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To Consolidate Or Not To Consolidate …

July 12, 2010

Some years ago, the consolidation debate was mostly over whether or not to centralize Procurement or Contract / Commercial Management resources. Today, the questions have shifted towards the creation of Shared Service Centers … and increasingly to the possible consolidation of buy-side and sell-side contracting.

An IACCM member recently posted a question on this topic, because she had been given the mission of creating a combined commercial group. In responding to her questions, I made a number of observations.

Firstly, I assured her that she was not alone in overseeing both buy and sell-side contracting. However, the drivers for consolidation and the results in terms of organization model are quite variable. The drivers may be simply an expectation that there are potential efficiencies and cost-cutting opportunities. Or they are sometimes due to the drive to get Procurement closer to the market, or to raise and align commercial skills. I have observed particular battles in companies where there is extensive sub-contracting, or regular teaming arrangements and these are sometimes resolved by putting both groups under single leadership.

When it comes to organization, many mid-size companies tend to have a consolidated ‘commercial management’ group with a common manager, but some maintain distinct buy / sell teams. Others have driven integration because much of their activity is project based and they want closer coordination of the customer and sub-contracting activities (examples here come from areas like outsourcing and aerospace industries). Finally, there are a few that consolidated because they saw synergies in terms of skills and also the need for better integration of market and business intelligence (Agilent Technologies is a leader in this regard).

In my experience, there are real benefits to be gained through this consolidation and today’s market trends are making the case steadily more compelling. It is essential for companies to have a consistent nerve-center developing strategy and overseeing operations for their key customer and supplier relationships. Increasingly, those relationships are multi-faceted and integration becomes key to the speed and flexibility needed to compete for the best customers and the best suppliers.

In general, I am a strong supporter not only of consolidation but also of shared service centers as the model for value-focused organizations. I believe that commercial groups – buy and sell – must increasingly undertake ‘make or buy’ analysis for their services and should be judged on the degree of innovation and added-value they are bringing to the business.

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