Buyers unconvinced by procurement savings claimed in mergers

Gurjit Degun
1 June 2014

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2 June 2014 | Gurjit Degun

Mergers rarely achieve the procurement savings predicted at the outset, an SM poll has found.

The buyers' opinion follows news the £3.8 billion merger between Dixons and Carphone Warehouse is expected to save at least £80 million “on a recurring basis” through combining procurement and retail operations.

In response to the question, “do mergers achieve the procurement savings targets they predict?” seven members of the jury disagreed, and five voted “yes”.

William Fyfe, head of procurement at the National Trust for Scotland, believes in most cases the savings forecasts are “over-stretched”. He added: “I think most savings in mergers comes from staff consolidation.”

Eunja Hwang, supplier expeditor at Howden UK, who also voted no, said: “Some cost savings might be achieved by consolidating procurement activities, but mergers cannot achieve the procurement saving targets they predict at early stage because there are a lot of hidden costs in the process of merging which is very hard to anticipate accurately.”

Tony Morris, client procurement consultant at Integreon, voted no. He said it would only happen “if the organisation believes in the procurement function and their abilities so as to resource it properly”.

Cristian Martin, procurement and contracts officer at the Commonwealth Secretariat, voted “yes” but said it depends on the details of the merger. “Is this aggressive expansion? Market consolidation? Or a cost reduction tactic? As this would affect the ability of procurement to make savings” he said.

Taras Fesenko, procurement manager of the material support department at Konti, explained such targets can be achieved if “the information provided before the deal was completely truthful; and the procurement staff of both companies fully understand the goal”.

Brian Grew, senior vice president of commercial partnerships at Live Nation, added: “Yes. Mergers have the capacity to unlock substantial value for the combined shareholding and of course this is the underpinning objective of mergers. Often this is a painful process due to culture clash and poor leadership that obscures the vision that unlocks this value.”

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