In today's competitive business landscape, mergers and acquisitions have become essential strategies for companies seeking rapid growth and market dominance. And, as the global economic outlook improves, worldwide merger and acquisition (M&A) activity is predicted to pick up. In 2021, a record of $5.9 trillion in over 63,000 mergers and acquisitions was set, despite the specters of rising interest rates, inflation, political strife and supply chain uncertainty dogging dealmakers.
Despite the increasing numbers, failure rates for M&A initiatives are incredibly high – anywhere between 50-90%. Why? Not considering the synergies and redundancies of the end-to-end supply chain of both companies is arguably a top contributor to the shortfall.
So, how can you improve your chances for M&A success and reduce the inherent risk? Executing a successful capital expenditure plan during those transformative moments can make or break the deal.
CapEx planning empowers organizations to plan for sustainable growth, including mergers and acquisitions. But organizations must first evaluate the potential financial and service impacts and risks associated with CapEx, as these decisions regularly involve and affect larger investments. And because CapEx planning requires a significant investment of time before implementation, it typically affects the larger scope of the supply chain design.
Before implementing additional capabilities, companies should consider the following questions:
- What manufacturing enhancements could be made to existing facilities?
- Where will any additional inventory or increases in inventory be stored?
- How will various service levels be affected?
- How does this impact any recent mergers or acquisitions?
Companies in the midst of CapEx planning can enlist supply chain network design to help them model various scenarios. Design technology can help companies identify which CapEx investments could relieve roadblocks to productivity, for example, and increase capacity within their facilities. This approach can also help companies explore how supply chain decisions will ultimately impact their productivity and profits.
Creating Supply Chain Resiliency in Capital Expenditure Planning
Here are three examples of how supply chain design can help inform and guide CapEx decision-making for any organization:
1. Addressing Capacity
Maybe your organization has facilities or buildings approaching their capacity or up against manufacturing limitations. By identifying those potential roadblocks and analyzing the best way to address those issues, while also prioritizing organizational goals, capacity solutions can be carefully explored and examined.
2. Exploring Facility Expansion Options
In some cases, a business might be experiencing significant growth, but its current footprint doesn’t allow for expansion. Data analysis can also evaluate existing locations to determine the best solution and/or investment when it comes to expanding. By exploring alternative options that allow you to reallocate volume across existing facilities, you can also defer operating or expansion costs. In addition, you can discover untapped or underutilized synergies by identifying overlap and redundancy.
For example, if expanding an existing property isn’t an option for expansion, do you need to put new buildings, warehouses or facilities in place to meet production demand? Modeling techniques like greenfield analysis can help determine new facility locations for your expansion initiative.
3. Expanding Equipment and Processes
Increasing productivity doesn’t always mean you need building expansions or new facility locations either. Expanding equipment and optimizing processes often bolsters productivity with a comparably low investment.
Are there particular processes, equipment or lines within your manufacturing facility that you can reimagine or expand? For example, you might find a bottleneck or throughput capacity issue after analyzing your operations. From there, you can identify avenues to increase capacity within your existing building as well as the types of capacity that need to be added, i.e., packaging, sorting and receiving.
Mergers and acquisitions should always prompt a new logistics strategy. With new products, locations and markets at their disposal, companies must reevaluate their supply chain design to ensure they’re operating at peak efficiency while maintaining a high standard of customer satisfaction. Game planning multiple scenarios can empower companies to better assess CapEx decisions and do the following:
- Evaluate services tied to the CapEx decisions
- Evaluate the financial impacts of CapEx decisions
- Evaluate the risk associated with the CapEx decisions
Some platforms can automatically analyze the factors that must be incorporated into a model and run the necessary algorithms to evaluate all potential influences and outcomes. By bringing various supply chain designs from multiple companies into one unified data structure, companies can quickly identify synergistic opportunities. This also allows them to review financial, service and risk-related impacts from the output when analyzing mergers and acquisitions.
A robust supply chain network design is crucial to your success as you evaluate CapEx opportunities like mergers, acquisitions and divestitures in an increasingly volatile market with evolving variables and risks at every turn. Modeling technology allows you to explore various scenarios to understand how M&A decisions will affect your productivity and profits before you make a move you may regret tomorrow.
