BONEZONE

DEC 2016

Published by ORTHOWORLD Inc., BONEZONE delivers strategic sourcing & product commercialization solutions to orthopaedic device company decision makers and their partners.

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78 BONEZONE • December 2016 T he primary responsibility of the supply chain team post-M&A is the assurance of uninterrupted upstream and downstream product supply. In order to minimize disruption and eliminate risk, you must validate what was learned or assumed from the due diligence phase and develop a tactical plan to identify and map out the current, transition and future or desired state of the supply chain. That process includes analyzing people, inventory, upstream and down- stream customer experience—each of which is outlined below. First, it's important to note that once the transaction is complete, you can expect requests to improve your balance sheet and to reduce—reduce your cost of goods sold, suppliers, headcount and more. All of these steps are important for long-term success and post M&A performance. In order to achieve this objective, we must identify and deal with supply chain issues before they occur, to avoid putting the business at risk. Some people within the organization may see this pause for analysis as slowing down the process, but the potentially devastating impact and extensive delay that supply chain disruptions could have is why I refer to this approach as, "Going Slow to Go Fast." That is, you'll get there faster by dealing with issues before they occur rather than as they occur. Typically, 60 to 90 days should be planned for a thorough assessment of the current state of the supply chain, including risk discovery and miti- gation planning. It is also recommended that a single indi- vidual from both the acquiring and acquired company sides has overall responsibility for completion of this phase, with appropriate executive sponsorship and authority. With that swiftness in mind, here we begin the essential steps to identify supply chain risk and develop a mitigation plan to minimize or eliminate that risk. People One critical area is the people and their tribal knowledge. Change upsets the delicate balance among departments and throughout the organization in so many little ways that may not be immediately visible, but can show their effects over time. Generally, other than directors and higher-ups, the supply chain staff of the acquired company has not been offered an incentive to remain with the combined company. This makes them a risk from both a personal decision to leave as well as a headcount reduction opportunity for the combined company. Therefore, it is important that you identify those individu- als who have extensive knowledge of systems, processes and particular nuances of supply, products and customers as soon after close as possible. This is best accomplished by first developing leading questions concerning these areas and by conducting one-on-one interviews. The interviews should include known issues with the sup- plier base, procured mate- rials and services, related systems, products and customers. Your mission is to identify key personnel who possess extensive supply chain knowledge and the related systems and processes. Once these people are identified, steps should be taken to capture and document their knowledge and, if applicable, retain these individuals. Inventory You will deal with excessive/imbalanced inventory and other opportunities for reduction during the transition phase. Your focus here is short-term risk for supply disruption. That can be accomplished by minimally including obsolescence, expiry and regulatory concerns. • Obsolescence – The concern is not that inventory has been overstated, but that inventory that has been identified as obsolete (or to become obsolete) may not have been communicated to suppliers or customers. It could be that a product line has been identified as obsolete, but inventory is being sold as long as suffi- cient size mix is available to make it viable or limited to a single or few customers. BUSINESS CRITICAL The Forgotten Phase of M&A: Mitigating Supply Chain Risks David Finch Insight Collaboration Partners Editor's Note: This is the second of three articles focused on M&A and the supply chain. Mr. Finch outlined due diligence in "The Forgotten Phase of M&A: Supply Chain Infrastructure," which appeared in the October issue of BONEZONE. His third article will focus on supply chain integration post-M&A. Change upsets the delicate balance among departments and throughout the organization in so many little ways that may not be immediately visible.

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