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Cheese, Chocolate and Lessons for Supply Chain

Posted by ron sanderson on February 19, 2010

The recent announcement of the Kraft acquisition of Cadbury reminds us of the many “big news” mergers over the years that ultimately failed.  Daimler Chrysler comes to mind.  But even if such a merger is not an actual failure, there is a serious question about whether the expected benefits of a merger will be realized.  Kraft is predicting some $300 million in operating savings with a combined company, but skeptical minds wonder if these savings might be overstated.

Sure, there have been many successful mergers and acquisitions too, and Kraft had a big success with its acquisition of Nabisco in 2000, as did Unilever with the Ben & Jerry’s acquisition in the same year.  In both cases, the acquired company retained its original brand identity, the transition appeared seamless to the market, and supply chains were combined effectively.

However, mergers between organizations that have two different cultures, two different histories and two different operating processes, to say nothing about different markets and brand images and marketing strategies, are inherently risky ventures. 

The Kraft acquisition of Cadbury brings to mind three questions:

  1. Is the estimated $300 million in operational cost saving that Kraft is predicting in consolidation of such areas as manufacturing, procurement, supply chain and other operations realistic?  Companies attempting to justify a big merger tend to overstate savings, and unless some good analysis has been done on realistic tangible savings areas, this may be no different.  Kraft has already done a great job of using optimization software and management to maximize its supply chain.  Are there any real savings in consolidating Kraft and Cadbury supply chains?  If the projected savings do not materialize during implementation, watch out! 
  2. Does Kraft have the competency required to reduce the uncertainty that both Cadbury and Kraft employees feel right now?  Kraft needs to act fast to reassure everyone that the Easter Bunny will still be delivering those Cadbury eggs.  At the same time, everyone needs to be reassured that there are certain operational and strategic advantages to having a combined company – and that their own situations will be secure. 
  3. Are there any combined procurement and sourcing opportunities?  Is there any leverage in the combined companies in terms of common food ingredients or indirect materials?  If procurement is outsourced, how will that affect the newly integrated organization?  How much procurement spend savings is achievable in the combined company?

We invite your feedback and thoughts on these and other questions.  Have any readers been involved in a merger?  Do you have any lessons or other insights to share from the experience?


One Response to “Cheese, Chocolate and Lessons for Supply Chain”

  1. Ron Sanderson said

    Interesting questions. I think the savings estimate is too high, unless there is more redundancy in the two supply chains than it appears.

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