Purchasing's value often lost in company mergers

2 July 2003
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03 July 2003 | David Arminas

Too often procurement departments are merged in a company acquisition without thinking about what strategic value the merged function can make.

A board will think only of economies of scale, such as cuts in administration, Dr Stephan Wagner, head of corporate supply chain management at Swiss packaging and beverage filling machine maker SIG Holdings, told delegates at the International Federation of Purchasing and Materials Management biennial conference in Lucerne.

"It's easy to see the attractions of these quick wins through integration of the departments and their processes," he said.

"But in the majority of acquisitions, purchasers are not invited to decide on the business plan of the new organisation. Unless the new purchasing processes add value to the business plan, I say don't merge departments."

As an example, Wagner noted that some boards will quickly sell off newly acquired companies, making the integration of purchasing departments a waste of time and money.

But Gerhard Gehweiler, head of purchasing at German utility Linde Gas, said economy of scale quick wins are necessary to strengthen a purchasing department's role within a company.

He said: "Of course integration of departments must be managed carefully, but speed is essential. It is best to go to for the 80 per cent of savings that can be done quickly than to wait to set yourself up for the 100 per cent you think you can get later."

Dr Gerald Klier, director of procurement co-ordination at energy company E.ON, which owns British utility Powergen, believed that in any merger or acquisition, procurement heads should immediately set up a cross-functional team to identify best practices in the purchasing department of the newly acquired company.

"There are a lot of things one purchasing department from one country can learn from that of another. The idea is to spread around market knowledge, technical know-how and best practice wherever it's found."

Klier also warned purchasers to be careful of lost knowledge through lack of language skills among buyers from different countries who find themselves in a new company.

"Cable buyers from Germany, the UK and Sweden, who are now part of a larger international organisation, may have trouble expressing technical details that are part of best practice in their countries. Procurement heads must ensure good translators and language courses are available. All this takes time to arrange and to get rewards."


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