When a company acquires another or two companies merge, time is of the essence to integrate the operations and start realizing the synergies management announced when the acquisition or merger was announced.  In this post, I will talk about the opportunities to save money by pooling procurement quickly.   These savings come even to organizations that do effective strategic sourcing prior to the merger. 

We see the savings coming primarily in four areas.

• In some areas, the acquirer has the better contract. In others, the acquiree has the better contract.  Identifying who has the better contract and moving all procurement possible to that contract can save money.
• One can approach the vendor with the better contract and ask for even better pricing, terms, and conditions based on the increased volume that will result from the combination.
• There may be areas in which it was not worth strategically sourcing a commodity for either organization. However, the combined organization now buys enough of that commodity to make it worth strategically sourcing that commodity.
• This exercise can also highlight where the two organizations are using similar parts, whose use can be combined with minor alteration to the products they are part of.

Procurement analytics can accelerate realizing this trend.  We find that one can usually combine organizations’ records from the entire procure-to-pay process in an analytic system without having to wait for the acquiree to be converted over to the acquirer’s procurement systems.

We recommend not worrying, initially, about rationalizing product and vendor masters.  If there are initially ten vendors with variations of “AT&T”, for example, that is OK.  Buyers and category managers will make allowances for this type of duplication.  Just show them all spend for the category and let them do what they do best.  It’s more important for buyers to be rationalizing vendor networks and leveraging the organization’s increased buying power.  The data quality will need to improve, but that should not come at the expense of some easy to pick fruit.

In addition, the acquiring organization and the one being acquired may have used third party identifiers that can serve as surrogates for rationalized sets of names.  Both organizations may use UNSPSC codes to identify products.  They may both use Dun and Bradstreet ID’s to identify vendors.  These may be good enough to get started.  In addition, modern visualization and data integration tools often allow for stemming and fuzzy matching to provide educated guesses as to when items match.

I mention these shortcuts, not because I do not believe that good data quality is vital.  I do.  I talk about them because the new organization is spending millions of dollars a month on goods and services which they could get better at better prices or quality if only their buyers knew where the opportunities were.  The faster they can identify these opportunities, the faster they can save up to 10% on their costs by leveraging the organization’s combined buying power.  A comprehensive master data management project can take quarters if not years.  Bringing costs down often cannot and should not wait.

In addition, when the organization decides to undertake a master data management project to clean up these entities or when it decides to move the acquiree to the acquirer’s procurement systems, the work done initially will help point out areas of poor data quality to the MDM team.

HEXstream’s people have many experience in helping people improve procurement through implementing procurement analytics, including Oracle’s Procurement and Spend Analytics and Spend Classification.  We also understand how to help with master data management projects when the time comes to clean up the master data entities, like products, customers, vendors, and partners that will have to be rationalized across the organizations.