When Littlewoods merged with ShopDirect the newly formed business was sending three white vans down the same street, a problem familiar to any newly merged business running separate logistics operations. Mergers throw up countless challenges, the most important of which is maintaining the business through what is often a period of radical change. No one can afford to lose customers, merger or no merger.
Given that most logistics centres usually run to capacity to keep the throughput high, it is a challenge to ensure that there is no fallout. Separate logistics centres reporting to separate IT systems have to be maintained while an integration plan is hatched.
Merging logistics operations is not easy. Separate businesses tend to have separate ERP systems, running different supply chain management structures. It is not just a case of cherry picking the best bits. That can be the worst thing you could do. Firms that pick and mix the best features from two different back-end systems will end up with egg on their face. It is a process that is consistently proven wrong as projects run late and horrendously over budget.
Project management has a huge role to play here and having clearly defined objectives and deadlines is part of the plan. Many businesses kick off on the wrong foot by having a poor knowledge of how project management works, leading to contracts and payment plans being heavily stacked in favour of the consultancy.
The knock-on effect of this is over-staffed projects that are big on strategy and reports but slow on actual implementation. When PIPC supported the US$750M (£411M) IT integration for the RBS / Natwest merger, there was huge risk on a tight deadline. The project team had to transfer £58Bn from one system to another in a weekend. If this fell over it could have brought down the UK economy.
Consultancies must accept some of the risk of the project and accept payment terms that reflect this. There also has to be a clear understanding of deadlines and all stakeholders need to know their role within the project plan.
Communication tools are often over-complicated and ineffective. The standard of stakeholder communications on projects is abysmal – thousands of reports are printed, posted and binned. Another classic problem with communications is its passive nature. Those reports that are read act only as lagging indicators, identifying problems that have already taken root. PIPC maps stakeholders against their level of interest and influence, providing information with the relevant detail and frequency, so people read it and react.
When two firms merge and there is a demand to integrate separate logistics operations, it is important to realise it is not just about technology. It is about managing the processes of integration and ensuring that the technology is in place to support any merged operation.
It would be foolish to try and integrate two separate back-end IT systems into a new “super system”. You need to identify one existing system and scale it up so that both operations can be managed from it. But you also need to manage the knock-on effect to physical operations such as warehousing. Merging warehouses is not about shutting one and moving everything across to the other. One warehouse has to be wound down gradually while stock in the other is gradually increased.
This will ensure that the supply lines are not broken and that the customer is not impacted. This has implications for the rest of the business too. Mail order catalogue firms, like Littlewoods, have a lot of product returns. These returns still need to go somewhere and that is an extra logistical headache that has to be managed.
Given the current shortage of internal project management skills this often means engaging an outside project management business. The complex demands of merging disparate businesses require specialist skills in integration management. Even with a well-staffed internal team, the skills and knowledge required to merge businesses are not easy to come by. Through experience, PIPC has learned the most effective processes for successful projects.
It is crucial that any IT and general business integration is driven ahead of an optimisation programme. Focus on the integration first and then look at consolidation of vans, staff. It is a mistake to try and do everything simultaneously.
Internal communications must be considered. Changes starting at the call centre have to be implemented without affecting the running of the business. If changes in processes are not prioritised and managed accordingly, there could be major damage to the bottom line. This in turn will affect shareholder value and that is unacceptable. However it is surprising how many projects go over-deadline and over-budget through unforeseen circumstances.
Good project management is about ensuring that everything is taken into consideration. If one aspect of the overall project runs late, then everything else is impacted. Can any business afford for sales to be hit and deliveries to go late? The knock-on effects can be disastrous.
Keeping projects on time and budget is vital. Merging logistics operations is a risk but hitting targets is the bottom line. Some businesses would rather not merge logistics operations through fear of the risk involved.
If a merging business wishes to maintain two separate warehouses, there are still issues that need to be addressed. Inevitably, these two separate warehouses will be run on different supply management systems. The business will have to maintain double barcodes and that of course doubles the management processes. Also the merged business does not gain from cost efficiencies. Ideally, the barcodes would be standardised to reduce back office overhead.
It could be possible to use such a scenario to implement an RFID strategy across both warehouses. This could solve the problem in one swoop and ensure a degree of future-proofing in the event of further mergers and acquisitions.
Any merger and acquisition needs a sound strategy, which must be well supported with the right skill sets and adhere to rigorous planning and implementation. There is no point just throwing people at a project and producing reports if targets are not being met.
Mergers and acquisitions are an important part of any business growth. But not all are successful. Agreeing to merge with or buy a firm is just the start of a business building process.
Given the work that goes in to securing these deals, it would be a shame to let any business integration project scupper its chances of success. A project that runs late and over budget makes a mockery of the reasons behind the original merger, making it all the more necessary to farm-out responsibility. A well-motivated project management strategy can be the difference between success and failure.
Dr Simon Rawling is global head of project management consultancy PIPC.
Tel: 0207 959 3035.
Branding is Key
When Littlewoods merged with Shop Direct, PIPC started working on a back-end IT integration that has turned the traditional principles of integration on their head by maintaining 20 top brands, including Kays, Great Universal and LX Direct catalogues.
Traditionally mergers have seen companies lose brands to cut costs, but this has often proved an expensive mistake. PIPC is heading-up the Littlewoods / Shop Direct merger with the intention of retaining the multiple brand channels supported through a converged logistics operation.
Mergers and acquisitions usually mean cutting brands and losing customers. This has consistently proven expensive and unsuccessful but companies continue to follow the trend. Why would you want to get rid of a successful brand that already has a loyal customer base?
Littlewoods now has one back-office system running both businesses, keeping its 20 different brands alive. It also has a merged logistics operation that maintains two regional warehouses running off the same back-end system. By putting business functions such as Human Resources, financial control, order processing and distribution on one back-end you can cut costs while increasing control of the various brands.
Successful or otherwise, the cost of implementing mergers has traditionally been high. In contrast, the Littlewoods / Shop Direct merger created immediate savings, paying for itself from day one.
By centralising brand and product control, Littlewoods can be more efficient in its use of resources. It means they will not be sending three white vans down the same street again.