The Power of Supply Chain Management in Successful M&A

Historically, mergers and acquisitions (M&A) have been a familiar part of most healthcare suppliers’ growth strategies. While M&A activity in healthcare has been slower in 2022, it’s expected to increase. Looking ahead, PWC analysts report innovation and attractive growth prospects in health industries create a strong M&A outlook for the rest of 2022.

However, as reported in Harvard Business Review, most studies show between 70% and 90% of acquisitions fail. To avoid a failed acquisition, it’s essential to form a dedicated M&A team.

As part of an organization’s growth strategy, it makes sense to have dedicated M&A resources to ensure strategic, smart acquisitions will positively contribute to the bottom line. Without this team overseeing operational excellence throughout the organization and ensuring timely supply delivery, it could take years for an acquirer to effectively integrate a new company, further delaying intended benefits.

Supply Chain’s Critical Role in M&A
Here’s an avoidable yet familiar scenario that often happens with M&A. Once the acquisition paperwork is complete, the integration begins. The focus is more on revenue and cost synergies, but there needs to be equal attention on how the companies will be integrated from an execution point of view. Without this balance, there is a high risk the acquisition will not achieve the organization’s goals. On the plus side, there is one area that can make a big difference in the integration’s success—the supply chain.

The supply chain is an often-overlooked area that can accelerate profitability after an acquisition. This is because the cornerstone of any successful organization, especially in a merger or acquisition, is the ability to continue to provide customers what they need, when they need it. In healthcare, if supplies are difficult to acquire or the data is inaccurate, a ripple effect extends to customers and ultimately patients.

For example, it’s not uncommon for M&A plans to underestimate the time to tuck-in an acquired organization and move it to the acquiring company’s enterprise resource planning system. Or to forget to factor in critical functions such as accounts receivable into the integration roadmap.

Another example: Each organization may have tens of thousands of product SKUs and they may even have duplicate SKUs for different products. The inconsistencies may only be realized once the integration begins, leading to confused and dissatisfied customers because of mis-shipments, inefficiencies, and unexpected delays in getting the product they ordered. 

One way to avoid these issues is to include representation from the supply chain on the M&A team. Supply chain participation is vital to understanding the communications needed to avoid supply issues during the integration process. In the previous examples, the supply chain representative would have the knowledge and experience to properly assess and troubleshoot the overlap in products and customer ship-to locations.

The supply chain representative(s) should also help define the future state of the organization’s end-to-end, order-to-cash processes. This helps when the acquired company is fully integrated into the acquirer’s day-to-day operations. 

Setting the Right Foundation for an Acquisition

Along with having a dedicated M&A team, the traditional acquisition process often involves third parties that assess the potential deal, looking at anticipated revenue and making assumptions about organizational synergies. As part of the due diligence process, the following four functional areas should be fully explored and answered.

Strategy and Approach

• What are the goals and objectives of the acquisition?
• What is the go-to-market plan?
• What are the synergy and growth targets?
• What is the strategy for the cut-over once the acquisition closes?
• How will the acquisition impact products and SKUs from both organizations?

• As-Is/To-Be Processes

• What volume increase in orders can be expected? 
• Are there any anticipated changes to current order entry, invoicing or payment processes? 
• Is there any risk in bringing processes together from different organizations? What might need to change?
• What is the integration plan for customer service, accounts receivable/credit and collections, and sales?
• How will distribution pick, pack, and ship be handled?

People Execution

• How will the M&A team work with existing and newly acquired teams to ensure operational excellence?
• Will additional staff be needed to support the acquisition?

Communication Plan

• Does communications planning include full assessment and comparison of both companies’ customer lists and order-to-cash processes (e.g., EDI, fax, phone, email)?
• What is the communication plan for informing customers about the acquisition and keeping them apprised of developments as they impact their businesses?
• Who is the company reaching out to and how often?
• What is being communicated to customers, especially those from the newly acquired company, about shifts in ordering, invoicing, and payments processes? 

A successful acquisition requires the right foundation—one that takes into account how each part of the organization will be affected. 

Common M&A Pitfalls

Acquiring companies expect an acquisition will enable them to capture cost synergies, exceed revenue targets, and mitigate risks. One of the most effective ways to achieve these goals (and reduce complexity) is through successful order-to-cash integration. However, the following pitfalls are often encountered, limiting the acquirer’s ability to achieve its goals.

1. Lost orders, which create a negative impact on the customer experience.
2. Underestimating the time and resources required for a successful migration of the acquired company.
3. Incomplete analysis of products and customers, resulting in data gaps that impact decision making.
4. Inability to achieve order-to-cash operating efficiencies in a timely manner.
5. Poor communication with acquired/new customers.
6. Lack of training and knowledge of the market and clinical insights.

The good news is that these pitfalls can be avoided through a three-phased approach to M&A.

Three-Phased Approach to M&A Success

The three phased approach, led by a dedicated M&A team, includes integration planning, execution and stabilization.

Phase 1: Integration planning: (Months 1-2+)

• Establish guidance on what should be integrated and how to quickly to realize synergies
• Develop order-to-cash process integration plans and cut-over strategies
• Coordinate master data cleansing/enumeration, de-duping, and cross-referencing
• Identify transition and communication requirements specific to unique customers, item, and ordering channels
• Staff and train go-to-market team

Phase 2: Integration Execution: (Months 3-5+)

• Set-up and test PO splitting to route orders to buyer and seller systems via GHX
• Coordinate accelerated onboarding with trading partners that are only transacting with the acquired entity
• Plan and execute customer communications before, during, and after transition
• Set-up and test order intelligence business rules to support the transition

Phase 3: Stabilization—Post transition performance health checks: (Months 6+)

• Proactively manage discrepancies with trading partners following the transition
• Optimize invoicing and payments
• Conduct ongoing training with the commercial teams on market and clinical insights related to the newly acquired entities products features and benefits

Planning for M&A Growth Ahead

Analysts predict the healthcare industry will continue to see aggressive M&A activity in the coming years. A seamless transition for the acquirer and the company being acquired requires a strategic approach—one that understands how the acquisition will impact every facet of each organization, is planned accordingly, and regularly evaluates progress to ensure a stable and smooth integration. For suppliers, ensuring the proper and timely integration of product information is critical to realizing revenue goals. As part of a supplier’s growth strategy, it is more efficient and cost effective to have a dedicated M&A team that includes representation from the supply chain to accelerate the integration of new organizations and ensure a success-
ful acquisition. 

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Denise Odenkirk is vice president, Supplier Sales, at GHX where she works with manufacturers, distributors and hospitals to improve their business processes by leveraging GHX solutions. Denise brings more than 20 years of experience in healthcare from a manufacturing, distribution and third-party logistics perspective. Her career began in IT leadership roles at Warner-Lambert and Aventis, and expanded to include Operations while at Bracco Diagnostics, Owens & Minor, and Symmetry Surgical. Her passion is to improve healthcare supply chain business processes and she is committed to helping companies improve their overall healthcare supply chain efficiency. Denise earned a bachelor’s degree in business administration with a concentration in marketing and MIS minor from the University of Delaware.