Mergers and Acquisitions > Sourcing’s Approach and Management Strategy

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    • #292264

      In recent years mergers and acquisitions have been on the rise.

      1. What steps are procurement teams taking to be proactive with this trend?

      2. How are you identifying, within your approved supply base, vendors that may have underwent a change and now require new agreements and new approved vendor identification numbers?

      3. Is there a proactive approach that has proved useful, or is this primarily a reactive process?

      4. Upon identification of a vendor ID that is no longer valid due to changes with the vendor, what steps are taken to ensure payment to the correct entity under the appropriate Tax Identification Number?

      5. How are you managing Purchase Orders that are still out to the original vendor ID and any transactions that may be pending during the time of the supplier effective change date?

    • #293739

      1) Given that almost all companies, at one point or another, will acquire/merge a new company, it behooves the procurement org to be prepared ahead of time for the acquisition criteria important to their company – fast integration, smooth transition, minimal lost productivity, immediate leverage of the new company’s value. Some of the steps leading procurement teams take are:

      a) Already have implemented a SaaS based procurement/expense reporting/spend management platform that can be turned on/scaled up for new employees literally overnight.

      b) Make sure the procurement/expense reporting/spend management systems you choose can sit on top of multiple ERP’s as new acquisitions will come with a variety of old systems that need to be integrated fast.

      c) Make sure the procurement systems you choose have easy to use supplier add/vetting tools because new companies are already using valid suppliers that they need to continue to use without interruption.

      d) Make sure the spend management tools you choose are so easy to use that they require no training on the part of the new company, they simply sit down and can start looking up their suppliers and placing PO’s, and start inputing expense reports.

      2) This is a practice that should be happening regardless of M&A activities at your company. Using risk management tools to signal important changes in suppliers is critical. Integrating them directly into your Supplier Information Management tools is essential so it’s part of the process, not something done on the side, ad hoc.

      3) Leading procurement teams make it entirely proactive, as outlined in answer number 1.. Lagging groups are caught in reactive mode each time. Show the value-add of Procurement and get ahead of it.

      4) See answer to number 5.

      5) We all realize supplier’s must be paid on any work outstanding under the old vendor ID. The most effective practice is to cancel all future work on the existing, old vendor ID PO, and close it out. Then open a new one under the new ID. Only pay in AP for work done on deliverables/products delivered to the line items valid on the old PO. You can have the vendor in the system twice with two ID’s, and will want to keep the records for both, to ensure good reporting.

    • #293740

      1. What steps are procurement teams taking to be proactive with this trend? Ensuring that “affiliates” are included in all agreements is imperative for this requirement. Further, ensuring the definition of affiliate is included in all contracts is imperative.

      2. How are you identifying, within your approved supply base, vendors that may have underwent a change and now require new agreements and new approved vendor identification numbers? The vendor is responsible to provide a list of affiliates at least annually to ensure inclusion of all new affiliates (the “Customer” should be doing this as well). If the Master is properly worded, a new agreement should not be required, only an updated affiliate list, You can then search your vendor data base and information by the list provided from the supplier instead of attempting to search that yourself. Having a good nomenclature in your system would allow this to be a quicker process.

      3. Is there a proactive approach that has proved useful, or is this primarily a reactive process? Again, ensuring inclusion of affiliates in the agreements and then updating them annually accordingly is the best proactive approach

      4. Upon identification of a vendor ID that is no longer valid due to changes with the vendor, what steps are taken to ensure payment to the correct entity under the appropriate Tax Identification Number? There must be quarterly meetings with the suppliers to ensure all of this information is accurate and up to date. The vendor ID needs to be closed as promptly as possible with all systems updated to ensure payments are being processed to the proper ID. A reverse spot audit should be performed.

      5. How are you managing Purchase Orders that are still out to the original vendor ID and any transactions that may be pending during the time of the supplier effective change date? This will depend on the system you have in house, however, there needs to be a window of 60-90 days to complete all pending transactions and close all open purchase orders. Reissuance of purchase orders to the new vendor ID should occur at the same time as the old PO’s are closed to ensure appropriate oversight and comments should be included in the old and new purchase orders to ensure a proper audit trail. The new purchase order should reference the old purchase order number, and vice versa, to ensure a proper audit trail. Communication with the vendor is vital to the success of this.

    • #293741

      1. What steps are procurement teams taking to be proactive with this trend? We’ve gotten a seat internally with M&A and identified major suppliers and programs in which we would have a starting base to recognize how to implement or de-implement them into a program.

      2. How are you identifying, within your approved supply base, vendors that may have underwent a change and now require new agreements and new approved vendor identification numbers? Based on being involved in both acquisitions and divestitures we’ve proactively determined high level what should be in place day one (implement or de-implement) and all the aspects to adding or removing them from a program

      3. Is there a proactive approach that has proved useful, or is this primarily a reactive process? It will always be reactive for purchasing to be involved in the process since we are not personally involved in M&A outside of what is mentioned in #1 and #2 above

      4. Upon identification of a vendor ID that is no longer valid due to changes with the vendor, what steps are taken to ensure payment to the correct entity under the appropriate Tax Identification Number? A/P takes care of this information and will contact us if any document needs to be updated (i.e., PO).

      5. How are you managing Purchase Orders that are still out to the original vendor ID and any transactions that may be pending during the time of the supplier effective change date? As part of our divestiture process, one step would be to pull PO’s specific to that business unit and determine a game plan.

    • #293742

      1. What steps are procurement teams taking to be proactive with this trend?

      While the numbers may be increasing, M&A are a business constant.

      ~ Procurement “must” be engaged in understanding all purchase agreements (national, regional and local).

      ~ Change Management: Policies, governance, systems, etc.

      ~ Supplier Management/Engagement: What will be and what should be the impact.

      2. How are you identifying, within your approved supply base, vendors that may have underwent a change and now require new agreements and new approved vendor identification numbers?

      Set aside a stakeholder team to review agreements and bring forth go-forward recommendations.

      By the way, don’t be surprised at the surprising things an analysis will bring forth. Especially some unsavory things.

      3. Is there a proactive approach that has proved useful, or is this primarily a reactive process?

      Generally and sadly primarily reactive due to many deals being done then Procurement engaged.

      4. Upon identification of a vendor ID that is no longer valid due to changes with the vendor, what steps are taken to ensure payment to the correct entity under the appropriate Tax Identification Number?

      Data Scrubbing! Not always cheap but subcontracting to the experts is wise.

      5. How are you managing Purchase Orders that are still out to the original vendor ID and any transactions that may be pending during the time of the supplier effective change date?

      Sooner or later, reconcile and then go cold turkey.

    • #293743

      1. What steps are procurement teams taking to be proactive with this trend? Communicate with current supplier that proper notification is required so that new accounts or changes to existing accounts can be processed prior to receiving an invoice that doesn’t match the vendor payment account.

      2. How are you identifying, within your approved supply base, vendors that may have underwent a change and now require new agreements and new approved vendor identification numbers? If communication is received, a new W-9 is requested to determine if a new vendor account is required. For those not identified previously, when an invoice is received for a PO that doesn’t match the vendor account, payment is held until the supplier provides a new W-9 and a new pay-to account is created. Contracted vendors are monitored. Each performance review meeting asks the question about upcoming changes to the business.

      3. Is there a proactive approach that has proved useful, or is this primarily a reactive process? Since announcements of mergers/acquisitions are not publicized until the deal is done, no action can be taken. However, it usually takes a while for companies to actually make the financial changes, so there is time to plan for the change. During the waiting period until the financial changes have completed and the need for changes, contracts are monitored closely to deplete budgets and expiration dates are extended for shorter periods of time.

      4. Upon identification of a vendor ID that is no longer valid due to changes with the vendor, what steps are taken to ensure payment to the correct entity under the appropriate Tax Identification Number? Obsolete vendor records are marked for deletion with a reference to the new vendor account to be used.

      5. How are you managing Purchase Orders that are still out to the original vendor ID and any transactions that may be pending during the time of the supplier effective change date? It is possible in the accounts payable system to override the vendor on the PO and pay to the new vendor account. This avoids the need to rewrite the PO just to pay the invoice for the outstanding PO.

    • #293744

      1. Strategic sourcing teams in organizations are generally supported by Analytics team. The Analytics team is tasked with additional responsibility to proactively track trends, technology innovation, M&A etc…. only for strategic suppliers. For other supplier categories (tactical, approved etc) respective buyer or business group track the trends.

      2a. It (new Agreement) is always one of the biggest challenge in most of the organizations since business may bypadd procurement to make purchases. As per my experience it is controlled thru policy i.e mandating purchases to go thru Procurement organization thru po/Contract only or during renegotiation/contract renewals the additional supplies/ services are identified thru supplier or invoices and then added to the contract.

      2b.Changes to Vendor supply base is identified during spot buy by the buyer or thru supplier intimation of new / change of address. Other than that organization periodically request suppliers to update/self certify the information on their supplier portal. New supply address/ change of address do not require change in agreement, however M&A related activities will require new supplier id setup in system with new bank code setup. Due to new bank setup requirements we will definitely get formal intimation and necessary steps must be taken by ops to maintain the systems.

      3. As mentioned above there is one proactive way to track supply base, Change of address or M&A changes. … organization periodically request suppliers to update/self certify the information on their supplier portal.

      4. These are two separate actions. All invoices have to be paid as per invoicing company/entity…which AP team will ensure. If the supplier id is identified as invalid then the vendor admin team will inactivate the vendor. This is done as on-off activity after receipt of notification from vendor or sourcing or business. Otherwise Vendor admin team will annually(mostly) review & deactivate vendors with no invoices/ PO / Contract for past 1-2 years. They will take confirmation from sourcing for deactivation.

      5. For M&A kind of situations below are potential options:

      • Generally there is a cutoff for vendor id changes and delivery commitments. Till that date you can raise PO for old entity post that you will have to raise PO for new entity. Till the time we adhere to the cutoff then we have no issues on delivery commitments.

      • Cancel Old PO and re-issue to new company

      • Sometimes PO is in old entity, delivery is from old entity and invoice from new entity…or some other permutation between the three variables…. In which case you will have to liaise to the supplier to resolve the same.

    • #293745

      In recent years mergers and acquisitions have been on the rise. Agree, they are on the rise, especially with some of the mega-companies buying up new areas of business.

      1. What steps are procurement teams taking to be proactive with this trend? When writing agreements, we put in an assignment close that states the agreement can be transferred to new owner with notification or it cannot unless approval is given.

      2. How are you identifying, within your approved supply base, vendors that may have underwent a change and now require new agreements and new approved vendor identification numbers? We are usually notified by the buying company or the current vendor after the event has occurred due to secrecy around the purchase. Not able to be pro-active in most cases except as noted above regarding assignability of current agreement.

      3. Is there a proactive approach that has proved useful, or is this primarily a reactive process? Primarily reactive which can be difficult in planning for required materials or services.

      4. Upon identification of a vendor ID that is no longer valid due to changes with the vendor, what steps are taken to ensure payment to the correct entity under the appropriate Tax Identification Number? All notifications are directed to our Accounts Payable (A/P) Dept who tracks vendor accounts by W-9 form (Tax ID No.) and related address, remit to address, etc. A/P creates and closes out accounts based on outstanding invoices and how new invoices arrive (which name is on the invoice).

      5. How are you managing Purchase Orders that are still out to the original vendor ID and any transactions that may be pending during the time of the supplier effective change date? Outstanding Purchase Orders or Agreements remain open until we are sure no further invoices will be coming in against those documents. If order or agreement will be processed under new name, then original PO or agreement is canceled and a new PO or agreement is created moving authorized funds over to the new orders. When complete they are closed out.

    • #293746

      We just wrote an article about this that may be insightful:

      https://www.allegisglobalsolutions.com/blog/2016/november/can-a-managed-service-provider-be-a-key-partner-during-m-a-activity

       

      Mikaela Malumphy

      Marketing Manager

      t 203 355 3079

      m 203 731 7096

      allegisglobalsolutions.com

    • #293750

      Please take a moment to download this white paper on this topic from a member in the SIG community: 

      http://src.sig.org/src.php?id=10030

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