In the biggest shake-up to the UK supermarket industry for 15 years, Sainsburys recently announced their intended acquisition of Walmart-owned Asda; By leveraging the combined buying power of both entities, executives expect the combined group will be able to reduce the price of many popular items in both stores by 10% - certainly an appealing prospect for cash-strapped customers in the wake of rising food costs over the last few years.
The deal is of course still subject to regulatory approval, but beyond the potential legal hurdles faced by the proposed merger, the integration of two massive and distinctly separate supply chains poses many organisational and technical issues for the new group. With 57% of companies declining in aggregate profitability following a M&A and a further 14% reporting no change, according to the A.T. Kearney Global Post-Merger Integration Survey, overcoming these challenges will be vital to the future success of the business.
TOP 4 CHALLENGES IN LOGISTICS MERGERS & ACQUISITIONS
In the same survey, respondents identified 4 key areas that presented challenges to the integration of logistics operations following mergers and acquisitions:
- External Collaboration
- Network Design
- Systems Integration
- Organisation Structure
EXTERNAL COLLABORATION
Each supply chain has its own unique set of partners both upstream and downstream, so the integration of two (or more) supply chains will inevitably result in certain redundancies in supply, distribution and delivery.
It is crucial to involve the various partners as early in the integration process as possible to ensure those vital relationships don’t fracture. Partners will rightly be concerned about how the integration will impact their own business, so keeping them informed during the planning stages before any critical decisions are made will help to allay any rumours and fears.
For Sainsburys and Asda, especially given the already stated aim of reducing prices for consumers, suppliers will likely be concerned about how the group intends to achieve this. Companies going through M&A are often motivated by the opportunity to leverage their combined weight and power to acquire further discounts in procurement, but suppliers may feel that they lose out through the reduced competition in the market.
NETWORK DESIGN
Redesigning a distribution network is a mammoth challenge, let alone integrating two of them – yet failure to do so early in the planning process will inevitably result in extensive redundancies and missed opportunities for cost savings.
Exploring the options for the best distribution centre locations and most efficient 3PL providers should be an early priority, but should focus on the long-term growth and service goals of the business, not just optimisation of the existing networks. It’s also crucial to consider omnichannel distribution, making sure that the online business is as well supported as traditional brick-and-mortar stores.
The joint Sainsburys and Asda group may well find that they have some advantages here already, given that the two businesses have a complimentary geographic distribution. With Sainsburys having far greater presence in the south of the UK and Asda in the north, the combined business should be able to avoid excessive overlap of distribution centres and logistics operations, making the job of creating an efficient network design that little bit easier.
SYSTEMS INTEGRATION
Successfully integrating the technology and systems behind the logistics operations of two of the UK’s largest supermarket chains promises to be a significant task. Arguably, this will be the most important aspect of the merger due to the direct impact it will have on the business’s critical functions.
ERP and CRM, as well as warehouse and transportation management systems, among many others, will all need to be standardised and unified across the combined group. The logistical functions will be controlled and maintained by Sainsburys, with all existing processes used by Asda to be migrated to Sainsburys’ systems.
This of course offers an opportunity to implement new, more efficient systems that will support the long-term goals of the business. Changing too much in one go can be a significant risk however, as new ways of working will always come with teething problems. Whether the current systems are maintained and expanded on or new systems are brought in to replace them, the group will need to ensure that change management practices are followed to minimise the resistance to change from users.
ORGANISATION STRUCTURE
Aligning the organisational structures of the merged businesses should always be a priority for any acquisition. Regardless of the apparent similarities, no two companies will operate with exactly the same operational model, so it is crucial to outline the desired future state of the combined entity to address the current differences and take advantage of the opportunities for optimisation.
Doing so will require input from both merged companies, leveraging the experiences of the seller as well as the vision of the buyer. Involving employees from both sides will help to gain buy-in and reduce resistance to change, in addition to providing the opportunity to leverage best practices from both entities.
Both Sainsburys and Asda may well be one step ahead of the game in this respect, with several leaders in both companies having extensive experience working with the other. Most notably, Sainsburys’ chief executive Mike Coupe – architect of the proposed merger – worked extensively for Asda during the 1990’s, at one point working under David Cheesewright who went on to become the head of Walmart’s international division. On top of this, Asda’s current chief executive, Roger Burnley, also spent over a decade working for Sainsburys.
Despite the enormous challenges a merger of this scale will entail, it certainly seems that the two businesses are well-positioned to take advantage of each other’s skills and expertise across these four areas. Whether or not the deal will get regulatory approval to go ahead, or customers will receive the promised benefits, or the merger will indeed help to create a leaner, more efficient online and brick-and-mortar grocery business remains to be seen – but it will certainly be interesting to watch.