Post-merger Synergy

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Post-merger Synergy

Determining synergy potential in Friesland Campina’s whey

network

Author: Gerdien Battjes

Student number: 1750526

University: University of Groningen

Faculty: Economics and Business

Program: Master in Business Administration

Specialization: Operations and Supply Chain Management

First supervisor: Drs. J. Drupsteen

Second supervisor: Dr. D.P. Van Donk

Company: Friesland Campina

Location: Zwolle, the Netherlands, Domo offices

Company supervisor: Anne-Mieke Vissers

Date: 30th_{August 2009}

Place: Groningen, the Netherlands

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Preface

The report that lies in front of you is the final product of my graduation project for the Master program of Business Administration at the University of Groningen. One year after I first embarked upon this Operations and Supply Chain Management Master Course, it is hard to imagine that everything is coming to an end already. These last few months have been the icing on the cake when it comes to the learning moments which I have experienced during the last year. Graduating at Friesland Campina made a long desired dream come true of experiencing the complex nature of operations and supply chains as they exist in practice. The practical surroundings within which this project was executed once again confirmed that the Operations and Supply Chains Master Course was a perfect choice for me.

Before the rest of this thesis is introduced, I would like to offer some

acknowledgements. Firstly, I would like to thank Mr. Drupsteen and Mr. Van Donk for their critical thoughts on my work throughout the last months. Their feedback helped me raise the quality of my thesis to a higher level.

Secondly, I would like to offer my gratitude to Mrs. Vissers, who guided me through the practical maze that constituted my research. Her ability to reduce complex chunks of information into digestible portions has been of tremendous help. Also, her critical views and attentive cooperation have been very helpful. Her strong role as a female supply chain manager in an international organization has shown me what I hope I will achieve someday.

Thirdly, I owe my research for a great part to the company experts who have shared their knowledge and experience with me. I would like to thank them for their

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Executive Summary

Whey is a byproduct of cheese and constitutes Friesland Campina’s main raw material of the business unit Ingredients. It can be applied in infant food-,

pharmaceutical-, nutritional- and feed markets. Since the merger between Friesland Foods and Campina not much has changed in the company’s whey network which consists of supplying- and processing plants. It is hoped that post-merger

opportunities can be exploited by means of reallocating whey flows within the network. The research question at the heart of this project was defined as follows:

Which possibilities exist for whey flow reallocations in Friesland Campina’s post-merger whey network and which set of reallocations yields the most attractive synergy effects?

A dominantly qualitative approach has been applied to uncover synergy potential. Interviews with plant managers, whey master planners, supply chain managers, and quality assurance officers provided an insight into the possibilities for whey flow reallocations. A more quantitative approach was used to determine which reallocations would result in synergy and which priorities were assigned to the synergy-yielding reallocation possibilities. Transportation cost- and value-yield effects were measured and the following final list of priorities resulted.

Priority Supplying Current Whey Reallocated

location customer type to customer

location location

1. Barmstedt Veghel 26-28% DM Bedum

2. Barmstedt Veghel 60% DM Borculo

3. Barmstedt Veghel 26-28% DM Beilen

4. Barmstedt Veghel 26-28% DM Borculo

5. Bismarck Veghel 60% DM Borculo

6. Rouveen Veghel 11,5% DM Beilen

7. Schoonrewoerd Borculo 60% DM Veghel

8. Rouveen Veghel 11,5% DM Bedum

9. Rouveen Veghel 11,5% DM Borculo

10. Bleskensgraaf Veghel ext. spec. Borculo

11. Bleskensgraaf Veghel ext. spec. Beilen

12. Bleskensgraaf Veghel ext. spec. Bedum

Research showed that eleven additional reallocations would lead to value-yield advantages at the cost of trading off transportation costs savings, which would not be achieved by these reallocations. Besides value-yield advantages, these

reallocations would also result in the desired network flexibility. However, they do not constitute synergy as defined for this project since these reallocations could have been achieved regardless of the merger.

Additional synergy potential was uncovered which would result in transportation cost- and value-yield advantages. However, within the circumstances of the current network this potential cannot be captured. The reason is that the whey flows involved in these reallocations contain components which cannot be processed by all the customer locations.

In order to capture the synergy potential that has been defined and to further advance integration initiatives concerning the whey network, four main

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Firstly, continued consultations and communication with the Cheese department is advised to investigate the possible removal of components from whey flows which currently act as barriers for capturing additional synergy.

Secondly, it is advised that the whey matrix control document is accompanied by monthly status reports. These status reports are to communicate any relevant changes in the whey network to the people involved. This would allow for a

continuous and immediate overview of changes in- or additions to synergy potential that can be captured.

Thirdly, two follow-up projects are advised to be initiated (besides the valorization project). The first one should focus on achieving the corporate department’s

external whey purchasing cost saving targets, which was not achieved by means of this project. The second project should investigate the financial investments that would be involved in adjusting the production infrastructure so that any undesired components can be removed from whey flows without adjusting the cheese types that are produced.

Fourthly, a timeline planning is required to make a start on the prioritized trial productions which have not yet been scheduled. Any (expected or unexpected) whey surpluses that are not required to meet immediate demand are advised to be used for the prioritized trial productions.

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Introduction

The following thesis reports the findings of a five month investigation that has been conducted at the royal dairy company Friesland Campina. In December 2008, the merger between Friesland Foods and Campina became official. Since then, post-merger integration has been the topic of the day. The focus of this thesis is on the integration of the logistical whey networks of former Friesland Foods and former Campina. Moreover, this project has been a search for post-merger synergy potential that can be derived from the joining and integration of both former whey networks. The reallocation of whey flows is the method that has been applied to uncover synergy potential.

The thesis commences with an exploration of the entire research. This first chapter describes the research context, objectives, the motive and research question, boundaries and the desired end result. The second chapter contains a review of project-relevant literature and describes how the relevant concepts are defined and applied in this research project. The third chapter describes the methods that were applied to perform the research. The fourth chapter explores the current whey network situation and determines which possibilities exist to reallocate whey flows within this current situation. Chapter five explores, uncovers, determines and prioritizes synergy potential. In chapter six collateral effects of whey flow reallocations is discussed.

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1. The Research

The research project that is described in this report revolves around Friesland Campina’s main raw material of the business unit Ingredients; whey. Whey is a liquid that remains from cheese production. This byproduct of cheese contains components such as protein, lactose, minerals and vitamins which provide numerous health benefits. The production of different cheese types at Friesland Campina results in whey types with different characteristics and components. A whey flow that is produced by the Cheese department is categorized to a certain ‘type’ based on the specifications to which it conforms. Final whey product application depends on the whey type (specifications) and the processes used to transform whey raw material into final products. These final products are ingredients which can be used in a wide variety of applications (Dahm, 2006), including nutritional-, feed-, infant food- and pharmaceutical markets.

This chapter will first outline the context within which the project was conducted. Subsequently, the research motive, objective, research question, research

boundaries, and desired end results will be discussed.

1.1 Context

Friesland Campina has a logistical whey network that consists of whey supplying- and whey processing locations. The whey supplying plants produce cheese. This results in whey flows which are stored after production, awaiting transportation to a location where they will be processed further. These producing plants are referred to as the supply chain’s internal suppliers. Processing locations receive the

transported cargos of whey raw material and transform them into final products. They are referred to as the internal customers. These supplier- and customer locations constitute the internal whey network of Friesland Campina. The final products are ingredients which are transported to the external final customer. Six months ago, in December 2008, the merger between Friesland Foods and Campina became official. Yet, regarding the whey network, very little has changed since then. The whey networks of former Friesland Foods and former Campina still operate more or less independently of one another. Within the business unit

Ingredients, the integration of the two former companies’ whey networks is a red hot issue. After all, the merger was expected to result in certain advantages which are not being exploited as long as the whey networks operate exactly as they did before the merger. Integration projects are hoped to facilitate the exploitation of any potential opportunities that resulted from the merger.

Soon after the merger became official, plans were drawn up to launch whey network optimization- and integration projects. Two specific whey-related projects were defined, one of which is this very research project. Both are shortly described next.

1.1.1 The Valorization Project

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A linear programming model is planned to be used for this valorization project. The project will be executed by a team of supply chain managers and is scheduled to follow-up the current whey flow reallocation project which forms the basis of this thesis.

The linear programming technique will facilitate determining the best way to allocate whey flows according to a certain objective, like maximum profits or minimal costs. Constraints are defined which fence off the search for such an optimal solution. These constraints, like for example a fixed limit (or an interval) of available capacity levels, represent the boundaries within which the search for an optimal solution takes place. All of the constraints will be expressed in linear mathematical equations. The combined equations will determine the highest or lowest point, depending on the objective, of the total function (Bidhandi et al, 2009). Thereby, the linear programming model will search for the whey flow allocation option that optimally achieves the set objectives within the boundaries of the situational factors; the constraints.

Determining constraints is crucial in order to fence off the search for optimal solutions. Neither the linear programming model nor the valorization model makes up a part of this current whey flow reallocation project. However, findings from this project are to be used as input (constraints) for the valorization project.

1.1.2 The Whey Flow Reallocation Project

The whey flow reallocation project is at the heart of this thesis. It is aimed at reallocating whey flows in such a way that post-merger synergy effects can be achieved. Seth (1990) defines synergy effects as “two or more entities that work together in a particular fruitful way that produces an effect greater than the sum of their individual effects”. In other words, the companies’ combined strengths are hoped to lead to improvements that will supersede what each company could have achieved unilaterally; one plus one equals three.

A whey flow reallocation occurs when a whey flow is reassigned to a ‘new’ processing location where it did not used to be processed in the respective pre-merger whey network. The whey network infrastructure consists of producing- and processing locations, capacities, final product allocation- and planning systems, external logistics suppliers, and more. These aspects are assumed fixed in this project since Friesland Campina is not making infrastructure investments at this time. Therefore, synergy effects are to be achieved within the current infrastructure framework. Reallocating whey flows within the existing infrastructure is the

planned method of achieving post-merger synergy effects.

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A supplier – customer relationship requires conformance of the whey type that is supplied to the specifications that are required by the processing locations. This conformance does not exist for every combination of supplied whey types and customer locations. Therefore, a free exchange of whey flows within the network is not an option. Planning decisions are to take the quality specifications into account when allocating or reallocating a certain whey flow.

This project is aimed at exploring (financially attractive) new supplier – customer relationships within the post-merger network. Transportation costs and the value that is yielded from the final products play an important role in determining which customer locations are attractive options for the supplied whey flows to be

reallocated to.

Results from this project involve officially approved, financially attractive supplier – customer relationships, which will be used as constraints in the linear

programming model of the valorization project. The model can then limit its search for optimal allocation decisions to the officially approved and financially attractive supplier – customer relationships, while leaving the approved and

non-financially attractive options out of the consideration. Furthermore, the outcomes of this whey allocation project include synergies that can be exploited before-, until- and during the execution of the valorization project.

1.2 Motive

The lack of integration between former Friesland Foods’ and former Campina’s whey networks has motivated the initiative for this research project. This main motivation has two underlying motives.

Firstly, integration of the networks can potentially lead to synergy effects, which are currently not being exploited. Friesland Campina’s corporate department

formulated targets for post-merger efficiencies including maximizing utilization of capacity, minimizing external whey sourcing (target savings are 300 k/year), and decreasing transportation costs (target savings 180 k/year). Determining whether synergies exist in the whey network, how they can be exploited and whether the set targets are realistic is what is being investigated by means of this research.

Secondly, information on the current network, allocation possibilities and potential synergy-yielding reallocation options is all useful input for the valorization model. The whey allocation project pre-screens whey network optimization potential for the valorization project. It is a first step towards yielding the highest financial value from the whey flows that are available. The usefulness of this project’s findings to the larger-scale valorization project constitutes the second part of Friesland Campina’s motivation.

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1.3 Objective

The main objective for this project consists of two parts. Firstly, the aim is to investigate which reallocation options exist in the post-merger whey network. This is relevant since those planned whey flow reallocations are the path that is followed to explore synergy potential. Secondly, it is to be investigated what the effects are of these reallocations: which ones lead to synergy effects and which ones do not, what exactly the potential synergy effects are, whether or not additional potential exists within the whey network and exactly which set of reallocations would yield the most attractive synergy effects in the current situation.

The objective has been formulated as follows:

To determine the possibilities that exist for whey flow reallocations in Friesland Campina’s post-merger whey network and to determine the set of reallocations that yields the most attractive synergy effects.

1.4 Research Question

The research question can be derived from the objective and is formulated as follows

Which possibilities exist for whey flow reallocations in Friesland Campina’s post-merger whey network and which set of reallocations yields the most attractive synergy effects?

Chapters two and three will elaborate on what defines the ‘most attractive synergy effects’. The answer to the research question will allow Friesland Campina to reallocate those whey flows that yield immediate advantages. Also, it facilitates considering only those reallocations that yield certain advantages in the valorization project’s linear programming model. The recommended reallocations that result from this project facilitate benefits in the short-term as well as in the long-term.

1.5 Research Boundaries

Research boundaries were defined to fence off the project by describing which aspects of the whey network are in-scope and which ones are out-of-scope. The boundaries were defined by the project principle at Friesland Campina. They are based upon: the project time frame, alignment with the valorization project, alignment with the corporate department’s set targets, preservation of the current whey network infrastructure and the need to clearly define this research.

The aspects that are in-scope for this project are:

The three operating companies that make up Friesland Campina’s whey

network: Domo, DMV and Dairy Feed

The current whey supplying- and processing locations of these three

operating companies including the types and quantities of whey they supply and can process into final products

The current set of external suppliers and the whey types and quantities

they can supply

The whey quantities that are produced according to the yearly production

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The out-of-scope factors are:

Whey network infrastructure aspects such as final product allocation,

processing- and producing capacities and locations, external supplier capacities, and the geographical layout of the locations (no investments are made in the infrastructure, it remains as it is in the current situation)

Capacity levels (since these only become relevant when a whey flow is

actually reallocated and when the reallocation is used on a regular basis, they are not relevant in determining potential for efficiencies and synergy)

External supplier selection

The valorization model (including the linear programming model)

Friesland Campina has decided to start the search for synergies within the bounds of the existing whey network. The valorization project will extend these bounds by including the abovementioned out-of-scope factors.

1.6 Desired End-Result

Friesland Campina wishes to receive three final products. The first final product is a matrix. This matrix is to contain all the whey supplying- and processing locations. A color scheme shall indicate the relationships between all the locations. The matrix (or matrices, when necessary) shall indicate: the reallocation possibilities, the

effects of each reallocation possibility, and a distinction between synergy- and non synergy-yielding reallocation possibilities. It will be used for illustration and as an aid in determining the final priorities for the most attractive synergy-yielding reallocation possibilities.

Secondly, a list of the most attractive synergy-yielding reallocation possibilities is to be created. Chapters two and three of this thesis discuss how priorities are

determined. Qualitative considerations are to be incorporated in order to determine the possibilities that exist for reallocations. Quantitative (financial) considerations determine the final sequence of priorities.

Lastly, a control document (manual) is to be created that describes how the matrix is to be kept up-to-date. It should include the responsibilities assigned to officers of different departments within Friesland Campina and the protocol that is to be followed when changes take place in the whey network. This control document will ensure that the matrix will be representative of the whey network’s current

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2. Literature Review

The following chapter contains a study of the relevant literature. This study was performed to develop an understanding of the phenomenon that is at the core of this research; synergy. This chapter aims to explore the synergy concept and to narrow its definitions down to the one that was applied in this research. Besides defining the synergy concept, the way in which synergy will be measured is also introduced. In sum, this chapter explores the synergy concept, proposes a definition and a measurement method and thereby lays the foundations on the basis of which the practical research findings will be analyzed.

2.1 Defining Synergy

With the financial crisis and the increasing amount of mergers and acquisitions over the years, the synergy concept has become more and more contemporary. The topic is widely discussed in literature. Different definitions of synergy were

encountered during a review of that literature. This following subchapter explores some of these definitions and presents the definition used in this project.

Farrell and Shapiro (2000) define synergy as ‘the close integration and combination of core, specific, hard-to-trade assets owned by the merging companies’. Their definition includes that this integration is to be done in new ways and synergy effects are referred to as ‘intimate efficiencies’. Furthermore, their article on ‘Scale economies and synergies in horizontal merger analysis’ emphasizes the non-synergy effects of mergers and the need to distinguish between the two.

Fulghieri and Hodrick’s article ‘The double-edged sword of mergers’ focuses on cash flow synergy. Their definition of synergy is as follows: ‘Synergies, which may arise from a variety of sources, denote the incremental positive (or negative) cash flow consequences of being merged’.

A somewhat more cynical view on synergy is found in the definition by Porter (1994): “Synergy, it is said, allows two businesses to gang up on their suppliers, lowering the cost of raw materials; to share their facilities, thus reducing running costs; and to pool their skills, ideas and experience, thus improving their overall performance”. This article states that synergy-seekers have failed to achieve higher average operating margins than non-synergy seekers.

The greater majority of authors of the reviewed literature share a common view on what constitutes synergy. Five authors are quoted below to illustrate this

consensus.

Seth (1990): “Two or more entities that work together in a particular fruitful way that produces an effect greater than the sum of their individual effects”

Juga (1996): “Synergism can be defined as the co-operative action of discrete agencies such that the total effect is greater than the sum of the effects taken independently”

Gruca, Nath and Mehra (1997): “The benefit of synergy is grasped by using the oft-repeated illustration, ‘2+2=5’. Synergy is possible by sharing different types of resources, e.g. production equipment, raw materials, customer and

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Goold and Campbell (1998): “The word synergy is derived from the Greek word synergos, which means "working together." In business usage, synergy refers to the ability of two or more units or companies to generate greater value working together than they could working apart”

Cigola and Modesti (2008): “Empirical evidence shows that the value of a new company is almost always different from the sum of the values of the merging companies. Such a difference is usually ascribed to the ‘‘synergy’’ that the merger creates.”

It is, and has been, Friesland Campina’s aim to derive joint advantages from the merger (synergy) that will ultimately also show in the financial bottom line.

According to the abovementioned general consensus it can be stated that synergy is achieved when the working together of two organizations results in advantages which could not have been achieved by each company individually.

Bititci et al (2007) propose a synergy model that introduces four perspectives on synergy in the context of collaborative enterprises. Bititci et al (2007) apply these four perspectives as assessment criteria to measure the success or failure that is achieved by collaborating. Their article presents a conclusion by the SME’2000 conference with regards to collaborative enterprises: “SMEs belonging to networks are often more competitive and innovative than those operating in isolation”.

Collaborative enterprises include for example supply chains, value chains, extended enterprises, virtual enterprises and clusters. The post-merger extended (internal and external suppliers of whey) whey supply chain network is an example of such a collaborative network.

In this thesis, the four perspectives on synergy, as defined by Bititci et al (2007), are applied to further narrow down the scope of the term ‘synergy’ and to pinpoint how synergy is pursued in this research. Each of the four perspectives is concisely described next.

1. Strategic synergy - having common ground on objectives and expectations which are consistent with competencies and each partner’s contribution. 2. Operational synergy - focusing on operational processes and control in each

individual organization and assessing the ability to coordinate their operational business processes beyond their individual boundaries. 3. Cultural synergy - ensures that the mindset, organizational culture and

management styles are compatible between partners and there is a sufficient level of trust and commitment in place.

4. Commercial synergy - ensures that the short- and long term expectations are understood and appropriate agreements have been put in place with regards to distribution of risks, as well as benefits arising from collaboration.

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The operational processes involved are those related to producing, transporting and processing whey within the post-merger whey network. It can be stated that this research is aimed at integrating and coordinating between operational processes of both former whey networks in order to actualize the strategic targets that were set by the company. These synergy targets illustrate the joint objectives and

expectations of both former companies; strategic synergy.

Operational synergy involves the manner in which the joint whey supplies of former Friesland Foods’ and former Campina’s networks are redistributed in order to gain financial- and flexibility advantages. This project thereby contributes to operational synergy by proposing manners in which the operational processes of both former networks can be merged into one joint network that creates more value than both pre-merger networks did separately.

In sum, strategic synergy targets are pursued by means of achieving operational synergy. Synergy in this project is defined as ‘two (or more) organizations that integrate and collaborate on an operational level in such a way that certain advantages and strategic synergy targets are achieved which could not have been achieved by each company individually’.

In his article ‘Synergy’, Richard Bierck (1999) argues that the word synergy has become a popular term of which it is not always clearly explained how and when it is achieved. In order to avoid this common mishap, the following subchapter introduces the method for measuring synergy that was applied.

2.2 Measuring Synergy: The Five Performance Criteria

Measuring the extent to which strategic goals are achieved plays an important role within Friesland Campina as a whole, but also within the whey network operation and within this project. Slack and Lewis (2008) and Slack, Chambers and Johnston (2007) apply five generic performance objectives, quality, cost, flexibility,

dependability and speed as a way to measure a company’s performance. In this project, these performance objectives are used to measure synergy.

Different definitions of the performance objectives can be applied (and are suitable) for different operational contexts. This subchapter gives an overview of theoretical definitions for each and provides the definition and ways of measuring that are applied in this thesis.

2.2.1 Quality

During the review of literature on quality, an article by Reeves and Bednar (1994) was encountered. Reeves and Bednar’s own search for a universal definition of quality yielded inconsistent results. Their conclusion: “a global definition does not exist; rather, different definitions of quality are appropriate under different

circumstances”. Their article on ‘Defining quality: alternatives and implications’ properly summarized the many definitions of quality into the following categories:

1) Value

2) Conformance to specifications 3) Conformance to requirements 4) Fitness for use

5) Loss avoidance

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Slack, Chambers and Johnston (2007) apply the following definition: ‘quality is the conformance to customer’s expectations, in other words: doing things right’. Slack and Lewis (2008), on the other hand, define quality as the ‘specification of a product or service’ and as ‘appropriate specification; meaning that the products and services are fit for purpose’.

Whey quality at Friesland Campina is measured by ‘hard’ aspects: quality specifications. Each whey flow is categorized to a whey type according to the

specifications to which it conforms. Examples of specifications are maximum levels of annatto, polyphosphate, nitrate, mustard or other components which the whey can contain. A specification can, however, also be a temperature level at which the whey must be stored or supplied. Each whey type has a different set of

specifications. Whey types that conform to the more strict specifications can be applied in higher value-yielding product applications and are considered to be of higher quality. A complete list of all the whey types’ specifications can be found in appendix 1.

‘Soft’ aspects such as customer service or after-sales support are not considered in this project’s definition of quality. This is because they do not affect the possibilities that exist for reallocating whey flows nor are they included in this project’s

definition of synergy. Therefore, ‘soft’ aspects of measuring quality do not affect the search for synergy as it is approached in this research project.

Whey quality plays a role in the reallocation of whey flows since the quality specifications determine which internal customer locations can process the whey types that are supplied. This, in turn, determines the supplier – customer

relationships (and reallocation possibilities) that exist. Hence, quality specifications indirectly affect synergy potential. In sum, a whey type’s quality is defined and

measured by the specifications to which it conforms.

2.2.2 Cost

Cost is the more measurable of the performance objectives. An operation’s costs can include the costs of production, labour, machinery, facilities, technology, land, transportation and more. Slack and Lewis (2008) state: ‘the lower the cost of production, the lower can be the price to customers’ (external perspective). They also emphasize, however, that even those companies which do not compete on costs benefit from keeping their costs as low as possible.

Slack, Chambers and Johnston (2007) confirm this by stating that cost is an

important objective for any operation. They add that ‘all operations have an interest in keeping their costs as low as possible while still achieving the levels of quality, flexibility, dependability and speed which the customers require’.

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For the context of this project, costs are defined by the costs that are involved in the

day-to-day operations of Friesland Campina’s whey network. All the fixed and

variable costs that are involved in transforming the whey raw material into final products are included in this definition. An internal perspective is taken.

Fixed production features of the whey network are currently not invested in. Therefore, the fixed costs are assumed to remain as they are in the current situation, at least for the foreseeable future. Variable production costs are

immediately affected by the proposed reallocations of whey flows; by means of the costs of transportation. Transportation distances will change and this inherently changes the costs involved. Changes in further variable costs can only be measured when the valorization model is applied and in use, since only then actual regular reallocations will take place. Therefore, transportation cost changes will receive the main focus in the cost-area for the context of this project’s search for synergy. Transportation costs are measured in this project by means of the following factors:

Changes in transportation distance (current travel distance vs. travel distance involved in the reallocation)

Transport cost changes per reallocated cargo (tariffs from the third party logistics providers are used to quantify cost changes of the reallocation)

2.2.3 Flexibility

Slack and Lewis (2008) distinguish between four types of flexibility:

1) Product or service flexibility: the ability to produce and introduce new

products or services or to modify existing ones

2) Mix flexibility: the ability to change the variety of products or services being

produced within a given time period

3) Volume flexibility: the ability to change the level of aggregated output

4) Delivery flexibility: the ability to change planned or assumed delivery dates

Slack and Lewis (2008) further propose that operational flexibility can have two meanings. Firstly, ‘the ability to adopt different states, take up different positions or do different things’. For example, a company is flexible if it can produce a wide range of products. Secondly, ‘the ease with which it can move between its possible states’. This includes, for example changing a product line or output quantities on

demand within a certain time period.

Slack, Chambers and Johnston (2007) describe the same four-dimensional classification of flexibility as Slack and Lewis (2008). Their perspective is that customers need the organization to change so it can provide the four types of flexibility requirements that are listed above. Their definition states that ‘flexibility means being able to change the operation in some way’. In addition to the

abovementioned four-way classification, Slack, Chambers and Johnston (2007) give an internal flexibility perspective. This definition of internal flexibility states that developing a flexible operation also has advantages to the internal customer. It includes three areas in which internal flexibility can be beneficial to operations:

1) Flexibility speeds up response 2) Flexibility saves time

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This internal viewpoint is also assumed in this research. Flexibility increases when new supplier – customer relationships are made official within the post-merger whey network of Friesland Campina. This means that the more supplier – customer relationships are made official, the higher the network flexibility that is achieved. A relationship is considered ‘new’ when it involves a whey type from a supplying location that was not yet being supplied to the whey processing location that is involved in the reallocation. More supplier – customer relationships add to network flexibility by expanding the range of options which each location has regarding potential suppliers or customers of the whey types that are available.

In this project’s search for synergy, flexibility merely adds value when a new supplier – customer relationship is created between locations of two different pre-merger whey networks. If this is not the case, that means that the whey exchange could also have taken place without the merger; it could have been achieved by each former company unilaterally. Thus, it would not constitute synergy. However, this project is especially focused at creating value that could not have been

achieved without the merger: synergy potential. Therefore, flexibility-synergy is

defined to only be achieved when supplier – customer relationships are created within the post-merger whey network which could not have been created without the merger.

A more flexible network of supplier – customer relationships is hoped to result from this project. It would facilitate achieving synergies in the short- and long-term.

2.2.4 Dependability

Slack and Lewis (2008) define dependability as ‘keeping delivery promises and honoring the delivery time given to the customer’. Their explanation of the concept includes the ‘speed’ objective. Without it, dependability can always be high as long as companies set extremely long and safe delivery dates. For this reason, Slack and Lewis (2008) define dependability as ‘due delivery time minus actual delivery time’. Slack, Chambers and Johnston (2007) define dependability by ‘doing things in time for customers to receive their goods or services exactly when they are needed, or at least when they were promised’. Their book on ‘Operations Management’ also includes an internal perspective on dependability. According to them, ‘internal customers judge each other’s performance partly by the reliability of delivering information as well as material’. Internally dependable operations are believed to be more effective for the following three reasons:

1) Dependability saves time 2) Dependability saves money 3) Dependability gives stability

A suitable measurement for internal dependability in the context of this project is according to the definition as proposed by Slack and Lewis (2008): ‘due delivery time minus actual delivery time’. Due delivery time is defined as ‘within the

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2.2.5 Speed

Speed according to Slack and Lewis (2008) is indicated by ‘the elapsed time between the beginning of an operation’s process and its end’. This definition views speed from an internal operation’s perspective. Slack, Chambers and Johnston (2007) view speed from the customer perspective. They define speed as ‘the elapsed time between customers requesting products or services and their receipt of them’. Slack, Chambers and Johnston (2007) further add the following two advantages to achieving positive results in the internal speed performance area:

1) Speed reduces inventories 2) Speed reduces risks

At the whey network operation of Friesland Campina, speed plays an important role because of the perishable nature of whey. Speed in the context of this project is defined as ‘the elapsed time between the production of whey by the cheese-producing

plants to the point where the final whey products are produced and ready to be shipped’.

An important dimension here is the variable factor of transportation times. Times of loading, unloading, processing and packaging are assumed fixed. This is because they do not directly affect whey flow reallocations, but also because in practice they are more or less fixed. Transportation times, however, are variable and can differ depending on the distance between the supplying- and customer locations in question. Transportation times and distances play an important role with the speed objective. Decreased transportation times are assumed to increase speed of delivery. However, speed is not measured in this project since it is considered not to play a main role in pinpointing synergy potential. This is also further outlined in

subchapter 2.4 on the roles of the performance criteria.

2.3 The Sixth Performance Criterion: Value-Yield

Besides the five introduced performance criteria, a sixth criterion was added; value-yield. The main reason for this is explained first, after which value-yield will be defined and the measurement method is explained.

The five performance criteria from the theoretical performance measurement model do not completely cover all the bases on which synergy is evaluated in the practice of reallocating whey flows. One of the critical factors on which whey flow

reallocation decisions are made is the value which the final product will yield. Friesland Campina prefers to allocate whey flows to processing plants of which the final products yield a high value. Exploring and making official the supplier – customer relationships that result in high-value final products by means of this whey flow reallocation project is relevant for two main reasons

Firstly, it allows Friesland Campina to optimally meet demand in the high-end (high value-yielding) markets on a regular basis. This can be done, for example, by

reallocating an entire whey flow’s quantity to a higher value-yielding processing plant. Secondly, when more suppliers of whey are officially approved suppliers for high value-yielding processing plants, there is more coverage for contingency situations such as a machine breakdown. For example, in case a machine

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Therefore, demand in high value-yielding markets will have multiple contingency options when it comes to whey supply. This provides advantages on a regular basis as well as in the case of contingencies. Value-yield has been added to the

performance criteria since it is one of the main criteria on the basis of which

reallocation decisions are made. This sixth criterion thereby makes the performance measurement model complete for the context of this project.

McGee, Thomas and Wilson (2005) apply the ‘consumer surplus’ concept to indicate value for the customer. This is the idea that a customer makes a ‘profit’ from the purchase of a product. The profit is a trade-off between the product’s quality and price level which should result in an attractive outcome (‘profit’) for the customer. This concept views value-yield from the customer’s perspective.

At Friesland Campina an internal view on the value-yield concept is applied. The value that is yielded from the final whey products differs per processing location and per customer market. The infant food- and pharmaceutical plants yield the highest value (Bedum, Beilen, Borculo), the nutritional plants yield medium value (Dronrijp, Workum, Veghel) and the feed plants yield the lowest value

(Gerkesklooster, Aalter). The high-end markets, infant food- and pharmaceuticals, produce a higher consumer surplus by producing high-quality products. However, these products also come at a higher price as compared to feed products (low-end markets). For Friesland Campina, producing high-quality products results in a higher financial (value) yield because the market prices are higher.

The sequencing method of three value-categories of final consumer markets

measures whether a reallocation results in the same, higher or lower value yield as compared to the value that was yielded with the original allocation.

Value-yield is defined and measured by ‘the value that is yielded at the ‘new’

(reallocation) processing location as compared to the value this same whey flow yielded with its original allocation’. When a reallocated whey flow yields more value

(because it was reallocated to a plant that produces higher-quality final products) after reallocation, it is considered that value-yield synergy is achieved.

Now that all the relevant performance criteria for evaluating synergy have been introduced, the following subchapter will further explore the role that each plays in achieving synergy.

2.4 The Performance Criteria’s Roles

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has to be above a particular level just to be considered by the customer’. Order-winning factors are defined by Slack and Lewis (2008) as ‘things that directly and significantly contribute to winning business. They are regarded by customers as key reasons for purchasing the product or service’.

The ‘order-qualifying and order-winning’ concepts as presented by Slack and Lewis (2008) are viewed from the perspective of winning customers and winning business. In this project, however, they are applied differently. They are used to distinguish between the roles of the performance areas: factors either determine the minimum requirements for a reallocation possibility or they make such a possibility actually synergy-yielding.

‘Order-qualifying’ factors are, for the context of this project, defined as ‘those

performance areas which have to be at least of a certain standard with each potential supplier – customer relationship for that potential relationship to be considered a reallocation possibility’. They are further referred to as ‘qualifying’ factors. These

‘qualifying’ factors determine whether or not a ‘new’ supplier – customer

relationship meets the minimum levels that are required in order for them to be considered reallocation possibilities.

The project-relevant ‘qualifying’ factors are: 1) Quality

Conformance of the reallocated whey flow to the quality specifications that are required for processing at the processing location in question is a

prerequisite for considering a potential supplier – customer relationship as a reallocation possibility in the search for synergy.

2) Flexibility

A reallocation possibility must create a new supplier – customer relationship between locations of two different pre-merger networks in order for the reallocation possibility to be considered in the search for synergy.

These two factors state the minimum required level of performance in order for the reallocation possibilities to be considered in the search for synergy. Other factors that would qualify a possibility for being reallocated, such as available capacity, become relevant with the use of the valorization model. This is because regularly planned reallocation of whey flows happens only then.

‘Order-winning’ factors determine which of the reallocation possibilities, that were established by the qualifying factors, achieve the more attractive synergy effects. These ‘order-winning’ factors are defined as ‘key reasons for Friesland Campina to

reallocate a particular whey flow in order to achieve synergy’. They are further

referred to as ‘winning’ factors. These factors play a double role. Firstly, they determine which of the reallocation possibilities actually yield synergy (and which ones do not). Secondly, they determine which synergy-yielding reallocation

possibilities would yield more attractive results as opposed to others. The project-relevant ‘winning’ factors are:

1) Costs

Potential transportation cost savings, which result from each reallocation possibility, determine the extent to which the synergy achieved is attractive. Post-merger transportation cost savings constitute a synergy effect.

2) Value-yield

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Transportation cost- and value-yield synergies play a role once the ‘qualifying’ factors’ minimal standards are met. The financial effects that result from each synergy-yielding reallocation possibility determine the final attractiveness of each option.

Remaining factors that have been mentioned, including speed, dependability,

maximizing the use of capacity and minimizing supply-demand gaps, do not play an immediate role in this research project. These issues will be incorporated as

constraints in the valorization model. However, for determining reallocation

possibilities and synergy potential within the reallocation possibilities, they do not play a direct role.

2.5 Operationalizing Synergy

The aim of this literature review has been to develop an understanding of the synergy concept, to define synergy and to make synergy a measurable concept that can be held against the practical aspects of whey flow reallocation decisions. The concepts that were introduced and defined can be summarized into the following operationalised definition of synergy:

‘Synergy is achieved when a ‘new’ supplier – customer relationship conforms to both the synergy ‘qualifying’ and ‘winning’ factors and thereby achieves advantages on an operational level which contribute to achieving strategic synergy targets and which could not have been achieved by each former company individually.’

It is this definition of synergy that will be the standard for determining those whey flow reallocations that would indeed facilitate achieving synergy if they were to become officially approved supplier – customer relationships. The following subchapter introduces some common pitfalls encountered.

2.6 Pitfalls in the search for Synergy

Ficery et al (2007) emphasize that while some synergies will be relatively easy to capture, others will be difficult, if not impossible, to identify, locate and monetize. They state that executives are usually adequate in extracting value where there is ‘low hanging fruit’, but most often fail to capture the less easily defined synergies. Juga (1996), states that achieving organizational synergy is not an easy ride. His case study on ‘Organizing for network synergy in logistics’ gives a process-based view on how synergy effects can be derived in an organization’s logistical network. The research’s conclusions state that synergy effects can be attributed to the managing of ongoing business-level activities and creating an organic network. A research by Booz-Allen and Hamilton (2001) showed that merger failure likelihood is greater than 50%, regardless the measurement approach. Their findings (from seventy-eight mergers over a two-year period) also show that two years after merger deals were closed 53% of the surveyed organizations had not met expectations. Banal-Estañol and Seldeslachts (2004) criticize researchers for not having come any further with explaining merger failure rates besides blaming it on bad luck or firms being irrationally over-optimistic. Their paper on ‘Merger failures’ proposes

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Ficery et al (2007) list six of the main pitfalls that often lead to missed synergy opportunities. They are all discussed next.

Firstly, Ficery et al (2007) emphasize the danger of defining synergies too narrowly or too broadly. When defined too narrowly, the synergies that are hard to track are left out. When defined too broadly, people ‘run around’ after anything they can find without prioritizing efforts on the biggest and more accessible opportunities. This research project avoids this pitfall by following the course of the synergy targets as they were defined by the corporate department. This way, integration priorities match the value and type of synergies that drove the merger deal in the first place. A second pitfall is defined as ‘missing the time window of opportunity’. According to Ficery et al (2007), 70 – 75% of synergies can be captured within the first year after the deal. The longer one waits, the more managerial focus will shift to other

projects. Thereby, the chances of a successful merger decrease already after 18 – 24 months. The quick starts of integration projects, such as this one, ensure that the time window of opportunity is not missed.

Thirdly, the use of suitable and sufficient incentives plays a role. Ficery et al (2007) claim a direct relationship between the incentives and synergy capture. Information on financial incentives is not publicly released at Friesland Campina. However, upper management highly motivates and values integration projects. They lend support and guidance for integration projects, make the required capacities for such projects available and are closely involved in project teams and their progress. A fourth pitfall is not having the right people involved. At Friesland Campina cross-company project teams were set up to launch integration projects such as this whey flow reallocation project. These projects are guided by managers who focus on making integration changes that facilitate synergy while lower level employees do process work. Managers and employees are selected based on their knowledge and experience. Upper management monitors progress and initiates regular meetings by means of which they are updated on developments.

The fifth pitfall regards a mismatch between cultures and systems. Part of Friesland Campina’s company culture involves a focus on measuring successes and synergies and monitoring developments. Even though the computer systems are not yet integrated, and work on two separate platforms, planning and budgeting systems are widely accepted. Therefore, synergy goals can still be incorporated into

integration efforts despite the fact that the company’s system is not completely aligned internally. This way, a match is found between the company’s culture and systems.

Lastly, using the wrong processes is often a pitfall in the search for synergy. Several projects, like this one, were started to capture post-merger synergies and to quick-start integration. Objectives were identified, quantified, valued and prioritized after which they were handed over to integration project teams who possess the required expertise. Synergy effects are linked to budgets and ongoing financial plans and progress tracking mechanisms are in place. The detailed systems and tight control by management ensures that the appropriate processes are applied.

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3. Methodology

A Greek historian by the name of Plutarchos once said that “research is the act of going up alleys to see if they are blind”. Following this line of thought, it can be stated that researching is a matter of choosing the right alleys in order to arrive at the desired destination. To increase the chance that the correct alleys are chosen, every research is structured and justified by a methodological section such as the following.

3.1 Phase I: Starting-up

An exploratory approach was taken during the start-up phase of this project. According to Cooper and Schindler (2003) this approach is particularly useful when the researcher lacks a clear idea of what issues will be encountered during the study. Unstructured interviews with the supply chain managers and master planners at Friesland Campina shed light on the current situation and on whey flow allocation issues such as: the incompatibility of former Friesland Foods’ and former Campina’s quality specifications, whey flow allocation planning systems, whey product information, current supplier – customer relationships,

transportation issues and process information.

These interviews provided preliminary information which allowed the researcher to create a first impression of the current whey network and its supplier – customer relationships. This information is summarized in a ‘whey matrix’, which is

presented in appendix 2. The 2009 yearly production planning provided information on the quantities of whey supplied. This production planning is included in

appendix 3. A complete overview of the geographical spread of the whey producing- and processing locations was provided also. This overview can be found in appendix 4. A small part of the ‘whey matrix’ is shown in figure 1 for illustration.

Figure 1: The ‘whey matrix’

Plant Spec Details Bedum Beilen

Products codes Deminal Hip/lact

Process Desalination Desalination

Quantities

FF locaties Cheese Whey DM (tons/yr) (tons/yr)

Balkbrug 48.520 24.745 262.569 whey,thick,from red or spice cheese

25.662 whey, thin 3.100

512.070 whey, thick, low nitrate

Bedum 62.463 31.856 25.662 whey, thin 31.256 0 291.279 whey, reverse osmosis

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The color scheme was created to indicate the kind of relationship that exists between two locations. Red areas indicate that whey exchange between those two locations is not possible for the particular whey type involved. This occurs when the whey type is not conform he specifications required by the processing location. Orange areas indicate relationships which have never been tested, used or desired. Hence, exchange possibilities between these locations have never been determined. Green areas indicate approved supplier – customer relationships.

Several matrices were used throughout the project. They serve as data display analysis and data reduction methods (Miles and Huberman, 1994). Reading and summarizing information from official company records, company presentations and the Intranet of Friesland Campina provided secondary information on whey types and the whey network.

A plant visit was also arranged during the start-up phase. A plant tour was arranged and accompanied by one of the master planners. This provided the opportunity to see the processes, loading docks, packaging areas, whey raw material flows and whey final products. The opportunity to ask questions led to information on process capacity, process limitations, whey type requirements for process input and practical aspects of plants’ opportunities and limitations.

The focus of multiple non-structured interviews with master planners, supply chain managers, plant managers and Quality Assurance officers has been on creating a concrete picture of processing plants’ characteristics that could affect whey flow reallocation possibilities and on gaining an insight into the functioning of the whey network. Appendix 5 presents a compilation of these and other interview questions.

3.2 Phase II: In-depth Research

All the information that was gathered during the start-up phase of the project was used to prepare more in-depth interviews with the master planners of whey, supply chain managers, Quality Assurance officers and Logistics officers. Interviews were non-standardized since each interviewee could shed light on different topics. This also allowed for ad-hoc changes of topic when this was seen fit. Furthermore, the use of non-standardized and semi-structured interviews kept the nature of the interviews relatively informal and allowed different focus points during different stages of the research.

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The abovementioned interviews also provided an insight into the limitations and potential of each processing location when it comes to the whey types each location can process with their machinery. Since quality specifications play an important role in the reallocation of whey flows, the meeting between both former companies’ Quality Assurance officers proved an important step. Whey flow exchange

possibilities were discussed for each combination of locations. By means of this meeting in combination with the other interviews a new matrix could be created illustrating a complete overview of all the reallocation possibilities.

Triangulation of findings throughout the project ensured the objectivity, reliability and internal validity of the research findings. According to Tellis (1997),

triangulation is a preferred method to triple check results by including different viewpoints and using different information sources to confirm the data found. The interviews and discussions that were held during phase II of this project

resulted in a new version of the matrix, labeled the ‘possibilities matrix’. This matrix illustrates exactly which possibilities exist within the current whey network to reallocate whey flows. The matrix illustrates the distinction between those reallocation possibilities that meet the ‘qualifying’ factor of quality specifications (dark green areas as can be seen in figure 2) and reallocation possibilities that meet both the quality- and flexibility ‘qualifying’ factors (bright green areas). Only these latter possibilities are considered in the search for synergy.

Figure 2 shows a small part of this matrix for illustration. The complete matrix can be found in appendix 6.

Figure 2: The ‘possibilities matrix’

Quantities

FF locaties Cheese Whey DM (tons/yr) (tons/yr)

Balkbrug 48.520 24.745 262.569 whey,thick,from red or spice cheese 0 0

25.662 whey, thin 0

512.070 whey, thick, low nitrate 3.100 Bedum 62.463 31.856 25.662 whey, thin 31.256

291.279 whey, reverse osmosis 0 025648 whey, thick

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3.3 Phase III: Determining Synergy Potential

It has been outlined in chapter 2 on ‘The Research’ that the objective is to pinpoint those reallocation possibilities that yield synergies. This synergy potential can, when actualized, result in advantages in the short-term. Also, the additional supplier – customer relationships will expand the constraint intervals that can be used in the linear programming model that will be used for the valorization model in the long-term.

Six performance objectives were used to measure performance of the whey network; quality, cost, flexibility, dependability, speed and value-yield. The concept of

‘qualifying and winning’ factors was applied to determine the role of each

performance area. It was concluded that flexibility and quality are the ‘qualifying’ factors and cost and value-yield are the ‘winning’ factors.

Each of the reallocation possibilities that resulted from the in-depth research of phase II was analyzed for the effects that would result if these reallocations were put to practice. This resulted in the so-called ‘synergy matrix’. A small part of this matrix is shown in figure 3 for illustration (complete version, appendix 7).

Figure 3: The ‘synergy matrix’

Quantities

FF locations Cheese Whey DM (tons/yr) (tons/yr)

Balkbrug 48.520 24.745 25.661 whey, thin

512.069 whey, thick, low nitrate, annatto-free NS, Cd, Vys 590.061 whey, thick, vegetrian, low nitrate NS, Cd, Vys

Bedum 62.463 31.856 25.661 whey, thin NS, Cd, Vys 291.277 whey, reverse osmosis NS, Ca, Vys

25.648 whey, thick NS, Cs, Vys NS, Cs, Vys

The following abbreviations were used to indicate the effects of each reallocation possibility:

NS = Non-Synergy (not meeting the flexibility ‘qualifying’ factor, merely

the quality specifications)

S = Synergy (meeting both the flexibility- and quality ‘qualifying’ factors

for synergy)

Ca = Cost advantage

Cs = Costs stay the same

Cd = Cost disadvantage

VYa = Value-Yield advantage

VYs = Value-Yield stays the same

VYd = Value-Yield disadvantage

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3.4 Phase IV: Prioritizing Synergy Potential

Assigning priorities to the synergy-yielding reallocation priorities that were

determined in phase III was the next step in the methodological process. In order to do so, the preferred effects needed to be prioritized. Assuming the ‘qualifying’

factors are adhered to, transportation costs and value-yield effects still needed to be prioritized. Transportation costs can increase (disadvantage), decrease (advantage) or stay the same (no advantage, no disadvantage). Value-yield can increase

(advantage), decease (disadvantage) or stay the same (no advantage, no

disadvantage). The following combinations of effects can therefore result from whey flow reallocations:

1) Improved performance (or advantages) in both areas. No trade-offs occur. 2) Improved performance in one area and a same-as-before performance in

another area. This does not technically involve a trade-off because no performance is sacrificed in this case.

3) Improved performance in one area and decreased performance in the other area. This involves a trade-off.

4) Same-as-before performance in both areas. This does not result in a trade-off, but neither does it result in improved performance.

5) Decreased performance in both areas. This is an undesired outcome which does not involve any trade-offs (since performance does not improve in any area).

The first three combinations of effects are preferred since they involve improvement in at least one performance area. The reallocation possibilities that result in these effects will be considered in the search for synergy. The latter two effects do not result in improved performance in any area. Therefore reallocations that result in

either the 4th_{or 5}th_{combination of effects are not considered in the search for}

synergy.

The first three options indicate the way in which priorities were determined for this project. The list of 1 to 3 states which results are preferred over others. However, there is one exception. Those reallocation possibilities that result in a value-yield disadvantage are never preferred, nor will they make the priority list, not even if a cost advantage is achieved to balance out this trade-off. The reason for this is that Friesland Campina would never reallocate a whey flow to a location where it yields less value than it does in the current situation.

The entire purpose of the whey flow reallocation- and valorization projects is to retract the highest possible value from the whey flows that are available. This can only be truly achieved when the final product’s value-yield gives the company a competitive edge.

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Table 4: Prioritized categories of synergy-yielding reallocations

Possibe combinations of effects Indicated in the Priority Details

of reallocations synergy matrix' Category

as:

Cost advantage Value-yield advantage NS, Ca, VYa 1 win-win situation

Cost advantage Value-yield stays the same NS, Ca, VYs 4

Cost advantage Value-yield disadvantage NS, Ca, VYd - value-yield disadvantage = disqualifier

Cost disadvantage Value-yield advantage NS, Cd, VYa 3

Cost disadvantage Value-yield stays the same NS, Cd, VYs - no advantages

Cost disadvantage Value-yield disadvantage NS, Cd, VYd - no advantages

Costs stay the same Value-yield advantage NS, Cs, VYa 2

Costs stay the same Value-yield stays the same NS, Cs, VYs - no advantages

Costs stay the same Value-yield disadvantage NS, Cs, VYd - no advantages

The abovementioned analysis was applied to the synergy-yielding reallocation possibilities that were determined in phase III. This resulted in each of the

reallocation possibilities to be assigned either to one of the four priority categories as indicated in the table (1 being the most preferred and 4 the least of the preferred options). If no advantages would result from a certain reallocation, then no

priorities are required. This is because these possible reallocations are not

considered in the search for synergy, nor will they be considered in further analysis of synergy potential. The same goes for reallocations that result in a value-yield disadvantage.

The four prioritized categories each now contained multiple reallocation possibilities between multiple supplier- and customer locations. In order to prioritize

possibilities within each category, further exploration of the exact effects of each synergy-yielding reallocation possibility was required. This was done by means of quantifying the exact effects on transportation costs which would result from each reallocation.

Value-yield could not be used as a final determination factor here. This is because in order to determine the exact value-yield effect of each possibility, an entire study would have to be performed. This study would, amongst other factors, have to take into account exact market prices at a certain point in time for each individual final product type, exact demand quantities at a certain point in time, exact fixed and variable production costs, and a before- and after calculation of exact value-yields for each reallocation possibility’s respective supplier – customer relationships and the whey flows involved. This would be a time-consuming undertaking which is not a part of this project. It would require a separate research project.

Instead, value-yield has determined the main priority categories as shown in table 4. Transportation cost differences, resulting from a reallocation, can more easily be quantified and therefore are used as the determining factors for priorities that are determined within the established four priority categories. Transportation costs are used to quantify the exact financial effects of each synergy-yielding reallocation possibility.

Post-merger Synergy