M&A is a powerful strategy for organizations to acquire disruptive capabilities. Companies are using inorganic growth to catapult themselves ahead of competitors, especially in industries heavily dependent on manufacturing, such as oil and gas, and life sciences. Recent activity in life sciences includes Nestle Health Science’s acquisition of Phagenesisand LG Chem’s acquisition of LG Life Sciencesto foster the business and spearhead a focus on the global market.
Winning at M&A is simple, if not easy: You need to find a good target, get the economics right, and quickly realize the synergies. News stories tend to glamorize the first two items on that list, but it is the last one that delivers much of the value. One way to quickly realize synergistic opportunities is to evaluate and focus on the possibility of distribution network convergence in the supply chain of the merging organizations.
Distribution networks are easier to assess and evaluate, especially in the life sciences industry. Additionally, capitalizing on distribution network convergence doesnt disrupt the business as much as trying to exploit sourcing and manufacturing opportunities does.
Working Towards Distribution Network Convergence
Distribution network convergence is a low risk, high impact opportunity for businesses seeking to quickly capitalize on synergies. Here are a few steps you can take in this direction:
- Perform Operational Profiling and Segmentation: Segment the distribution network based on scale (large or small scale) and process (identification of constraints and dependencies). Assign weights to each segment based on the priorities. Use these parameters to create a structured template for engagement, and to gain a better understanding of network complexities, capabilities, and redundancies.
- Compare Activity Based Costing: Compare costing data of both organizations against established benchmarks. Use this activity to understand KPIs used at each of the merging organizations.
- Develop a Distribution Network Strategy: Start with a high-level view of the supply chain infrastructure to identify opportunities and deliver quick wins. Evaluate the current facility footprint, operational capabilities, and utilization rates to identify potential areas for consolidation.
- Decide Whether to Insource or Outsource Distribution: Use the network distribution strategy to determine what activities should remain in-house and what should be outsourced. If there are constraints on space or operational capabilities, explore large brownfield or green-field opportunities.
To learn more about how your organization can achieve distribution network convergence, read our paper ‘Leveraging Distribution Network Convergence to Maximize M&A Value’.
Integrate Strategic Core Competencies to Unlock Synergies
The life sciences industry is looking at billion dollar M&A deals every quarter. To succeed, you need to lock down the synergies early in the M&A lifecycle. Wisdom suggests that you should focus on integrating strategic core competencies and consider outsourcing non-core activities. This will not only free up resources that can assist with the integration process but also increase the chances of success by helping you deliver quick wins from M&A.
The author wishes to thank Austin Santichin the preparation of this blog.
Austin Santich is a Business Analyst with TCS Consulting. He earned his MBA from the University of Tennessee and has over eight years of supply chain experience. Austin’s experience and focus include inventory management, distribution operation, and process improvement.