Essay About Importance Of Supply Chain And High Performance Businesses

Delivering Merger Synergy
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After a quiet period of several years, merger and
acquisition (M&A) activity has gained momentum
across many industry sectors in 2005.
The interest in M&A activity never, of course,
disappeared—and with good reason. Accenture
research shows that high performance businesses
pursue growth strategies that juggle the shortterm
priorities of today and the organizational
and competitive demands of tomorrow. For many
companies, M&As have an important role in the
pursuit of that balance.
However, realizing the full synergy potential in a
merger is an uphill battle. Some studies have
noted that fully half of all mergers eventually fail
to create shareholder value, and less than 30
percent create value that is noticeably higher than
industry average returns.
Certainly, there can be many reasons why deals
have not lived up to expectations. In Accenture’s
experience, one of the most critical reasons is that
the companies involved typically did not pay
enough attention to supply chain issues across the
board—whether it was during the pre-deal M&A
strategy process or during the actual merger
planning and subsequent integration.
The importance of supply chain to a merger’s
success is supported by the findings of an
international study team made up of researchers
from Accenture, INSEAD and Stanford University,
which was part of Accenture’s High Performance
Business research initiative. The research team
found that supply chain excellence is directly tied
to a company’s financial performance, which is
why top performers incorporate supply chain
management into their business strategies.1
Overall results bolster Accenture’s hypothesis that
the mastery of core competencies like supply
chain management is a critical component of
high performance.
The emergence of the supply chain
While not applicable for deals that are focused
solely on access to a new technology (such as those
in the high-tech and biotechnology industries),
supply chain excellence is particularly important
for merging companies that seek to achieve high
performance by expanding into new markets,
rationalizing distribution channels and consolidating
excess capacity. It is in these latter types of deals,
often involving two large companies, that mastery
of supply chain competency plays a critical role in
determining the success or failure of a combination.
Thus, the supply chain has emerged as an area
that can have a major impact on how a merger or
acquisition performs—especially when it comes to
costs. Indeed, the financial community evaluates
mergers on their ability to deliver cost synergies
to justify the deal because they are tangible and
easily measured. Because a company’s supply chain
is in many cases the most significant source of
cost synergies—in some deals, it has accounted for
between 30 percent and 50 percent of synergies—
effectively rationalizing combining companies’
supply chains is more often than not a prerequisite
to merger success.
Yet cost is not the only area in which the supply
chain has an impact. Through our experience and
analysis, Accenture has come to realize that the
supply chain is one functional area that has a
direct impact on all four major types of synergies
that can result from a merger:
1. Revenue. A superior supply chain
protects revenue during times of
transition by ensuring customer orders
are not interrupted and by enabling an
organization to generate stronger topline
growth in new products, new
markets and geographies.
2. Operating expense. How effectively the
company procures goods and services
and how efficiently the supply chain
runs has a direct impact on net income
and operating margins.
3. Capital expenditure. Because the supply
chain often accounts for a significant