A divestiture is a major transition that impacts all areas of a business, including supply chain reliability and efficiency. Today, shippers face increased regulations, unstable market conditions and capacity concerns that make it near impossible for a newly divested company to achieve all of its goals without the expertise and support of a third-party logistics (3PL) provider.
A 3PL provider offers customers with outsourced, or “third party,” logistics services for part or all of their supply chain management functions. In support of a corporate divestiture, an experienced 3PL provider can offer a myriad of benefits, including:
- Immediate expertise and support in areas where a divested company has lost talent and insight;
- Valuable carrier relationships and advanced knowledge for optimizing supply chain performance;
- Input on best practices that have been gleaned from similar transitions with other shippers;
- Assistance with rapidly evolving shipping requirements, domestic and international; and
- The potential opportunity to convert a significant portion of operating costs from fixed to variable.
While each of the aforementioned benefits is a critical component of the value that a 3PL provides, the most important element is a 3PL’s keen awareness of the service requirements needed across the supply chain. This industry intelligence combined with the ability to quickly and effectively fill gaps, is what maintains a seamless and high-performing operation – making 3PL assistance critical for capturing maximum divesture value, from day one.
Consider the four steps a 3PL will conduct to ensure divestiture value is optimized and achieved:
Step 1: Assess New Needs, Requirements and Capabilities
The quicker a divested company recognizes that what worked previously may not work anymore, the faster and smoother the transition will be. This begets the need to set the overall strategy for the divestment by way of an exercise, called “capability scoping.” This assessment identifies the most important capabilities for which the newly divested company needs to account, which may include functions such as Procurement, Purchasing, Accounting and Supply Chain Operations itself.
Step 2: Leverage a Transitional Service Agreement Wisely
A TSA can offer important benefits to a newly divested company, including a faster close, smoother transition, managed costs and a cleaner separation. Made between a buyer and seller, a TSA sees that the ‘mother-ship’ provides support to the divested company over a defined period of time, with services such as accounting, IT, procurement and human resources, among others. When companies rely too heavily on this support however, they may miss the window of opportunity to establish the services and activities they will need to deliver on their own after the TSA ends.
Step 3: Develop a Customer-Centric Supply Chain Model
Upon assessing your needs and properly leveraging the TSA, a 3PL can help the divested company develop and implement a new and detailed supply chain model. This effort not only accounts for the company’s new set of demand signals, with different volumes and order patterns, but establishes a realistic implementation timeline for the transition from ’mothership’ support to independent status.
Step 4: Integrate New Model, Review Progress and Improve Performance
Just as crucial as starting off on the right foot is to establish a process early-on for assessing progress, measuring results and making necessary adjustments. Even the best laid plan that rigorously follows the first three steps outlined here is not going to remain unscathed by the vagaries of real life. So it is important to have several mechanisms in place to track performance, including: key performance metrics, regular reviews and processes for making adjustments.
These four steps not only set up both the mothership and spinoff for a successful transition, but allow both organizations to achieve their divestiture goal: to focus more strategically on high-growth portfolio assets. Finally, as the M&A market continues to experience significant stimulation, it’s important to credit divestitures, when managed correctly, for serving as a vital asset optimization strategy. This tactic of ‘letting go’, is how many companies are growing, even thriving.
It’s an opportunity for revival and ensuring its success is what 3PLs do best.
To learn more on this topic, read “Whitepaper: Divestures and the Threat to Supply Chain Performance.”
Mike Challman is Vice President of North American Operations at CLX Logistics, LLC, where he leads ChemLogix’ Managed Services throughout North America, including freight management operations, benchmarks, bids and carrier procurement, rail fleet operations and brokerage services. Prior to CLX Logistics, Mr. Challman spent more than 20 years in the transportation industry, most recently serving as Senior Director, Transportation Management at DHL/Exel Supply Chain. His multifaceted logistics background includes leadership positions with Burnham Service Corporation, ROCOR Transportation and Schneider National Carriers, in addition to experience in customer service, solution development, project management and continuous improvement programs.