After the recent events of the past two years, Supply Chain resilience has now become the focus of companies and markets around the world. But what does it mean to have a resilient Supply Chain in today’s world? And how can the completion of Mergers / Acquisitions strengthen that resilience.
Supply Chain resilience incorporates the ability to adapt to change with minimal or no disruptions to your clients or customers. It requires identifying and managing risks to ensure continuity of supply. Now, not many businesses predicted a global pandemic that would last two years or a war in Eastern Europe but those who have built a strong Supply Chain have been able to cope with these significant global crises and either continue supply or adapting their products accordingly.
Examples of businesses looking to increase their supply chain resilience can be found across the globe. A primary example of this can be found by assessing companies in the U.S who are looking at changing their supply chain footprints with research showing that the majority of companies are now looking to bring production and manufacturing closer to home and subsequently, the end user. We have already seen companies such as General Motors, Toyota and Samsung already investing significant amounts in bringing production back to the U.S. Alongside this the Biden Administration is supporting onshoring initiatives by proposing a $600 Billion initiative in its 2022 budget to support U.S. based manufacturing. This trend can be seen taking place throughout the global economy as companies around the world try to increase their resilience to external factors.
So how can supply chain resilience be achieved in today’s economy? One example can be seen above, however not all businesses have the funding or resource available to bring services and manufacturing closer to home by themselves. This has given the opportunity for collaboration with the market as companies seek to work together and ensure the continuity of supply. One way this can be achieved is through a Merger or Acquisition. By doing this companies mitigate the political and logistical risks of transporting goods across the globe, allowing them to be confident they can fulfil orders and deliver for their clients.
Whilst not previously considered to be a primary reason to conduct M&A activity, examples have shown the significant benefit it can provide to an organisation within the context of Supply Chain Resilience. The first of which is related to the above examples referring to onshoring production, services, and manufacturing, we have seen examples of this since the pandemic began and this will continue to be a theme as we see companies looking for opportunities to do the same. However, onshoring is not the only benefit to M&A activity can provide, it also can improve various other areas that will lead to a more resilient supply chain such as:
Economies of scale and scope
Underpinning nearly all M&A is the promise of economies of scale and scope and the benefits they can provide. By undertaking M&A activity a company can ensure continuity and resilience of their supply chains by increasing access to capital, achieving lower costs for higher volume, and gaining better bargaining power with distributors.
Access to new supply chain and distributors
By conducting M&A activity a company will gain the benefit of new distributors and a new supply chain. This will mitigate the risk of failure for an incumbent supplier by having suitable substitute product or service sources available and ready. Furthermore, by merging or acquiring a company you may benefit from potentially enhanced commercial relationships already developed with their supplier base.
Technology
Area companies are looking to expand and develop a technology where we have seen examples of companies using M&A to develop their technology landscape. This may often be because it is quicker to buy than to build and in a rapidly changing market speed is key.
Technology
Area companies are looking to expand and develop a technology where we have seen examples of companies using M&A to develop their technology landscape. This may often be because it is quicker to buy than to build and in a rapidly changing market speed is key.
People, talent and capabilities
Through M&A activity you can ensure or enhance a resilience supply chain by bringing onboard teams of people with capabilities yours may not possess. This can be used to increased workforce resource and mitigate supply chain risks.
GET IN TOUCH WITH OUR TEAM TODAY
For more information please contact our Financial Services lead Andy Hemsley.
