The Supply Chain: The Forgotten Acquisition Issue?

Adidas-Solomon's August announcement of its intent to acquire Reebok is only one recent transaction in an ongoing flow of acquisitions and mergers among consumer goods companies looking to capitalize on the synergies and beefed-up marketing muscle resulting from increased mass. Such announcements typically project cost savings and revenue boosts, most often due to the marketing and branding aspects of the deal. But the integration of the new brand into existing supply chain processes and systems can be critical to the success of the transaction. It's an issue not often mentioned in the heralding press release.

Such integration "is not really considered ahead of time," says Kara Romanow, research director for AMR Research. "As far as systems go, they don't really look ahead to how challenging that will be. System architecture can be very diverse, fragmented and heterogeneous. It appears easy to pull out a standalone piece, but it's not. It's even more difficult to add a new piece because systems are so fragmented and they've used so many workarounds to get the system to work."

Some organizations ignore the systems implications to such a degree that consultants have specialized in cleaning up the systems mess resulting from such deals, says Andrew White, research director, supply chain management, Gartner. Organizations can spend two years following an integration streamlining supply chain systems and getting processes in line, but the pace of acquisition means that process is constantly restarting again across the industry, he says.

When Perry Ellis International acquires a new brand, CIO Luis Paez steps in as early as possible to get a look at the systems and staff of the brand being acquired. "Most don't give you a lot of time -- they're uncomfortable being acquired -- but you do as much as you can with the time you have." Paez considers systems and processes as well as licenses. "We look at infrastructure, architecture, how well the architectures match, how well the data elements match," as well as culture and data accuracy, he says. Often, he is given dollar amount he needs to cut as a result of the acquisition. The biggest savings is typically through reduced software support costs.

Sometimes they get lucky. In Perry Ellis' acquisition of Tropical Sportswear Inc. earlier this year, the MRP and EDI systems matched, and the IS staff dovetailed well with Perry Ellis'. In past acquisitions, getting systems to work together has required cumbersome interfaces and mismatches in IS skills. New York-based Coty Inc., which acquired Unilever Cosmetics International in July, looks at IT costs such as reassignment of licenses, the expertise required to run a second system during the transition, the cost of migrating platforms, and the worth of the hardware in assessing a potential acquisition. "We might incorporate these in our economic modeling to help evaluate what piece we're willing to go up to" for a target company, says Michael Fishoff, CFO.

Brands that come along with brick and mortar facilities are even more challenging, says Fishoff. "There needs to be more synergy, and there's less room for error." Decisions may include whether to bring a brand's outsourced manufacturing and distribution in house.

But there is no standard set of best practices for how to best integrate a new brand, or how to divest one. The challenges can be particularly difficult when a centralized organization acquires a decentralized one, or vice versa.

Even with less divergent approaches, "There's no such thing as a template to make it easy," says Perry Ellis' Paez. "The more I try to do that the more difficult I make things for myself. You can have a framework, but you've got to approach each acquisition with a different frame of mind, because each one is different. We make acquisitions successful by being nimble and working as a team." Assessment and planning are essential elements.

"There aren't packages applications or modeling tools out there. There's not a lot you can do differently today other than use some supply chain design tools and model. That's a potential skill set to be developed," says Gartner's White. However, as supply chain applications become more granular and business process-centric, the integration task should get easier. It's the processes that are unique to a business that are more difficult to replicate in a new acquisition, he says.

Some companies that have completed many acquisitions have developed procedures for integrating a new brand into the systems fold. VF Corp., for example, dispatches a team to enact these procedures and implement its standard supply chain platform, but with room for flexibility to accommodate cultural differences.

Flexibility in systems design is a key to making future acquisitions and divestitures less painful. "The best thing you can do is, as much as possible, standardize on common systems and processes, so you're able to integrate and segregate intelligently," says Coty's Fishoff. Good IT housekeeping and attention to detail on an ongoing basis makes a large change such as a new brand addition easier to address. -- By Lisa Terry