Unfortunately, very few times do the anticipated synergies actually exist after 2 or 3 years: the local CFO is let go, but they were doing something; and someone with a different job description is hired again, but without their experience. Customers are not comfortable with the new CFO and gradually start buying less, and so on. However, synergies in purchasing are clear when integration processes are leveraged, as they provide a great excuse to make changes. These processes depend solely on the will of the individuals involved, and the outcome is easily measurable. The sophistication of procurement departments can be determined across 5 levels:
- Basic: Each person is responsible for their own negotiations with assigned guidelines, and information is entered individually.
- Advanced: There’s a department that coordinates, and shared information is input, with the most sophisticated aspects being personally analyzed. This is the most common scenario.
- Integrated: The department shares information with the rest of the company in a way that prices, delivery dates, etc., are automated. Perhaps only 25% of companies are in this scenario. Textile companies operate in this realm.
- Value Chain: The department even shares information with its suppliers and customers to collectively seek improvements. Around 10% of companies operate with this approach. The organized distribution world is a good example.
- Digitized: There are already companies that allow technology to make decisions based on customer evaluations, knowing suppliers’ opinions about new trends, etc. For the vast majority of tech companies, operating this way is a requirement.
And integration provides the excuse to ascend this ladder with the following steps:
- Redesign the purchasing model according to the new strategy.
- Elevate the responsible individual to a C-Level category.
- Truly digitize the entire process.
- Update the responsible human team. When we observe details like these in due diligence processes, we can already discern the future success of the operation. Those who start designing this scenario before the closing always succeed.
José R Vinaixa, Associate at Closa Capital
