Materials management during mergers and acquisitions: 5 key factors to consider

Mergers and acquisitions can present a number of challenges across all areas of the two businesses as they embark on the huge change of becoming a single entity. There are so many important decisions to be made in order to effectively streamline operations, production, systems and people. 

The materials management function alone includes a range of key considerations during the transition – from efficiently migrating from one CMMS to another while ensuring the integrity of your data, to managing the purchase of stock and bill of materials now that two separate companies have become one.

To help you plan for a seamless integration of your materials management processes, we have asked our Program Manager, Iain Wood, to share his 5 key factors to consider during mergers and acquisitions, as well as how ABL can help materials teams navigate these changes…

1. Data management

“When it comes to mergers and acquisitions, one of the biggest priorities for both maintenance and materials teams is managing the status of the data – particularly if the two companies involved are having to migrate data from one CMMS program to another. 

“Maximo and SAP are the two most common CMMS programs, however, they are quite different to each other; Maximo material numbers are only six digits while SAP’s are eight. SAP allows a short description of 40 characters, while Maximo allows a short description of 250 characters. When merging the data from two systems into one, the data needs to be aligned to fit with the preferred system, and this can be incredibly time consuming. 

“The biggest risk when merging the data from two CMMS’ is duplication in your system, as this can result in the following three issues when it comes to materials management:

• You could end up storing far too much stock because you think it’s required, which results in a financial cost in terms of equipment purchased and storage space you don’t need
• You may have the stock but don’t even know it’s in the warehouse because it has a different name or is listed under a different material number in the CMMS. This means you end up making expensive emergency purchases without realising that you have three of those items sitting on the shelf
• In the worst case scenario, you might not be aware that you don’t have the stock to hand and end up with a shutdown if it’s critical spare part that you can’t reorder quickly. In some cases, this can cost millions of dollars per day in terms of lost production.” 
  

How we can help:

“At ABL, we can provide a vital link between the materials teams and data teams during this process. Firstly, we can store all data and check it before moving it into the preferred CMMS software, identifying any duplicate records or investigating further if required.

“One of the first ways that we would do this is remove any spaces, dashes, dots and hyphens from the part number so all you have is a string of numbers and letters. Different people will input a part number in a slightly different way, so by stripping it back we can easily identify any matching records, examine the description of them all and if they are about 80% the same, it can be marked as a duplicate or we can investigate a little bit more to know for certain.

“It sounds simple, but if this stage was going to take a client four months to do, we’d have just halved that in a matter of hours. When we worked with our client Cenovus on its acquisition of Husky, we approached the data management in 3 key phases: 

• Initial check of data and migrating relevant items from Maximo into SAP
• Take a deeper look at everything inputted in SAP
• Data cleansing and standardisation exercise.”

2. Purchasing and optimising stock

“From a supply chain perspective, a huge consideration during a merger or acquisition would be around the purchasing of stock and how that process can be optimised. Although this process is largely managed by the supply chain team or the procurement division, it’s still a fundamental part of what materials teams need to be aware of and involved in. 

“Common questions would include: 

• Are contracts still in place? 
• Do they need to change at all? 
• Is there anything in place from a purchasing standpoint for the materials coming in? 
• Are they any new contracts that need to be signed?”

“For some mergers and acquisitions, there might also be some logistical considerations to make with stock purchasing. For example, if the company headquarters move to a different region or country then contracts may need to be completed or managed differently. 

“All of this needs to be thought about carefully, because if you order a part and think you have a lead time of two weeks, but a contract hasn’t been set up with the supplier, then there is going to be a delay with that purchase. Those two weeks could really quickly become two months and that will cause massive implications and risks if the part is for a safety critical piece of equipment.”

How we can help:

“One of the things we do to help our clients is review the minimum/maximum establishment numbers on their equipment. This involves identifying the maximum and minimum amount of stock they should hold for each part and setting up an efficient reorder system. For instance, if there’s a minimum of two and a maximum of four, the system should automatically reorder to take the client back up to four items in their inventory when their stock level reaches two. 

“What we see in a lot of cases is that materials teams don’t have the system set up at all, or they have a minimum level of zero which is too low. On the other hand, they may have a minimum/maximum level of 10 and 14 when the probability of failure for that item is perhaps every six months, for instance, and the lead time for getting a new part is two weeks. Through our analysis we can identify these inefficiencies and create a system that works well for the client depending on a variety of factors.

“Depending on the locality of the facilities, a company may actually be cheaper building a new centralized warehouse hub which consolidates all spare parts of equipment, rather than each facility having its own warehouse. This would significantly reduce the amount of stock on each of the different sites, leading to reduced capital expenditure on unnecessary spare parts and storage.”

3. Bill of materials

“As a materials manager, you want to make sure the bill of materials is in line with all the maintenance activities and capabilities when two companies merge. It’s all about making sure you identify the right spares to mitigate the chance of a bottleneck, or having to employ loads of extra people to manage your bill of materials when in actual fact, you don’t even need a lot of it.

“It’s important that every engineer has all the parts they need, however, they quite often want to have everything to hand even though they don’t necessarily need it. OEMs can also often provide recommendations that are not required, misleading companies into thinking they need to store a lot of spare parts. This can lead to a significant waste in both effort and expenditure.”

How we can help:

“At ABL, we can optimise the client’s inventory management system and help them to look at the bigger picture of where we can help them. We’ll work closely with engineering teams to create the bill of materials and make sure it contains what they really need, not just what they want or what their vendor is trying to upsell to them.

“Through our experience and the data analysis we conduct for clients, we can work with them to make sure everything on the bill of material and the data in their system is relevant to their maintenance capabilities. Our focus will be on critical equipment first, to make sure those spares are identified, or highlight any criticality levels that we think need to be altered.

“The main advantage when we review bills of materials is that we’re able to identify obsolescence. That’s either a piece of equipment or a spare part that’s no longer readily available on the open market, but the client could still be holding it in their inventory. In this case, we work both with the client and directly with the manufacturers and vendors to find out if the equipment is still relevant. If it isn’t, we gather all the technical information for the part so we can make the engineers aware and recommend a suitable replacement to purchase.”

4. Preservation of materials

“How materials are preserved and stored is a huge consideration for materials teams when two companies become one. Clients will spend lots of money on a pump, for instance, keep it in a corner of a warehouse and won’t ever look at it until they need to use it. 

“Not storing or preserving stock correctly will ultimately mean that it won’t work properly, which can become a huge safety risk and cost companies a lot of money. For example, the shaft on a pump is extremely heavy, so it needs to be rotated every three to six weeks otherwise it could develop a ‘sag’. When that pump is then spinning at 2000 RPM and it’s got a sag, you can imagine the problems you would end up having as a result, both in terms of safety, production and expensive repairs.

“With acquisitions, you may find that one company is brilliant at preservation while the other doesn’t see it as a priority at all so, as a materials manager, you may need to bring preservation ideas to the warehouse and train people on how to do it correctly, and in turn make requests for engineering support as some preservation activities must be carried out by qualified personnel.

How we can help:

“We’ve got a suite of preservation maintenance routines to help our clients store all their equipment parts correctly. From bearings and motors, to elastomeric and valves, cables and drums, we’ve got examples of how to preserve it properly, how it should be stored correctly and what maintenance you should be doing on it. 

“We can work with our clients on creating documents and amend them depending on the location they’re storing these parts in. For instance, Dubai’s preservation and storage routine is very different from Calgary’s due to contrasting temperatures.

“Equipment doesn’t need to be handled all the time, but simple things like how it’s stored, keeping it inside its box for protection from dust, and making sure valves are closed off, are really important considerations.”

5. Warehouse and processes

“The processes which take place in the warehouse are another important factor to consider when two companies merge to become one. For example: 

• How does each company manage the items? 
• What do they do if an item comes into the warehouse and they need to quarantine it? 
• What procedures are in place for manually handling items? 
• How do they use forklifts or arrow aisle forklifts? 

“There are a lot of questions which arise during mergers and acquisitions when it comes to the processes within the warehouse, and it’s important for materials teams to be trained so everyone is following the same approach. 

“Many things could go wrong if this isn’t considered carefully. Processes are there for a reason and if they are not followed, it may be extremely dangerous. For example, if you’ve got somebody using a forklift who isn’t trained or qualified and that heavy machinery hits someone, then it can be a huge safety concern and will damage your reputation as a business. There’s a big detrimental impact when it comes to warehouse processes and safety.”

How we can help:

“At ABL, we can conduct warehouse reviews as an impartial third party organisation to your company. This is where we go and see how the warehouse is currently operating, ask a number of questions and mark the various processes against a warehouse benchmarking process we have. 

“At the end of this, we give the client a spider diagram with different sections that are scored from 1 to 5, If it’s on the outside of the diagram and scores a 5, you’re actually best in class, so don’t change anything, If it is between 1 and 4 then you are able to prioritise on what needs to be reviewed and put a plan in place to make the necessary changes. This allows materials and warehouse teams to identify what it is they need to improve on in order to operate safely and efficiently.”

Need some advice on how to streamline your materials management during a merger or acquisition? Discover the suite of insights and tools ABL can offer…