Dive Brief:
- Boeing announced earlier this week it will acquire KLX, a company that makes plane parts for aerospace manufacturers, according to The Wall Street Journal.
- The acquisition comes as Boeing continues to move much of its production in-house in an attempt to be less reliant on suppliers, but this move in particular reveals a push to not only be independent, but control the flow of parts in the industry.
- This acquisition could make KLX's other clients more dependent on Boeing, and increases supply chain risk as the industry continues to consolidate.
Dive Insight:
The merger and acquisition season is in full swing these days with the pending merger of T-Mobile and Sprint, ATT and Time-Warner, and now the Boeing acquisition of KLX. And it does not have to be the merger of somewhat equals. Companies like Apple and Alphabet scoop up early stage and small businesses on a regular basis to capture new technologies or to protect their market share.
While these megadeals may look good to Wall Street, they can wreak havoc on the global supply chain. Just the distant smoke of a merger rumor can add uncertainty to supply chain relationships. And these are just the ones that make the front page. Many other companies merge or get acquired and quickly there is a change in ownership, product offerings, customer service, and payment terms. Some operating divisions and associated companies even close their doors in the process.
We’ve all been victims of these merger activities in our personal lives, from banking to car dealerships to supermarkets to municipal trash pick-up. Those ‘welcome to our family’ letters promising no gaps in service are even more disingenuous when followed by the ‘please give us another chance’ letter you receive when the ATMs don’t work.
Go big or go home, as the saying goes. We fundamentally understand the economic reasons for the mergers, including economies of scale, cost savings, greater market share and increased value to shareholders. Yet in all of these glitzy press releases explaining how the customer is our only focus, I don’t see anything about the impact on the supply chain.
The risk in the supply chain as a result of this corporate reshuffling goes deep. While we can deal with new customer numbers and remit to addresses, it is often the buyer supplier relationship that takes a hit. Consolidation and changes to operations often lead to staff reorganizations or layoffs, often in sales and operations. Relationships can change overnight as can proven business processes. And in the extended supply chain, almost immediately competitors can become allies and allies, competitors.
That’s a whole new supply chain configuration to figure out while waiting for the ‘dear valued customer’ letter.
