo’s working capital strategy in coordination with the finance team and re-set supplier payment terms to align with industry benchmarks.
7. Drive operating model effectiveness (OME)
OME involves reviewing the tax efficiency of the supply chain operating model by locating cost and profit centers in strategic tax jurisdictions. This assessment is often initiated in the executive office with cross-functional leadership. OME, if executed correctly, can help extract significant deal value, while setting the future business up for long-term strategic success. Critical decisions and principles include:
- Insourcing vs. outsourcing, based on core competencies
- Near-shoring vs. off-shoring, based on tariff and tax efficiencies
- Identifying fixed vs. variable elements of cost structure such as IT development, transportation and payroll
- Aligning the operating model to industry benchmarks (e.g., spend per FTE)
8. Futureproof your supply base
Customers are increasingly conscious of suppliers’ impact outside the core value chain. For example, as you develop your NewCo supplier strategy and external spend, you must consider factors such as carbon footprint, fair trade practices, diversity and other nontraditional concerns. A transaction can also be a great opportunity to revisit or institute a “Preferred Supplier Partner” program. To enhance compliance with the program, successful organizations take the time to review supplier master data and flag or remove non-compliant suppliers from the system.
An M&A transaction can be a critical inflection point not just to deliver synergies, but also to re-visit the operating model of the supply chain function, enhance supplier partnerships and re-align supply chain priorities to the business strategy. Empowering and training teams to engage in the right conversations internally and externally can enable organizations to deliver sustainable shareholder value.