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Template Sourcing Procurement M-A Inegration Playbook

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Template Sourcing Procurement M-A Inegration Playbook

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									TEMPLATE
 SOURCING & PROCUREMENT
M&A READINESS ASSESSMENT /
  INTEGRATION PLAYBOOK
    Sourcing & Procurement M&A Initial
       Internal Readiness Assessment
  What Has Been       Findings       Required Actions   Who/When
    Assessed
Existing Sourcing &
Procurement M&A
Playbook

Critical Staff

Key Material
Groups and
Contracts
Processes and
Systems
Knowledge Capture
Mechanism




                                 2
     Sourcing & Procurement M&A Readiness
      /Integration Playbook Table of Contents

                            Topic             Page

Executive Summary

Phase I: Integration Prep Activities

Phase II: Integration Planning

Phase III: First 100 Days

Lessons Learned from Prior Integrations

Benchmarking

Tools, Templates and Examples


                                          3
Sourcing & Procurement M&A Readiness /Integration
       – Tools and Templates Reference Guide
                              Tool / Template                                  Playbook Page

Systems and Tools Dependencies

Process for Identifying Contract Synergies

Contract Comparison Checklist

Processes, Tools and Critical Staff Matrix for Prioritization and Assessment

Business Continuity: Template for Team Set Up


Sourcing Synergy: Template for Team Set Up


Target Company Spend Analysis

Sourcing Synergy Identification and Analysis

Sample Communications Plan

                                                       4
Procurement Synergies Account for Between 30% and
    50% of Overall PMI Synergy Cost Savings*
                                            •To optimize synergies, plan and execute:
                                                                      –Business continuity
                                                          –Value creation from sourcing synergies
                                         –Blueprint for infrastructure rationalization and new organization
•Readiness requires pre-defined Workstreams with assigned activities and deliverables by phase
                                        of integration


                      Phase I                           Phase II                   Phase III                        Month 3 to
                    Integration                       Integration
                                                                                 First 100 Days                    “To Be” State
                       Prep                            Planning

                 Business Continuity Workstream
                   Manages and transitions procurement and sourcing operations, processes & systems,
                   identifies and mitigates integration risks

                 Sourcing Synergy Workstream
                    Identifies and captures near term savings; develops longer term category strategies for
                    sustainable savings


  Phase I can be executed by a Clean Team, i.e. dedicated staff          Day 1               *A.T. Kearney CPO Executive Roundtable, May 2010; Hackett
  that collect and analyze sensitive data typically restricted from                          Procurement Checklist for Mergers and Acquisitions, 2009
  sharing between entities, prior to Day 1                                  5
  Alternate Integration Timeline
                                  Phase II                  Phase III                   Phase IV
    Phase I
                                Integration                Execution                   Post Merger
  Due Diligence
                                 Planning                  Planning                    Integration




  Sourcing Synergy Workstream
     Identifies and captures near term savings; develops longer term category strategies for
     sustainable savings

                 Announcement                 “Kick-off”                 Close/Day 1             Operations fully integrated


~2-3 months                     ~1 month                   ~3-5 months                  ~2-6+ months




                                                     6
           Integration Non-Negotiables
                    Requirements           By When


1. SOX-compliant procurement process


2. Fraud controls


3. Internal Sourcing Policy Elements


4. Other Regulatory / Legal Controls




                                       7
                   Estimated FTEs for Integration –
                   Projects to De-Prioritize / Delay
Step 1: Estimated Number of FTEs required             Step 2: Projects that could be delayed, de-
for integration                                       prioritized, or impacted
  Full time

   • Includes: Finance Analyst

  Part Time

     •Includes: Category SME (HR, Finance, Law)




                                                  8
International Integration Team Org Structure –
       (dependent on target geography)
                           Corporate Lead
                       (Integration Management Office)




                                                South               Asia
      NA                EU                    America &
     (1-2)             (2-3)                  Puerto Rico           (2-3)
                                                  (1)




             PMO                  SYST                      PROC            P2P
                                                            OPS
              (1)                  (2)                                      (1)
                                                             (1)




               FIN                             HR                  LAW
             ANALYST                          (P/T)                (P/T)
               (1)




                                        9
North America Integration Team Org Structure
      (dependent on target geography)
                          Corporate Lead
                 (Integration Management Office)


           PMO                 SYST                 PROC OPS         FA Lead

           (1)                 (2)                     (1)            (2-5)



    FIN                HR                   LAW                P2P
 ANALYST
   (P/T)               (P/T)                (P/T)              (1)




                                       10
  Savings Levers Include Best Pricing, Economies
   of Scale, Strategic Sourcing and Organization
                   Transformation
        Sources of Value                       Examples                        Typical Impact
                                  •Supplier contact and form of      Supply disruption if done badly
       Business Continuity        communication
                                  •Signature authority
                                  •Best of best pricing              Combined materials short term
            Repricing             •Volume discount                   savings
                                  •Best contract terms
                                  •Standardization                   Combined materials spend – long
                                  •Demand mgmt                       term savings
        Strategic Sourcing
                                  •Global sourcing
                                  •Supplier development
                                                                     Organization savings through
                                  •HC reduction
                                                                     consolidation;
   Organization transformation    •Category management
                                                                     Additional savings with capability
                                  •Center of excellence
                                                                     development



•Estimate: Up to 80% of synergies captured in the first year after a merger closes
                                                    11
       Identify the Right Team with the Required
                 Competencies for PMI
Competencies and subject matter experts in these areas

 •   Tools and systems
 •   Procurement and contracting processes
 •   Functional categories
 •   Supplier relationship management

Staff able to work full time in required time zone(s)

 • Existing international staff
 • Are there non-international staff able to do 3-6 month work assignment?
 • Are there non-international staff with global experience, capable of backfilling/covering staff
   from locations?
 • Visas, temp housing, etc.

Identify staff who speak other languages, have sourced in other geographies

                                               12
Executive Pre-Planning Checklist
• Validate approach
  – Are we on right track?
• Identify Team
  – What other competencies?
  – Who and when do we engage?
• Collect key contract T&Cs
  – Continue with certain suppliers or wait for
    announcement?
• Develop organizational blueprint for new
  organization

                             13
Phase I: Integration Preparation
Business Continuity Workstream: Organization,
          Process and Risk Analysis
Key Questions to be Addressed                                 Key Activities
•What are assumptions for the pending deal to help us         •Refresh process and systems roadmap
develop potential integration scenarios?                      •Structure Clean Team, create operating
•What roles and competencies will be required for the         guidelines/procedures, backfill
Clean Team?                                                   •Define potential integration design scenarios

•What tools and systems can be leveraged for data             •Identify questions and data requests for Clean Team
analysis and knowledge capture.                               integration planning

•What are key risks to mitigate business disruptions?         •Ensure merger agreement includes requirement to retain
                                                              relationships with all current suppliers



Key Deliverables
•“As is” roadmap of processes and systems
•Clean team identified, charter, roles and responsibilities defined
•List of assumptions and potential integration scenarios
•Initial data request document for Target
•Key risks identified with actions prioritized to mitigate them




                                                            15
        Sourcing Synergy Workstream: Spend and
                  Opportunity Analysis
Key Questions to be Addressed                             Key Activities
•What are the key material groups and suppliers by        •Conduct Internal Spend Analysis
geography?                                                   •Identify key material groups, suppliers and spend by
•What key supplier relationships can be leveraged with        geography
larger spend and scope?                                      •Collect data on PO volume, pricing and description of
                                                              services
•What sourcing activities are underway that may              •Class 1 & 2 and top 50 spend suppliers
incorporate consolidated spend with target company?          •Current open PO against contracts
•What are the geographic constraints and opportunities?      •List of contracts by functional area, identify associated
                                                              CM
                                                             •Notice/contact info for communications
                                                          •Identify planned or in progress sourcing activities



 Key Deliverables
 •“As Is” Summary of current Internal spend that identifies key material groups, suppliers, and spend by
 geography
 •Internal sourcing portfolio and in flight projects
 •Supplier notice provisions and contact info for PMI communications



                                                          16
        What is the Vision for New Organization?
Key Questions to be Addressed                                     Key Activities (Not all inclusive)
•What will the leadership, structure, operating model, and        •“Triage Team” to meet within 24 hours of announcement
capabilities be after integration?                                •Develop a transition plan to implement the “to-be”
•Does a sourcing organization exist at the target                 organization within 18 months of close
company?                                                          •Evaluate and redesign org structure and reporting
•What existing processes and best practices can be                •Focus on leading practices and processes rather than
leveraged from each organization?                                 former practices from either company
•What is the appropriate supporting organization going            •Determine needs for long-term technology enablers
forward?                                                          given scope and breadth of new entity
•What performance and value capture can be expected, in           •Plan change management and communications
what timeframe?




Key Deliverables
•“Triage Team” to determine divestiture or integration sourcing needs and priorities
•Vision of end state that evolves as new information is assimilated
•Post merger integration plan that creates an effective organization, streamlined processes and systems and a stronger
combined organization



                                                             17
Phase II: Integration Planning
Business Continuity Workstream: Organization, Process, and
                          Risk
 Key Questions to be Addressed                                          Key Activities
 •What is scope and focus of target’s procurement function;             •Clean Team collects and delivers requested data
 what policies, procedures, regulations and controls govern it?         •Align signature authority levels of target
 •What are target’s processes and systems, and which should             •Assess compatibility of ERP/ purchasing systems (develop PO
 be integrated immediately versus remain separate for later             template requirements if needed)
 integration?
                                                                        •Identify critical roles, assign staff.
 •Who are the key staff from target company?
                                                                        •Review all legal agreements with LAW to understand all key
 •What are immediate needs from Operational Functions for               terms and conditions.
 successful Day 1?
                                                                        •Develop communications and training for target staff, supplier
                                                                        letter & FAQs
                                                                        •Assess key staff and plan for retention


 Key Deliverables
 •Comparison of similarities, differences and gaps between companies sourcing/procurement functions to develop prioritized list
 that ensures business continuity post close:
   •Procurement, Sourcing and SRM Processes
   •Policies, procedures, controls, and governing regulations e.g. SOX, International regulations
   •Organization structure, staffing and training
   •Systems / Tools
 •Refresh contingencies, and mitigations for business continuity risks necessary to ensure supply (Day 1-30)
 •Detailed communication plan that includes communicator, message, mode, timing, grouped by constituency; Draft Day 1
 mailings for Law and Corp Comm approval
 •List of key roles/staff identified for retention, assessment and staff deployment plans
                                                                    19
  Systems and Tools Dependencies (Compare To Target)
                                       PROCESS                          SYSTEM / TOOL
Procurement Operations
Requisition, Change Orders and PO Processing
Indirect Procurement - Capital, clinical
Direct Procurement - Raw Materals
Requisition and purchase order support
Catalogs
Sourcing Execution
 CDA's
 Spend analytics
 Strategy Implementation (Requirements, RFx, Negotiations)
 Outsourced Contract Services
 Contract templates
 Supplier Diversity Sub-Contracting Commitments
 Portfolio tracking & reporting
SRM- stratification, performance management, supplier collaborations
Training
Policies, Procedures and Controls
SEC 10K and 10Q Reporting
Global Meetings and Travel Management                              20
         Talent Assessment Process (Retained Staff)
                                                             Publish guidelines for evaluation of competencies
    Determine if Target has a corresponding                                      •HR guidance
       Sourcing & Procurement function                         •Methods – CVs, phone interviews, video conferences




              If yes, identify
   Target’s corresponding sourcing org                                 Assess Target staff’s capabilities
    •Target sourcing org chart and structure                            • Target’s mgt assessment of staff
  •Roles & responsibilities by process, tool, etc.                             •Identify new skill sets
                                                                                  •Staff interviews
                                                                         •Individual’s willingness to merge
    If no, identify the primary function(s)with
                 procurement roles
                       •Who, what, how
                                                                            Draft new org structure
                                                                          •Verbal offers to retained staff
       Compare to Target HC and budget                       •Work with other integration teams to identify and fill gaps
                       •By function                                     •Reconcile “orphan” departments
                 •Identify overlaps/gaps                                     •Resolve unallocated HC
                     •Identify SMEs



Develop stakeholder map for evaluation process
                                                                    Establish consolidated budget & HC
                       •Leadershp
                                                                            •Identify cost & HC savings
                     •HR & INT Law
                                                                                    •By function
        •SMEs (tools, portfolio mgt, functions, etc.)

                                                        21
Sourcing Synergy Workstream: Spend & Opportunity Analysis
   Key Questions to be Addressed                                    Key Activities
   •What are the immediate sourcing opportunities (direct           •Consolidate spend analysis for the combined entity
   and indirect) to leverage newly consolidated spend?              •Identify new sources of leverage and sourcing activities and
   •What product and service specifications can be                   opportunities to competitively bid
   standardized to improve leverage and simplify the                •Utilize TCO/TEI models to ensure appropriate decisions
   supply chain?
                                                                    •Evaluate geographic relevance (adapt, aggregate, arbitrage)
   •What are the geographic constraints and opportunities
                                                                    •Incorporate market intelligence and trends
                                                                    •Assess savings beyond price and service, (inventory, waste
                                                                     and re-use, availability of supply, transportation and
                                                                     logistics, etc.)




   Key Deliverables
   •Consolidated spend summary for key material groups, suppliers, and geographies
   •Prioritized list of sourcing opportunities (consolidated portfolio analysis)
   •Preliminary forecast of potential savings
   •Implementation plan for key sourcing opportunities


                                                                    22
Sourcing Synergy Workstream: Contracts, Suppliers & Scope
                        Analysis
  Key Questions to be Addressed                                   Key Activities
  •What contracts does the merged entity have in place?           •Explore “typical” high opportunity categories (consider
  Where are the redundancies?                                     packaging, third party formulations, external contractors,
  •Which contracts have the best terms and which contracts        freight, MRO, IT, travel)
  are set to expire?                                              •Analyze contract and scope alignment (terms, conditions,
  •How can our suppliers be engaged?                              assignment, termination, etc.)

  •How do we leverage strategic supplier relationships of         •Develop decision tree of actions to optimize synergies
  both companies, how might these relationships change or         (assign, assume, renegotiate, re-bid, or dispose)
  evolve post integration?                                        •“Cherry pick” best contracts and set the stage for advanced
  •What key risk mitigation efforts should be involved with       sourcing activities
  early?                                                          •Identify supply , supplier and specification risks



  Key Deliverables
  •Contract summary and gap / overlap analysis
  •Quick Wins: Supplier Consolidation and Contract Renegotiations, contracts to re-negotiate, assign or dispose
  •Competitive Bidding: RFP-sourced categories, reverse auctions and newly negotiated contracts
  •Key Category / Supplier Profiles
  •Prioritized list of critical supply and operational risks involving suppliers



                                                                 23
      Process for Identifying Contract Synergies



Analyze Spend        Key Contract      Assess              Comparative            Identify
                     T&Cs:             Supplier            Analysis               Opportunities
•Correlate with      •Scope of work    Capabilities        •Business              •Demand/spec
 stratification      •Term of                               requirements           management
                                       •Geography
•Top spend by         agreement                            •Pricing: vs.          •Assign best deal   Optimize
 geography (key                        •Capacity
                     •Key provisions   •Solvency            M&A Target            •Renegotiate        Synergies
 countries)                                                •Market
                     •Contract                                                     select terms
•Define cut off to    checklist                             difficulty/risk vs.   •Rebid new scope
 prioritize focus                                           synergy value
                                                           •Supply or
                                                            supplier risks



Automated Data Elements: Material Groups, spend, geography, supplier class, volume, pricing, PO
volume, contract ID, functions, employee managing category, employee who negotiated deal, open
commitments, term of agreement




                                                      24
   Comprehensive Contract Comparisons
Our Contracts versus Target Contracts
Name of Vendor/Contact Info
Products provided
Services provided
Scope
Pricing structure
  --Base pricing
  --Discounts
  --Incentives/penalties
  --Rebates/warranties
Performance requirements
Term
Production/service capabilities
Sole-source agreements

                                  25
Phase III: PMI First 100 Days)
  Business Continuity Workstream: Focus on Staff, Key
  Supplier, Critical Process, Risk and Tools Integration




                           Staff Integration
                              Priority training,
                              Executive Comms, sig.
                              authority, key contacts
Priorities:
•Communication             Buying Integration
                               Supplier Comms, applicable PO template changes, PO
•P2P alignment                 clean up/close out
•Address book, GL
conversions, ERP cutover
plan                       Tools and Systems Integration
                              Implement system integration plan, required tools and systems training




                                          27
Sourcing Synergy Workstream: Focus on Quick Wins
            and Category Management


Prioritize “high synergy”
categories:
•Freight
•MRO
•IT
•Travel
•External contractors       Quick Wins
                              Pricing negotiations
                               (leveraging volume)


                            Rapid Sourcing
                               Tender the market based on combined scope, and
                               rationalized specifications



                            Category Management
                               TCO/TEI sourcing initiatives, incorporating standardization, demand
                               management, global scope and supplier development




                                          28
        Portfolio Analysis of Synergy Opportunities
   High
                            Critical                          Strategic
                TCO/TEI driven category            Strategic opportunities from
                strategies incorporating           new operating model, revised
                standardization, demand            core competencies, new
                management, global scope and       capabilities or business
                supplier development               priorities
Market
Difficulty/
Risk /
Organization              Quick Wins                       Rapid Sourcing
Readiness
                Pricing negotiations (best deal,   Tender market based on
                volume discounts, etc.)            combined scope and
                                                   rationalized specifications



   Low
               Low                  Relative Synergy Impact                      High


                                             29
                                                  PMI Priority-Setting
                  High
                                    Second Wave: 3-6 Months                         High Difficulty: 12-18 Months


                                                                                                     Different practices,
                               Same item                 Similar item         Different item
                                                                                                     processes, skills and
                           Different supplier         Different supplier     Different supplier
Complexity/Risk




                                                                                                         talent levels



                                    Rapid Wins: First 90 Days                        Second Wave: 3-6 Months


                                                                                                      Similar practices,
                                 Same item               Similar item         Different item
                                                                                                     processes, skills and
                               Same supplier            Same supplier         Same supplier
                                                                                                         talent levels


                  Low


                         Low                                                                                          High
                                                                Value/Benefits



                                                                        30
      PMI Spend Management Opportunities
                 IF…                                          THEN…
Timeframe        Considerations / Other Factors               Key Deliverables
                 •Same suppliers                              •Renegotiated contracts
                 •Identical or similar products                      •Terms
First 100 Days   •Similar work process                               •Volume discounts
                 •Same geography/language                     •Price comparisons
                 •“Low hanging fruit”                         •Work process alignment
                 •Existing suppliers can qualify to           •Rationalized manufacturing facilities
                 manufacture new products                     •Best practice implementation
                 •New suppliers can qualify to                •Identify supplier innovation projects
100-180 Days
                 manufacture existing products
                 •Similar organizational processes, skills
                 and talent levels
                 •Different products                          •Organizational redesign
                 •Different suppliers                         •Cultural alignment
•6 Months+       •Dissimilar processes, cultures and skills   •Sourcing optimization
                 •Geographic/ language separation                    •Contract alignment
                                                                     •Price reductions


                                                  31
Lessons Learned from Other
       Integrations
         Lessons Learned from Other Integrations
•   Participate on functional workstreams with significant sourcing, contracting, and
    supplier dependencies
•   Right size PMI team based on size of the integration
     •   Don’t include more people than necessary
     •   Identify contract owners in target company early (may not have sourcing function)

•   Formalize information flow for headcount changes and additions to insure Finance,
    HR and functional areas are clear on plan
     – Identify employees who will be reclassified (exempt/non exempt) and have
       communication, HR, payroll and training plans to manage proactively
     – Collect and distribute resumes of acquired staff early
     – Prepare a contingency plan for attrition of acquired staff
     – Staff assessments can be challenging amidst confidentiality requirements and
       nervousness/uncertainty
     – Multiple functions may solicit same staff
•   Early controls needed on supplier interactions and access




                                              33
       Lessons Learned from Other Integrations
•   All supplier contracts must go to Sourcing
•   Executives need to drive on-going integration of contracts, supplier relationships and
    sites
•   Anticipate Procurement scope impact – i.e. document requirements and contract
    amendment
•   Communicate SOPs, policy and procedures so acquired staff know how to operate
    ASAP




                                           34
Benchmarking
               Benchmark                                                  Implication
   Failure to capture synergies results             • Focus on contracts and systems/tools integration, phased by priority
primarily from operations shortcomings,             • Develop supplier communication plan (Supported by executive leadership
          technical integration                       of both companies & implemented quickly)


                                                    • Clear communication of acquisition goals and synergy targets
 Integration efforts must align perfectly
      with goals of the acquisition                 • Define integration goals to maximize synergies (what does success look
                                                      like and by when)


Prioritize the processes, tools, people and • Define, measure and track synergies captured per priority and phase
contracts that capture and maintain target • Define product & process specs to determine best value for the post-
    company’s competitive advantage           acquisition company


System integrations are typically phased
   (network connectivity in first month, ERP in 6   • Develop systems integration plan, incorporate outsourced solutions
       months, specialized tools after a year)




Integration of purchasing function varies           • Highest when target has similar lines of business, to add scale and reduce
      according to M&A objectives                     costs, lowest when acquiring innovative business units
PMI Key Considerations – Critical Success Factors
•   Understand target company’s culture
     –   Identify how well acquirer and target company will adapt
     –   Manage expectations regarding length of time to reach cultural stability

•   Continue to benchmark new sourcing organization
     –   Leverage supplier score cards to optimize and manage transition
     –   Don’t be afraid to put whole spend out to bid
•   Language and geographic distance creates challenges for international acquisitions
     –   Adopt overlapping shifts for sites in different time zones or geographies during transition
•   Maintain leadership and employee commitment post-transition
     –   Create post “Go Live” governance process
     –   Formal executive oversight and guidance
     –   Create a sense of being a part of the “new community”




                                                         37
                     Pitfalls & Barriers to Plan for
•   Material Groups may not align, limiting consolidation in new organization
•   Not all current suppliers will blend well in the new corporate culture
     –   Past dependency upon a supplier does not always equate to best value in new environment
     –   Adoption of new technology may change interaction with an incumbent supplier
•   Prepare for staff re-organization as the new company optimizes staff requirements
     –   Potential decline in performance and dilution of accountability and responsibility as roles are
         reassigned or redefined




                                                      38
Tools, Templates and Illustrative
          Examples
   Sample “Triage Team” Organization Chart

                                    IMO Lead




 Systems Lead           Operations Lead                 Admin Lead



                                                                 IS


                                                                 HR


                                                               Finance


“Triage Team” to meet within 24 hours of an announcement to sourcing needs and
                           priorities for integration
                                          40
  Processes, Tools and Critical Staff for
     Prioritization and Assessment

--Capture all internal processes, tools, and critical staff
--Assign prioritization to each
--Capture same data and priorities for Target




                                41
Template for Team Setup: Business Continuity
                Workstream
    Member          Role      Time Commitment




                      42
Template for Team Setup: Sourcing Synergy
               Workstream
  Member          Role       Time Commitment




                    43
Target Company Spend Analysis Guidance

•Spend and Contract Analysis
•Category Profiles
•Sourcing Recommendations




                         44
                                 Sample Issues Log

         Key Issue                Questions/Considerations   Guidance

Legal Entity Structure



Functional contacts at Target



Pre-close contract pricing




Pre-close contract negotiation




Global Implications

                                             45
                      Sample Communications Plan

   Event         Recipients       Content of Message/ Training                      Mode       Timing    Who

Initial
               • Acquired     • Notice to all suppliers informing them about
Supplier                        acquisition and procure to pay process
                                                                                 • Letter     • Day 1
                 suppliers
Notification
Procurement                                                                      • Email,
             • Acquired
and Payables                  • Continue to use existing purchasing processes.     portal     • Day 1
               employees
Procedure                                                                          posting
Training on    • Designated   • Training on acquired company’s current
                                                                                 • Week 1     • Post
Current          purchasing     system and the associated procurement
                                processes that the system is used for              interviews Close
System           staff

Key Supplier • Acquired       • Specific information to key suppliers answer     • PC’s and   • By Day
Notification   suppliers        questions and provide contact                      emails       90




                                                        46
								
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