Detailview for term

name of the term: Procurement Integration
descriptions of the term:

Einkaufsintegration (Procurement Integration)

When a Post Merger Integration occurs after a company takeover in the scope of an M&A transaction, the question repeatedly arises whether and if yes, to what extent purchasing and procurement functions are to be integrated. This depends on the specific constellation but one can generally assume that an integration of the procurement function makes sense, especially when the acquirer and target company act on one value chain, meaning they have strong overlaps in the procurement portfolio (horizontal M&A case). In such a case, it is likely that not only high cost synergies will incur in the procurement portfolio, but also in the procurement organization itself. In contrast, if a company is acquired that is downstream or upstream in the value chain, it can be normally be assumed that widely differing procurement portfolios exist and cost synergies can only be achieved within the procurement organization itself, but not for the costs for the procurement portfolio.

Regardless of the direction of the acquisition (horizontal versus vertical), the PMI situation offers the possibility for the merging companies to generally assess the previous procurement processes/systems and to realign them if necessary. This optimization process can run from the purchasing strategy through to supplier involvement. Ideally, the optimization should not only begin in the Post Merger Phase, but instead the procurement function should already be subject to a very thorough inspection during the preparatory Due Diligence phase. The top priority of procurement integration must be the seamless continuation of the procurement function. For the time being, optimizations should be neatly planned before the implementation can take place - without any negative influence on ongoing operations. In the scope of the procurement integration, it is vital that employees of both the merging companies be involved. This will create acceptance to change and in addition, the specialist knowledge of different staff members is necessary for the best definition of material requirement groups as an example.

The determination of optimization and saving potentials in the scope of the “as-is” analysis is made possible by an internal benchmarking of prices and terms. Focused on A/B material groups, the feasibility of these possible savings is to be verified using an external procurement market analysis and external benchmarks. Subsequently, price and volume levers such as volume concentration and specification optimization should be determined to quantify possible savings, which go beyond internal price benchmarking. During the analysis phase it is furthermore important to gather information from the purchasing organizations of both purchasing departments. A detailed analysis should be completed concerning the number of respective purchasers for the task areas, their qualifications and job descriptions in the “as-is” and “to-be” situations. Furthermore, in the “as-is” analysis, the procurement core processes (strategic purchase, operative purchase, supplier management) should be carefully examined. The analysis phase is concluded by establishing a strengths/weaknesses profile for the procurement function in order to reveal potentials for improvement and cost saving – this also relates to best practices.

In the “to-be” phase of the procurement integration, a model is derived to shape the future procurement organization. This primarily includes the future organizational structure, the defined core processes and purchasing guidelines/policies. The implementation of the new procurement function follows along a detailed integration measurement plan. Here it is important to closely track the realization of the saving potentials and to embed them in a total synergy controlling of the post merger integration. Finally, the employees should be trained and communication measures should be implemented.

Type of term: definition
Language of the term (2 char ISO code): en
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