4170 Stillwater Drive, Duluth, Georgia 30096 | 678.576.0562 | carlos@cavazquez.com | cavazquez.com Mergers and acquisitions: Great things can be done when two become one Mergers and acquisitions (M&A) require the resources of each organization involved while supporting business continuity. With a true coming together, supply and distribution networks free up working capital and generate economies of scale — reducing cost - t o - serve and improving service levels. However, those processes that continue to operate in silos can make cascading network inefficiencies a significant risk. Some critical issues to address before you merge supply chains Merging supply chains demands a new company (NewCo) roadmap and a planned integration strategy. The roadmap should locate and take full advantage of the cost synergies available. You can find opportunities through reconfiguring existing supply chain networ ks and aligning business strategies and demand patterns. Ask these questions: • Is it possible to develop a NewCo distribution center (DC) strategy that’ll handle projected new levels of demand with the infrastructure in place? • Which DCs should you merge, close, keep, expand or invest in? • Can you co - source raw materials and finished goods? Find additional value by combining inbound transport from domestic and overseas sources Studying what you can do with the resources at hand is good, but consider what new infrastructure strategies NewCo can deploy. Is it possible to align the service policies of the formerly separate organizations? There can be a ready route to improve parameters, such as on - time - in - full (OTIF). Client movements could be consolidated. There might even be opportunities for revised lane volumes. The frustrating challenges of merging disparate supply chains In most merger and acquisition ( M&A ) situations, the acquiring organization will be larger. But that doesn’t make the smaller one any less important. Integration must assess the capabilities and needs of both firms, making sure the acquired isn’t marginalized. 4170 Stillwater Drive, Duluth, Georgia 30096 | 678.576.0562 | carlos@cavazquez.com | cavazquez.com Product portfolios Merging companies will have unique ways of classifying products. These distinctions invariably make the combination of functionally similar products and distinct SKUs a complex undertaking. Service level agreements Evaluate each organization’s warehouse and transportation contract rate structures and their client distribution agreements. Distribution strategies It’ll be necessary to merge and reconcile single - echelon and multi - echelon networks, along with centralized and decentralized inventory strategies. There’ll be issues concerning full - truckload (FTL) vs. less - than - truckload (LTL) vs. parcel distribution and other channels in use. Sourcing strategies Outsourcing or producing in - house and sourcing domestically vs. importing. Considering every variable between organizations can improve the future value of the whole. Methodology: The evaluation of disparate assets and processes NTT DATA’s supply chain design experts create digital twins of the existing supply chain networks to explore future strategies by testing different scenarios. They make complete optimization models that compare the ways they source, produce, store, transport, and manage demand from both companies. Real - world business constraints such as production and DC capacities, channel strategies, sourcing policies and customer service policies are also included. Some essential considerations for modeling M&A environments include: Segmentation Complete an evaluation of product and customer segmentation systems for each organization before aggregation. This guarantees that the smaller entity won’t be deprioritized during the analysis. Greenfield locations Evaluate potential new greenfield DC locations based on the demand density of each business. Consider factors such as proximity to logistics infrastructure hubs, domestic vendors, import ports - of - entry and the availability of qualified labor Flexible design The combination of the two organizations is an opportunity to use the best of each, 4170 Stillwater Drive, Duluth, Georgia 30096 | 678.576.0562 | carlos@cavazquez.com | cavazquez.com bringing advantages to the NewCo supply chain. Combining two single - echelon supply chains could result in a new, more efficient, hub - and - spoke or multi - echelon structure. There’s the potential for any configuration that best satisfies NewCo’s needs. Scenario evaluations The comparison of multiple scenarios — on a cost vs. service trade - off curve — allows NewCo to decide on the best network configuration for its business goals. Other things to consider include transition risk and the effort needed to complete the optimized network. A real - world example — how it all happens A leading hardware manufacturer partnered with NTT DATA to integrate a new acquisition. Both organizations had varied distribution and sourcing strategies. The parent company had larger sales volumes but high import dependencies and bigger DCs. The acquired organization mostly had domestic suppliers and smaller DCs. The Client/NTT DATA team examined several digital - twin - generated network scenarios. Based on that study, the team chose facility locations from a list of existing and greenfield potential locations. The new network setup was designed around a new greenfield hub. This exercise combined ten DCs into a six - DC network with three hubs and three - spoke DCs. The new network made for a strong supply chain that can handle sudden, big increases in online sales and a 50 percent increase in demand over the next five years. The team developed a year - on - year, four - phase roadmap in alignment with the growth strategy: Phase one: Quick Wins — redefining DC - customer mapping and closing excess warehouses. Phase two: Policy Changes — reconsideration of customer service contracts, inventory policies and freight contracts. Phase three: Medium - Term Changes — expanding and upgrading warehouses and developing new DCs. Impact on the united NewCo • A 4.5 percent decrease in annual operating costs (OpEx) because of lower warehouse costs, fixed costs, and transportation costs through better material flow paths. • Improved customer service through an 18 percent reduction in last - mile distances via improved allocation of DCs to customers. 4170 Stillwater Drive, Duluth, Georgia 30096 | 678.576.0562 | carlos@cavazquez.com | cavazquez.com • Getting better at using inventory led to a 22 percent decrease in finished goods inventory value because of fewer stocking locations, changed customer channels, and product segmentation Often, M&A efforts of merg ing companies are limited to standardizing practices across organizations. However, a focus on executing long - term transformational initiatives will bring bigger benefits from the assets, technologies and resources of each. Contact us and learn how NTT DATA’s Supply Chain Consulting Integrated Demand & Supply Planning practice will help make your supply chain and organization resilient and ready for whatever the future brings. Our top supply chain talent, enabled by proven, leading - edge digital assets — tools, methods and content — deliver actionable insights and measurable outcomes to some of today’s largest and m ost complex supply chains.