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Private Equity’s New Proving Ground: Operations and Supply Chain

Economic conditions are extending the time that private equity (PE) firms own their portfolio acquisitions. Their primary focus has been shifting from financial engineering to value creation. Because of these changes, purchasing and supply chain management activities have become prime proving grounds for PE company managers who expect higher levels of profitability and liquidity from their portfolio companies. This article illustrates how and why that is being done, using an in-depth case example from the portfolio of one PE company.

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This is an excerpt of the original article. It was written for the November 2013 edition of Supply Chain Management Review. The full article is available to current subscribers.

November 2013

Sales & Operations Planning is both a science and an art. Like any science, it relies on principles, rules, methodology, and specific measurable outcomes. But an S&OP implementation also calls for creative, incremental thoughts to address challenges.
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Last year a single company purchased more than 50,000 Hewlett-Packard computers, buying in bulk to save millions of dollars. But the company wasn’t General Electric, Procter & Gamble, or another large, well-known multinational conglomerate. It was the Blackstone Group, a large private equity firm.1 As the New York Times reported, the computers Blackstone was buying were for use in many of its portfolio companies.

One of the surprising facts about today’s private equity (PE) industry is that it is proving to be a powerful new presence in global markets. Blackstone alone shows why: Collectively, the businesses in its portfolio would rank as the 13th largest company by revenue, ahead of JPMorgan Chase, IBM, and Procter & Gamble. Kohlberg Kravis Roberts (KKR), another leading PE firm, would be fifth on that list, with its 74 portfolio companies and $210 billion in total revenue, according to the New York Times.

The PE industry was much in the news during 2012, with the public media spotlight casting a mostly negative image—the result, primarily, of the sector’s traditional practices of “slash and burn” fast turnover dealmaking. Charges against private equity managers of mass worker layoffs, indiscriminate offshoring, financial engineering, and excessive profits helped create—at least in the eyes of the general public—confusion and uncertainty about the industry.

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Sorry, but your login has failed. Please recheck your login information and resubmit. If your subscription has expired, renew here.

From the November 2013 edition of Supply Chain Management Review.

November 2013

Sales & Operations Planning is both a science and an art. Like any science, it relies on principles, rules, methodology, and specific measurable outcomes. But an S&OP implementation also calls for creative,…
Browse this issue archive.
Access your online digital edition.
Download a PDF file of the November 2013 issue.

Download Article PDF

Last year a single company purchased more than 50,000 Hewlett-Packard computers, buying in bulk to save millions of dollars. But the company wasn’t General Electric, Procter & Gamble, or another large, well-known multinational conglomerate. It was the Blackstone Group, a large private equity firm.1 As the New York Times reported, the computers Blackstone was buying were for use in many of its portfolio companies.

One of the surprising facts about today’s private equity (PE) industry is that it is proving to be a powerful new presence in global markets. Blackstone alone shows why: Collectively, the businesses in its portfolio would rank as the 13th largest company by revenue, ahead of JPMorgan Chase, IBM, and Procter & Gamble. Kohlberg Kravis Roberts (KKR), another leading PE firm, would be fifth on that list, with its 74 portfolio companies and $210 billion in total revenue, according to the New York Times.

The PE industry was much in the news during 2012, with the public media spotlight casting a mostly negative image—the result, primarily, of the sector’s traditional practices of “slash and burn” fast turnover dealmaking. Charges against private equity managers of mass worker layoffs, indiscriminate offshoring, financial engineering, and excessive profits helped create—at least in the eyes of the general public—confusion and uncertainty about the industry.

SUBSCRIBERS: Click here to download PDF of the full article.

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About the Author

Sarah Petrie, Executive Managing Editor, Peerless Media
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I am the executive managing editor of two business-to-business magazines. I run the day-to-day activities of the magazines and their Websites. I am responsible for schedules, editing, and production of those books. I also assist in the editing and copy editing responsibilities of a third magazine and handle the editing and production of custom publishing projects. Additionally, I have past experience in university-level teaching and marketing writing.

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