Private Equity Firms Make Supply Chains the Star

It's no secret that the recession has frozen private equity firms' urge to launch the mega-deals that they were doing less than a year ago. Even with improvements in the stock market and economic indicators, these firms are still paying less attention to acquiring companies and more attention to improving the companies that they took over in the boom years.

A survey earlier this year by the Association for Corporate Growth, a buyout industry group for consultants, found that 89% of private-equity executives said they were planning on spending a lot more time than before focusing on their portfolio companies. So supply chains have moved from a supporting role to a starring role in the minds of private equity executives.

Is this a bad thing? Definitely not! This is really a good thing for the companies under the firms' umbrellas, and ultimately for the private equity firms. They are beginning to look closely at the supply chains of the companies they hold asking critical questions such as how can we streamline operations, how can we pool supplier orders and cut costs, and how can we add value by outsourcing non-core activities?

Some of the main areas firms should consider when answering supply chain questions include:
Inventory optimization
Distribution center optimization
Logistics network optimization
Customer service and value analysis
Transportation optimization
Strategic operations planning
Strategic sourcing and procurement
Equipment selection, integration, and installation
System selection and implementation
Global sourcing and security
Logistics service partner selection
New market penetration strategies
Validation and regulatory compliance
Green initiatives

Before the economic downturn, the majority of private equity firms discouraged anything more than tactical cost reductions among their portfolio companies. Now, they are throwing away the scissors and picking up the stethoscope and scalpels to diagnose and then operate on supply chains within their organizations. From this perspective, the Great Recession has contributed significantly to the understanding and impact of the supply chain.

Private equity firms are realizing that supply chain excellence equals added value and a better return on investment. They should keep this thought in mind during the good times as well as the bad times, as should we all.

Jim
Tompkins Associates