The purchasing departments of the waste management company Renewi, the company that emerged from the merger between the Dutch Van Gansewinkel Group and the British Shanks Group, had to be integrated. A team from KPMG supervised this process.
This is how Advisory Partner John Tros describes KPMG's approach to mergers, "We never say: 'this is how you should do it', instead we look at each client's specific needs. Not a 'one size fits all' approach, but a tailor-made process."
Tros and his team previously supervised the successful merger of the procurement departments of Ahold and Delhaize and, since the summer of 2017, have been working on the integration of the procurement departments of Van Gansewinkel and Shanks.
A process that started with merging all the data from the two departments into so-called clean rooms. "In mergers,promises are often made about synergies. These promises often include significant purchasing savings due to higher volumes. However, we've led numerous procurement integrations and have seen first-hand that a realistic savings analysis requires research down to the smallest details to really understand the potential of the merger".
"We pay a lot of attention to the human factor"
A combined Renewi-KPMG team had performed the initial analysis; the team led by Jort Meijer, Director at KPMG, specifically compared the expenditure of both Van Gansewinkel and Shanks. "What was each supplier invoicing and what were the quick wins? Often there are 'double contracts', with two companies using the same suppliers, purchasing the same services, but paying different rates. That's what we started to harmonise".
The combined Renewi-KPMG team investigated what other savings were possible. For this they used the KPMG Value Lever Methodology, which illuminates the steps you need to take to achieve additional savings.
Tros: "For example, are there services that can be outsourced? Can we give a particular supplier more certainty, making him willing to work for a lower price? Automate part of the process?" Tros and Meijer also talked to all those involved about performance, future expectations and lessons learned from the past. "We used these conversations to design the new hybrid purchasing organisation. When it's cheaper and easier to combine a purchase for the entire organisation, that's what we do. But also, for example, if a branch wants to keep its regular cleaner, we take this into consideration, also providing guidelines on how this might be done. This approach means we can establish the optimum mix between local flexibility and combined purchasing power."
KPMG knows how important it is to ensure all parties in the merger process are involved in an integration like this. "We can do endless and vital computer research and analysis, but good cooperation between all the parties is also essential", says Tros.
Because he knows only too well that when people face changes like this, it can lead to resistance. "That's why we share all our insights, and make the employees co-owners. Then they can take responsibility." This involvement also ensures better decisions are made, he says. "If a truck costs 100,000 euros from one party and 105,000 euros from another, it's easy to choose the cheapest from behind your desk. But there are so many other factors involved, such as fuel consumption but perhaps even more importantly, the ease of use for the drivers. We'd prefer to pay 5,000 euros more if it means that additional specifications increase productivity. When the merger is actually implemented, the human side remains a major factor. Merging two different work cultures often leads to tension. We never shy away from this because we know that cultural differences explain the failure of 60 percent of mergers. Or as management consultant and writer Peter Drucker says: culture eats strategy for breakfast."
After more than fourteen weeks of intensive cooperation between the KPMG and Renewi teams, the new purchasing department structure was presented at the end of 2017. KPMG then helped set up the organisation and draft profiles for the new employees. Tros: "This process went so well that the organisational structure was valued and accepted by all Renewi departments. It's seen as a great example of how things can be arranged well and relatively quickly." KPMG and Renewi also drafted new targets together. The result was impressive: in just one year, they achieved a higher saving than targeted by Renewi.
A joint English contact suggested involving KPMG in the merger process for Renewi's procurement departments. There was an immediate click between Renewi CFO Toby Woolrych and KPMG's John Tros.
"Creating a new company after a merger is a very risky process. Two different departments need to be harmonised, bringing out the best of both. Van Gansewinkel and Shanks shared a passion for sustainability and recycling, but there were also a lot of differences. Shanks' procurement department had an entrepreneurial culture and worked with many small, local suppliers. Those relationships were very important to them. Van Gansewinkel had a central purchasing team that was understaffed.
Merging these two departments into a new organisation was a major challenge for the KPMG team. They made a detailed analysis and achieved numerous savings. Then they focused on achieving the integration and synergies, and managed that process carefully.
Finally, KPMG helped recruit new people, and built bridges within the new team and between stakeholders and customers. You can arrange a merger at your computer, but on the shop floor it looks very different.
KPMG wasn't just in the background, they helped with the implementation on the shop floor, using the 21st century skills needed to make the new department a success. They were energetic and respectful, they kept their promises, provided valuable input and put the wheels in motion to ensure the output was achieved."
Jeroen Broekman is Group Procurement Manager at Renewi. Together with the KPMG team led by John Tros, he is leading the merger of the procurement departments.
The Shanks Group and Van Gansewinkel Group had very different cultures. How did you deal with that?
"That's right. At Shanks, people often worked locally and maintained numerous contacts with local suppliers, while at Van Gansewinkel there was a lot of central organisation. Centralisation is often efficient and in many cases cheaper, but we also wanted to take into account the local differences. We therefore opted for a hybrid model and looked at each component: what should we arrange centrally, what should be local? Trucks and fuel, for example, can easily be purchased and coordinated centrally from one location, but we don't need to set up a central team for a sorting installation, for example. By arranging this de-centrally, better use can be made of the knowledge available locally. However, we have set up a structured reporting line throughout the company."
Did everyone agree with those choices?
"Some divisional directors found it quite difficult to arrange things centrally all of a sudden, preferring to keep things in their own hands. Good coordination was crucial; making a cultural change in which everyone shares the same ideas isn't easy. Opting for the hybrid model ultimately became the norm within the organisation. We set aside three years for the integration of the organisation and completed the set-up of the new purchasing department mid-2018."
What role did KPMG play in this respect?
"KPMG's knowledge meant we were able to better substantiate the choice of the hybrid model. They did market research, performed data analysis and had experience with mergers of other organisations. This raised Renewi's knowledge level. In any case, an outside party can provide a fresh, neutral view of a merger process that takes in a range of sensitive areas. KPMG was there for both the Shanks and Van Gansewinkel employees. The combination of their general, theoretical knowledge and our operational, substantive know-how also worked well. We wrote the savings programme together and KPMG helped construct the new purchasing organisation after the analysis."
How was the collaboration?
"Working as part of a team with external advisors requires a lot from employees, but the people from both KPMG and Renewi work.together really well. The Renewi team quickly accepted KPMG's advisors and they adapted very easily. We've got everyone working towards the common goal; our mantra is not 'we invent, you execute' and this approach creates support. The team is constructive, with short lines of communication, good interaction and a joint commitment. KPMG's advisors also increase the speed at which we can get things done: buyers can normally run one or two large projects, whereas five or six projects can be carried out by the combined team. Furthermore, because of the collaboration with KPMG, our purchasing team received training on the job."·
What was the most difficult part of the process?
"We had to go back to the drawing board, have a fresh look at the new organisation. Letting go of everything, adopting a new way of working, no longer thinking of Shanks or Van Gansewinkel. That also meant setting up a new team, in which we moved people around. This allowed a number of colleagues to grow within the team, others remained in their existing positions and we said goodbye to a few. This last was difficult, but necessary. There are people who look after the shop and people who like to build a new shop. A merger is mainly about building that new store, and this role suits some employees better than others. There are many interests at stake, you have to understand that and be able to manoeuvre within that space. Together with KPMG, we looked at who had which roles, who could move along with them and who was left behind. That ultimately determined the choices in terms of staffing in the new procurement team."
Where is the department now?
"We're well on track to achieving our objectives. Soon we're going to be saying goodbye to KPMG's advisors for the operational activities, but we'll continue working together on the implementation of a central Source-2-Pay system. This automated purchasing system.will give us more insight into, and control.over, our expenditure, something that's needed in the current organisation. At the moment everyone arranges this in their own way, using Excel and PowerPoint. We need this system, to make the processes more uniform. We're currently performing analysis and drawing up a blueprint; we want to implement it at the end of 2018. This investment of a few million euros will change the way we work significantly, and so will take at least two years. It will enable the organisation to move forward independently after the completion of the merger process and the integration of the departments in 2020. 'One way of working' is the ultimate goal. KPMG's role in this isn't yet entirely dear, but I'm sure their contribution will add value."