After the honeymoon

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After the honeymoon

When two or more companies combine, how do logistics professionals discern best practices and implement them across the new organization?

Experience certainly helps. When $1.3 billion food company Del Monte Foods Co. (www.delmonte.com) acquired three business units — including the Star-Kist tuna brand — from rival food giant H.J. Heinz Co. (www.heinz.com), in a deal totaling $1.8 billion, it helped that the company had already worked out many of the acquisition bugs thanks to its earlier purchases of smaller companies such as Contadina and S&W.

According to Mark Bataska, vice president logistics with Del Monte, those earlier acquisitions gave his logistics team an opportunity to develop templates to ensure effective integration.

Because both the Del Monte and Heinz organizations were well run, there was not a lot of pressure to make immediate changes. Del Monte’s Network Optimization Team spent three to six months in various areas gaining a baseline understanding of the process flows and making sure they shared common definitions of requirements.

“Start with the planning process and work through the order life cycle, then through execution and billing,” suggests Bataska.

For all functional groups, Del Monte’s focus is to present a single face to the customer, so the team worked to develop a common operating system involving all functional groups, including sales, finance, logistics, operations and quality.

“With a presence in Pittsburgh and headquarters in California, we just completed conversion of systems so we have a common operating system,” Bataska says. “We’re working on consolidating functions such as finance and customer accounting.”

Within 60 days of the merger, Del Monte held a consolidated logistics team meeting to discuss the corporate vision on the new business, the transportation opportunities and the early data from the Network Optimization Team, directed by David Kaduke. Kaduke’s team included analysts with knowledge of both Del Monte’s branded business in California and former Heinz people from Pittsburgh. Those multi-functional discussions helped create a consolidated organization structure and led to regional teams working with Kaduke’s team to drive network optimization forward.

The Network Optimization Team starts with basic processes, then digs deeper because definitions may differ between organizations.

“Regional teams from the branded business in California or the Pittsburgh units are taking information to the next level,” explains Bataska. “We start with a basic understanding of why there are differences — say, because of customer order patterns. We have unique requirements in California and in the southern region. On the West Coast, we have more export business. In the South, there is more club-store type business.”

On the logistics side, Del Monte modeled transportation volume and — with the help of a third-party consulting firm — reviewed rate levels versus industry standards, Bataska explains. “We also brainstormed for further synergies. such as newly created round-trip or continuous move opportunities. For example, a majority of the Del Monte branded business volume moving eastbound ties in with the former Heinz pet food production moving west.”

To ensure they uncovered best warehouse practices, Bataska’s team started with basics like variable and fixed costs. Then they broke down order volumes to differentiate between full pallets versus partials, case size, and special characteristics and requirements like display-ready units or temperature-controlled product. Regional distribution centers (DCs) have variances based on these characteristics, so Bataska notes the differences.

“In our facility review process, we suggested specific items for review and, when we found innovations, we forwarded them to other facilities,” he adds. For example, in the branded business, Del Monte normally leases forklifts and changes them every five to six years. The Heinz units typically owned the equipment, ran older equipment, and had more downtime and higher maintenance costs.

“So we’re installing the lease program across the network,” states Bataska. “We also looked at different attachments on the forklift equipment, such as slip-sheet attachments, which reduce labor costs.

“As we work to consolidate the DC network,” he continues, “the best practices will be implemented and standardized across the organization. We don’t want to stifle creativity, but our goal is to be consistent in our process to our customers — both internal and external.”

The regional network optimization groups are in charge of execution — evaluating issues such as real estate, railroad sidings, sizing the DC, or the need for refrigeration. “They verify each area’s unique needs,” Bataska says. “Bi-weekly logistics conference calls provide status updates to the entire team and assist us to keep a focus on the daily operational requirements.”

Bataska eagerly points out the post-merger advantages to be gained by uncovering best practices and implementing them across the new organization. However, not all companies recognize the positives.

One executive, who requested anonymity, notes when it’s an acquisition rather than a merger, there’s often not a lot of collaboration. Past mergers she has participated in involved a good deal of analysis, sorting out best practices, and taking time to build the best new organization out of the existing companies. In a recent acquisition by a much larger company, there was a greater sense of urgency to merge the systems. The large acquiring company simply plugged the smaller acquisition into its existing network.

Where product lines were significantly different, the larger acquiring company made sure it understood the business but still plugged the smaller company into its structure and systems.

She suggests, in a merger, it’s imperative to look at whose structure or system is better. Identify the biggest driver — perhaps production or customer satisfaction metrics such as on-time delivery or order fill rate. Use that driver to determine best practices with no predetermined sense of whose system is best. Also look at factors such as strategic location of facilities, room for expansion and transportation costs before closing facilities.

Whether merging or acquiring, John Mascaritolo, director of global logistics with NCR Corp. (www.ncr.com), underscores the importance of culture. For five years in the 1990s, NCR was part of the AT&T (www.att.com) corporate culture.

Telecom giant AT&T acquired computer-maker NCR in 1991 as part of a strategy to capture a share of the computer market, a market AT&T had never succeeded in. Ultimately, AT&T abandoned the computer business and divested itself of NCR in 1996.

While AT&T’s purchase of NCR was short-lived, “In spite of a clash of cultures, the logistics area took advantage of AT&T’s logistics focus,” Mascaritolo notes. “Not only were we able to leverage their size, we took on AT&T’s practices with carriers — what amounted to best practices at the time. AT&T’s contracts were more detailed and better scrutinized than ours. Our negotiating processes and techniques improved. They gave us more discipline and we built upon it. Since they didn’t take their toys and leave when they divested us, we continued to use their processes and procedures,” he adds.

Whether in a merger or acquisition environment, it pays to drop the “bigger is best approach” and be open to learning from the broader array of experience another company’s experts offer. LT

Logistics Today logo
December, 2003

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