HARVARD CASES Case 14 WESCO Distribution, Inc.

Synopsis In June 1997, Jim Piraino, VP of marketing for WESCO Distribution, Inc., is re aring for a !ear"! re#ie$ meeting $it% WESCO CEO &o! 'a"e!. 'a"e! $ants t%e firm to reac% annua" gro$t% goa"s of () to *) in re#enues an+ 1,) to 1() in rofitabi"it! o#er t%e ne-t fi#e !ears. .%e center iece of t%is gro$t% strateg! is t%e /ationa" 0ccounts rogram, $%ic% WESCO %as +e#e"o e+ to ser#e its ma1or in+ustria" customers in res onse to recent c%anges t%e! %a#e ma+e to t%eir business rocesses. 'o$e#er, as of June 1997, t%e /0 rogram %as not +e"i#ere+ t%e e- ecte+ increases in sa"es an+ rofitabi"it!. Jim Piraino %as to gi#e 'a"e! %is recommen+ations for t%e future of t%e /0 rogram, in articu"ar, $%et%er WESCO s%ou"+ continue to ursue /0 business $it% t%e intensit! it %as in t%e ast, or $%et%er to assume a more reacti#e stance an+ offer t%e /0 rogram on"! $%en it is re2ueste+ b! current customers. 0s $e"", %e must account for %o$ WESCO $i"" ac%ie#e t%e +esire+ increases in rofitabi"it! an+ o#era"" re#enues $%en its current rogram a"rea+! seems to be encountering +ifficu"ties in generating t%e +esire+ numbers. Use 0"t%oug% t%e 3customer3 is at t%e %eart of marketing strateg!, 3effecti#e customer management3 is sti"" not a #er! $e"" un+erstoo+ conce t in in+ustria" marketing ractice. .%is case can be use+ to e- "ore t%e +ifficu"ties encountere+ in +e#e"o ing an+ im "ementing ne$ $a!s of customer management in mature in+ustries suc% as com onent arts, in+ustria" ra$ materia"s an+ consumab"es, 1 an+ ot%er simi"ar in+ustries. .%ese in+ustries are c%aracteri4e+ b! an en#ironment in $%ic% com etitors are ab"e to offer e2ui#a"ent ro+ucts at com etiti#e rices an+ #en+ors5 +istributors %a#e to use ser#ice rat%er t%an ro+uct c%aracteristics to create +ifferentiation an+ a++ #a"ue to customers. In t%e 1996s, t%e stan+ar+ res onse of t%ese #en+ors %as been for t%em to set u a /ationa"57e!58a1or 0ccounts Program. W%i"e in rinci "e t%ese rograms are a goo+ i+ea, since t%e! "ock customers into "ong9term agreements $it% #o"ume commitments, t%ere are se#era" factors t%at can +erai" t%is effort. Ven+ors are "earning t%e %ar+ $a! t%at not a"" of t%eir customers are intereste+ in getting into t%ese agreements. :urt%er, t%e! are fin+ing out t%at man! of t%e customers $%o get into suc% agreements are on"! intereste+ in getting "o$er rices in a++ition to more ser#ice from t%e #en+or5+istributor,, an+ are not $i""ing ;or not ab"e< to $ork $it% t%e #en+or in a mutua""! beneficia" mo+e. 0s t%e case %ig%"ig%ts, t%e true benefits from t%ese rograms come $%en bot% si+es ut in t%e effort an+ t%e in#estments to make it %a en. =! using WESCO>s artia""! successfu" nationa" accounts rogram as t%e foun+ation, t%is case ana"!sis %e" s stu+ents +e#e"o a better un+erstan+ing of %o$ to +e#e"o , im "ement, an+ effecti#e"! manage a /ationa" or 7e! 0ccount Program $it% ma1or customers. .%e case is a"so ric% on +istribution an+ integrate+ su "! management issues, an+ can ser#e as an effecti#e reca of t%e +istribution mo+u"e if taug%t in a business marketing course. :ina""!, t%e case %as a "ot of information on tren+s in bu!er9#en+or re"ations%i s t%roug% t%e 19*6s an+ >96s. ?i#en t%e com "e-it! of t%e situation an+ t%e information ro#i+e+, t%e case is best taug%t in a secon+ !ear 8=0 e"ecti#e suc% as business marketing, ser#ice management, or +istribution management. It a"so $orks #er! $e"" $it% e-ecuti#es, since it +ea"s $it% customer management9an issue t%at is #er! im ortant to e#er! sa"es an+ marketing e-ecuti#e $%o +ea"s $it% customers in a business9to9business conte-t. 0t '=S, t%is case is taug%t as a transition bet$een t%e 38anaging Distribution3 an+ 38anaging Customer &e"ations%i s3 mo+u"es in t%e secon+9!ear =usiness 8arketing e"ecti#e.
1 2

For those who also use the Signode case (HBS case #9-586-059) these are the !ow "rice - - Hi #ost-to-Ser$e custo%ers &

Teac in! "uestions 1. W%at is !our action "an@ Do !ou recommen+ t%at WESCO be roacti#e in managing its /0 rogram or $ou"+ !ou refer t%at WESCO a+o t a assi#e a roac%@ ,. W%ere an+ %o$ +oes WESCO a++ #a"ue to its su "iers@ Its customers@

A. W%! +i+ WESCO start t%e /0 rogram@ W%at are its benefits to WESCO@ B. W%! +o !ou t%ink t%e /0 rogram is not +e"i#ering on its romises@ C. W%at +oes case E-%ibit C te"" us@ Is t%ere somet%ing t%at $e can "earn about t%e 1. issues in#o"#e+ in im "ementing t%e /0 rogram@ (. W%at about t%e /08 ca acit! issue@ 7. ?oing a%ea+, $%at is going to %a en@ Can t%is /0 rogram be sustaine+ o#er time@ W%at $i"" %a en if ot%er com etitors a"so +e#e"o /0 rograms@ *. 'o$ +oes a"" t%is attention being customers@ ai+ to t%e /0 rogram affect WESCO>s abi"it! to ser#e its ot%er

9. W%at s%ou"+ WESCO +o $it% t%e /0 rogram@ W%at are !our recommen+ations@ Ana#ysis W%at is !our action "an@ Do !ou recommen+ t%at WESCO be roacti#e in managing its /0 rogram or $ou"+ !ou refer t%at WESCO a+o t a assi#e a roac%@ .%e #arious comments su orting roacti#e an+ reacti#e ositions are as fo""o$sD

$roacti%e %s. Reacti%e &A Strate!ies $ursue a $roacti%e Approac to t e &A $ro!ra'

Ta(e a Reacti%e Stance in t e &A $ro!ra'

Hale'(s aggressi$e growth "lans )or *+S#, de"end u"on su-stantiall' increased re$enue )ro% the ./ "rogra%& 0e' ./ custo%ers can ra%" u" re$enues $er' 1uic2l'& 0e' ./ custo%ers allow us the -est %argins when including costs to ser$e in the calculation (Exhibit 5). 3he ./ "rogra% has a lot to o))er custo%ers in hea$' "rocess industries (Exhibit 13). !arger and %ore "redicta-le orders are %ore econo%ical )or su""liers and allow *+S#, to o-tain -etter "rices& #onsolidation in the ++S industr' has %ade co%"etition )iercer& *e need to get as %an' custo%ers as we can to sign on& Being "roacti$e gi$es us %ore control o$er the "ro)ile o) the custo%ers we choose to wor2 with& /cti$el' "ursuing custo%ers i%"ro$es our chances o) -eco%ing a )irst-tier su""lier to our custo%ers which should in turn i%"ro$e our %argins& 3a2ing a reacti$e stance could cause us to lose out on the -usiness o) "otential 2e' custo%ers -eing "ursued -' our co%"etition&

3he ./ "rogra% is onl' highl' "ro)ita-le when )ull' i%"le%ented& 4n the %iddle stages the costs to ser$e are $er' high& 3he ./ "rogra% is "itched to head1uarters& !ocal -ranches uninterested in the cor"orate -otto% line can sin2 i%"le%entation& 5ushing the ./ "rogra% could alienate contractor custo%ers -' ignoring the% or e$en co%"eting against the%& 4) the "ros"ecting and selling "hases o) the ./ "rocess could -e cut su-stantiall' ./6s would ha$e %ore ti%e to wor2 on i%"le%entation and %aintenance& 3he selling "rocess could -e directed at consultants in order to increase de%and )or the "rogra%& 4ncluding onl' those custo%ers who de%onstrate a strong interest in the ./ "rogra% will i%"ro$e the return on *+S#,7s in$est%ents in the earl' stages o) the "rogra%& 5iraino8Strong indi$idual "artnershi"s ha$e -rought us to where we are now and the' %a' e$en -e a-le to 2ee" us going )or so%e ti%e&

In a++ition to t%e issues "iste+ abo#e, stu+ents $i"" a"so focus on numbers to 1ustif! t%eir arguments for eit%er a roacti#e a roac% or a reacti#e one. &o! 'a"e! states %is re#enue an+ rofitabi"it! goa"s for t%e com an!. =! t%e !ear ,666, %e $ants re#enues to %a#e gro$n b! E7,C mi""ion an+ rofitabi"it! b! at "east (6). E-tra o"ating from t%e figures gi#en in E-%ibit ,, an+ assuming no seasona" +ifferences in urc%asing atterns, $e fin+ e-isting rates of gro$t% of a ro-imate"! 19) for ke! customers, 1C) for focus, an+ a +ec"ine of 1 ) for ot%er /0 customers as fo""o$sD 7e! D *9F1,5C G ,1A.( ;,1A.( 91*6<1*6 G 1*.7) :ocus D ,C F 1,5C G (6 ;(6 9 C,<C, G 1C.B) Ot%er D 1BF1,5C G AA.( ;AA.( 9 AB<AB G 91., )

Hn+er t%is scenario, assuming t%e a#erage "e#e" of gro$t% from t%e ot%er segments ;as s%o$n in case E-%ibit C< amounting to E19, mi""ion, t%is "ea#es a nee+ for E,((.C mi""ion t%roug% business ac2uisitions an+ E,((.C mi""ion in /0 gro$t%. .%is means t%at WESCO nee+s to +oub"e its current /0 re#enues in t%e ne-t t%ree !ears in or+er for 'a"e! to meet %is targets. =ase+ on t%e current "e#e"s of gro$t%, t%e /0 rogram $ou"+ reac% t%e EB7( mi""ion "e#e" b! t%e !ear ,666, fa""ing s%ort of t%e goa" b! o#er EC6 mi""ion. 8ore im ortant"!, if eac% t! e of customer continues to generate t%e current a#erage re#enues for t%eir categor!, t%en t%is scenario means e- an+ing t%e number of /0 customers to C,C from A66. Hsing t%e current /08 customer "oa+s, t%is means t%at WESCO must a++ 1, ne$ /08s to its team. ?i#en t%e +ifficu"t! of fin+ing suitab"e /08S, t%is ma! be +ifficu"t. :urt%er, t%e /08s are a"rea+! 2uite %ea#i"! committe+, so t%e estimate must be consi+ere+ conser#ati#e. .%e instructor mig%t $ant to ca ture t%ese numbers as t%e! come. 'o$e#er, t%ere is "itt"e #a"ue gaine+ b! getting into furt%er +iscussions of t%e numbers at t%is time. It is better to come back to t%em at a "ater oint in t%e +iscussion. Once some or a"" t%ese oints %a#e been a++resse+ in t%e +iscussion, t%e instructor can transition t%e case $it% t%e fo""o$ing commentD IIt "ooks "ike $e nee+ to %a#e a better un+erstan+ing of t%is business before $e can make an! 1u+gments about $%at WESCO s%ou"+ +o $it% its /0 rogram. W%! +on>t $e take some time to un+erstan+ t%e ro"e t%at WESCO "a!s in t%is su "! c%ain. W%at is it t%at WESCO ro#i+es its su "iers an+ its customers@J W ere an) o* )oes WESCO a)) %a#ue to its supp#iers+ Its custo'ers+

WESCO a++s #a"ue to its su "iers bot% in genera" an+ in its s ecific initiati#es. In genera", as a +istributor, WESCO a""o$s EES su "iers to se"" to customers too sma"" to urc%ase +irect"! from t%em. =! offering customers ro+ucts from numerous EES su "iers, WESCO increases t%e robabi"it! of a goo+ ro+uct9customer fit b! %e" ing t%e customer to fin+ t%e ro+uct t%at most e-act"! fits t%eir re2uirements. In its s ecific initiati#es, WESCO a++s #a"ue to its su "iers b! generating +eman+ for t%eir ro+ucts. In t%e course of monitoring its re"ations%i s $it% its customers, WESCO obtains information about customer nee+s an+ trans"ates t%at kno$"e+ge into e- "icit +eman+ for #en+or so"utions b! i+entif!ing rob"ems an+ +emonstrating t%e efficac! of so"#ing t%em. ;Case E-%ibit 7 ro#i+es a sc%ema for t%is rocess.A< 0s $it% its su "iers, WESCO a++s #a"ue to its customers bot% in genera" an+ in t%e articu"ar features of t%e ser#ices it ro#i+es. 0s a +istributor, WESCO can offer customers a one9sto so"ution to t%eir EES nee+s t%at a""o$s t%em to urc%ase t%e ro+ucts t%e! $ant from EES su "iers of t%eir c%oice, in #o"umes a ro riate to t%eir si4e. Hn+er t%e /0 rogram, WESCO offers s ecific #a"ue a++e+ ser#ices aime+ at trimming rocurement costs. Wit%out inter#ention, costs9to9 ac2uire 8&O ro+ucts can e-cee+ t%e costs of t%e ro+ucts t%emse"#es. In#entor! costs ;summari4e+ in case E-%ibit 9< a++ to ac2uisition costs an+ b"oat t%e tota" rocurement cost for 8&O ro+ucts. In t%e interest of cutting t%ese t! es of costs, WESCO offers in#entor! management an+ re+uction initiati#es t%at range from JI. s!stems to storeroom management to in#entor! consignment ;see case E-%ibits 16911<. WESCO a"so monitors in#entor! to ferret out mec%anica" rob"ems an+ inefficient energ! usage, as $e"" as ro#i+ing +etai"e+ recor+s in+icating $%ere an+ %o$ initiati#es for cost re+uction can %e" customers. :ina""!, b! offering stan+ar+i4e+, !ear9"ong ricing regar+"ess of #o"ume at a articu"ar site, WESCO offers customers t%e abi"it! to make better estimates of t%eir 8&O costs +uring a articu"ar !ear. 0t t%is oint, t%e instructor can us% t%e +iscussion a"ong b! asking stu+ents to e- "ain $%! WESCO starte+ t%e /0 rogram an+ b! %ig%"ig%ting its benefits to WESCO.

3he instructor %ight choose to use +:hi-it ; to run a short lecture on the role o) distri-utors in the )uture when technolog' will reduce the costs )or trans)erring in)or%ation -etween custo%ers and su""liers& *ill this %ean that *+S#,(s role in the su""l' chain is threatened in the long run< *hat can *+S#, do to ensure its "osition and its %argins< 4 ha$e )ound e:ecuti$es to relate a lot to this set o) 1uestions&

W y )i) WESCO start t e &A pro!ra'+ W at are its bene,its to WESCO+ .%ere are se#era" reasons $%! WESCO initiate+ t%e /0 rogram an+ $a!s in $%ic% t%e com an! is benefiting from itD 1. Karge in+ustria" customers are +eman+ing it, an+ t%e! are im ortant to WESCO. In+ustria" customers current"! account for near"! one %a"f of WESCO>s re#enues an+ %a#e ongoing an+ re"ati#e"! re+ictab"e 8&O nee+s. During t%e "ate 19*6s, man! "arge in+ustria" customers +eman+e+ %ig%er 2ua"it! "e#e"s, $%ic% necessitate+ ma1or in#estments on t%e art of +istributors "ike WESCO. ,. It offers nationa" +istributors, "ike WESCO, an o com etiti#e a+#antage $it% its customers an+ su "iers. ortunit! to create a uni2ue an+ sustainab"e

Custo'ers- .%e /0 rogram bui"+s customer #a"ue an+ en%ances coo eration. .%is can otentia""! "o$er t%e customer>s rice sensiti#it! an+ tem tation to s$itc%. =! constructing t%e intricate net$orks bet$een WESCO>s sa"es an+ customers> urc%asing staffs re2uire+ for t%e /0 im "ementation an+ maintenance rocesses, WESCO can bui"+ a %ig% "e#e" of trust an+ coo eration $it% its customers. =ecause t%e /0 rogram can +ocument t%e #a"ue it a++s to customers, articu"ar"! in its transaction cost re+uction initiati#es, customers are +isincente+ from rice sensiti#it! because %agg"ing un+ermines t%eir efficienc!. :ina""!, t%e /0 rogram bui"+s in some s$itc%ing costs. Particu"ar"! in t%e +esign of s!stems for in#entor! management, t%e /0 rogram creates tec%nica" "inks t%at are far easier to continue to use t%an to +ismant"e an+ rebui"+ $it% a com eting +istributor. Supp#iers- WESCO can a"so use t%e /0 rogram to +emonstrate t%e uni2ue #a"ue t%e! a++ to t%eir su "iers> offerings. .%e /0 rogram creates +eman+ for its su "iers> ro+ucts in t%e course of /0 #a"ue creation acti#ities for WESCO>s customers. In t%e rocess of con+ucting energ! au+its an+ t%e "ike, WESCO gains access to information about t%e customer>s nee+s t%at a""o$s it to +emonstrate t%e #a"ue of using #en+or so"utions ;see case E-%ibit 7 an+ t%e +iscussion of #a"ue a++e+ in t%e fo""o$ing 2uestion.< =! engaging in t%ese t! es of +eman+ creation acti#ities, WESCO can secure a osition as a +esirab"e +istributor $it% $%ic% to $ork, o#ercoming some of t%e natura" antagonism an+ conf"ict t%at can arise across t%e t$o "e#e"s in t%e c%anne". A. &o! 'a"e! sees it as an o its ma1or customers. ortunit! to increase t%e sco e of WESCO>s business $it% eac% of

/0 customers can eac% generate u to E16 mi""ion or more a iece in !ear"! re#enues. .%eir +eman+ is re"ati#e"! re+ictab"e an+ maintenance reasonab"e straig%tfor$ar+ once t%e im "ementation %ase of t%e nationa" account management rocess is com "ete. 'a"e! kno$s t%at certain t! es of inefficiencies er#a+e %ea#! rocess in+ustries suc% as u" an+ a er an+ etroc%emica"s, so once WESCO %as its foot in t%e +oor, its #a"ue ro osition s%ou"+ be com e""ing. If WESCO can us% /0 customers t%roug% to$ar+ tiere+ integrate+ su "! agreements, t%e rogram %o"+s e#en more otentia". B. WESCO nee+s it to meet 'a"e!>s ambitious gro$t% "ans. 'a"e! $ants to increase re#enues b! A6) an+ rofitabi"it! b! o#er t$ice as muc% b! t%e !ear ,666. .%e on"! customer segment t%at can generate t%e necessar! re#enues at t%e re2uire+ "e#e"s of rofitabi"it! are ke! /0 customers. 'a#ing estab"is%e+ t%e im ortance of t%e /0 rogram to WESCO>s o#era"" gro$t% strateg!, t%e instructor can transition t%e c"ass $it% t%e fo""o$ing 2uestionD 3We"", t%e /0 rogram is im ortant. 0"so, going back to t%e beginning of t%is +iscussion, most of us fee" t%at t%is rogram %asn>t been #er! successfu". Can $e be more e- "icit about $%! $e t%ink t%is rogram %as been a fai"ure to +ate@3 W y )o you t in( t e &A pro!ra' is not )e#i%erin! on its pro'ises+

.%e t$o main issues %ere are c%oosing t%e rig%t customer to ro er im "ementation "an. S ecifica""!,

artner $it% an+ +e#e"o ing a

1. WESCO nee+s to be more se"ecti#e in c%oosing /0 ros ects. Current"!, WESCO +oes not %a#e a rocess for segmenting its customer base. It %as trie+ to use a s%otgun a roac% to se"ect customers as artners in its /0 rogram. ,. 0fter %a#ing c%osen t%e rig%t customer, WESCO nee+s to ensure ro er im "ementation. Im "ementation s%ou"+ be easier $%en customers are c%osen in art on t%e basis of %o$ eas! or +ifficu"t it $ou"+ be to im "ement an /0 rogram $it% t%em. /e#ert%e"ess, t%e rocess nee+s to be stream"ine+ an+ res onsibi"it! rea ortione+. Hsing t%e resu"ts of t%e stu+! +one b! Piraino, $e can +e#e"o a "ist of factors t%at can ensure a %ig% +egree of success. .%ese factors are as fo""o$sD 1. Being in the customer's procurement sweet spot . Customers are intereste+ in #a"ue as o ose+ to rice $%en t%e urc%ase is of sufficient magnitu+e. 0s Piraino oints out, for most of WESCO>s customers, o#er 76 ercent of t%e annua" rocurement bu+get is accounte+ for b! t%e to fi#e to ten su "iers. It is $it% t%ese su "iers5+istributors t%at customers are usua""! intereste+ in +e#e"o ing a re"ations%i base+ on #a"ue more t%an rice. .%e urc%ase +o""ar #o"ume an+ effort in#o"#e+ in t%ese re"ations%i s makes customers $i""ing to go be!on+ transaction rices an+ focus on t%e tota" cost of o$ners%i . :or instance, in case E-%ibit 1B, imagine t%at t%e customer current"! s en+s E1, to E1C mi""ion er !ear on EES nee+s an+ E166,666 on office su "ies. Pursuing #a"ue o#er rice in EES urc%ases cou"+ sa#e t%e com an! u $ar+s of E,.C mi""ion er !ear, but s en+ing time an+ energ! on office su "ies rocurement $i"" sa#e on"! E,6,666, an amount t%at is too sma"" to attract t%e customer>s attention, es ecia""! gi#en t%e effort to ac%ie#e t%ese sa#ings. Senior management buy-in. .%is issue is es ecia""! im ortant in a bottom9u se"". 0n in+i#i+ua" customer "ant ma! be e-treme"! ent%usiastic about t%e ser#ices WESCO is offering, but if senior management +oesn>t see t%e benefit to t%e com an! as a $%o"e, t%en im "ementation o#er t%e usua" t$o +o4en or so customer sites $i"" be an u %i"" fig%t. 0s Piraino oints out, once t%ere is a man+ate from t%e to , ockets of resistance in t%e rest of t%e organi4ation are re"ati#e"! eas! to o#ercome. It is interesting to note Piraino>s comment t%at t%ere can be an enormous +ifference bet$een a VP of Purc%asing c%am ioning WESCO>s cause an+ t%e CEO s ear%ea+ing t%e effort. .%e rob"em, of course, is t%at for a su "ier of e"ectrica" com onents, it mig%t be #er! +ifficu"t to get t%e CEO>s attention. .%is is $%ere t%e ro"e of t%e consu"tant comes in. Role of consultants. One $a! t%at senior management ten+s to become intereste+ in 8&O rocurement costs is t%roug% t%e $ork of consu"tants. .%roug% t%e nineties, it %as been 2uite common for "arge firms to %ire %ig%9 o$ere+ consu"tants to con+uct stu+ies of %o$ to re9engineer t%eir organi4ation to$ar+ greater efficienc! in o erations, manufacturing, an+ ser#ice. .%ese consu"tants are more "ike"! to see t%e im "ications of t%e ,6) sa#ings figure an+ be better ab"e to con#ince senior management of t%e im ortance of cutting rocurement costs t%an WESCO. .%e! ma! a"so %e" t%e customer>s organi4ation become more con+uci#e to c%ange, ai+ing t%e im "ementation rocess. Relationship with the local customer. Pure"! to 9+o$n initiati#es %a#e t%e re#erse rob"em of bottom9u initiati#es. Koca" customer "ants ma! %a#e been +oing business $it% a articu"ar +istributor for +eca+es an+ not be intereste+ or moti#ate+ to break off a re"ations%i in $%ic% t%e! are successfu" at getting goo+ rices.

,.

A.

B.

C. Uniformity of needs across customer plants. /0 im "ementation is u"timate"! +e en+ent u on eac% +istributor>s branc% being ab"e to meet t%e nee+s of eac% customer>s "ant. 0s Piraino oints out, in se#era" "ess successfu" /0 re"ations%i s, unantici ate+ +ifferences in roce+ures an+ urc%ases across customer sites %a#e ma+e im "ementation +ifficu"t. :or e-am "e, $%en a "oca" "ant>s bi"" of materia"s turns out to be #er! +ifferent from t%e "ist co#ere+ b! t%e /0 agreement, t%e "oca" WESCO branc% %as to reso"#e a"" matters "oca""!, often $it% no coo eration from t%e "oca" customer. .%e customer>s cor orate staff accuses WESCO of not $orking %ar+ enoug%. .%eir "oca" urc%asing an+ materia"s

management staff $i"" not coo erate because t%e! $ou"+ nee+ to make ma1or c%anges to t%eir s!stems in or+er to +o so. WESCO gets caug%t in t%e mi++"e an+ its im "ementation team 2uick"! "oses interest in t%e face of im "ementation %ea+ac%es an+ sma"" otentia" sa"es #o"umes. E#en t%e /08 s%ift focus to ot%er accounts t%at mig%t be easier to manage. (. The customer has initiated NA programs with suppliers distributors of other product categories . .%is oint a++resses bot% "ant9 an+ cor orate "e#e" resistance. If t%e com an! %as im "emente+ re#ious /0 rograms, t%en management is usua""! intereste+ in an+ re are+ to $ork un+er suc% a structure, an+ in+i#i+ua" "ants are use+ to conform to to 9+o$n initiati#es of t%is sort. .%e negati#e as ect of t%is factor is t%at t%e first mo#ers mig%t "ock WESCO out of t%e customer site for goo+. 'a#ing i+entifie+ t%ese factors, t%e ana"!sis can no$ s%ift to %o$ WESCO can use t%is information to im ro#e t%e erformance of its /0 rogram. .%e instructor can moti#ate t%is +iscussion b! asking stu+ents t$o 2uestionsD 30re eac% of t%ese factors $it%in WESCO>s contro" an+, can WESCO use t%is information to se"ect customers for its /0 rogram@3

:actors =eing in customer>s rocurement s$eet s ot Senior management bu!9in &o"e of consu"tants &e"ations%i $it% "oca" customer Hniformit! of nee+s across customer "ants Customer %as /0 rograms for ot%er ro+ucts

Contro""e+ b! WESCO@ /o Part"! Les Part"! Les Les /o /o

Can WESCO use it to Segment Customers@ Les Les Les Les /o Les

WESCO cannot contro" a customer>s urc%ase rofi"e. 'o$e#er, t%is information can be use+ b! WESCO to segment customers. WESCO s%ou"+ se"ecti#e"! ursue customers $%ose rofi"e "ooks "ike t%at of t%e customer in case E-%ibit 1(. WESCO can $ork $it% t%e customer>s senior management an+ con#ince t%em about t%e benefits of t%e /0 rogram. .%e rea"it!, %o$e#er, is t%at CEOs mig%t not be intereste+ or %a#e t%e time to get into "ooking at cost sa#ings from "ig%t bu"bs an+ s$itc%es. WESCO can +e#e"o goo+ re"ations%i s $it% consu"tants an+ gain access to t%eir customers. .%e issue %ere is t%at consu"tants, es ecia""! t%ose t%at focus on re9engineering an+ su "! c%ain management initiati#es, mig%t #ie$ WESCO as a com etitor rat%er t%an as a co""aborator. &e"ations%i s $it% "oca" customers are a #er! critica" iece of t%e /0 u44"e. .%is oint entai"s a c%icken9an+9egg rob"em, %o$e#er, insofar as WESCO nee+s t%e "oca" re"ations%i s to make t%e /0 rogram $ork, $%i"e nee+ing t%e /0 rogram to gi#e an incenti#e to +e#e"o "oca" re"ations%i s. 0s t%e case suggests, WESCO>s successfu" /0 rograms %a#e been t%ose in $%ic% WESCO branc% ersonne" %a+ a"rea+! estab"is%e+ goo+ $orking re"ations%i s $it% "oca" customers. On t%e ot%er %an+, gi#en "imite+ resources, it remains a 2uestion $%et%er WESCO %as t%e time to ursue grass roots customer +e#e"o ment. =efore an /0 agreement is signe+, t%e branc% ersonne" $i"" ten+ to $ant to $ork $it% t%e customers $%o $i"" make t%e "argest urc%ases $it% t%e "east effort. .%ese customers are eit%er otentia" /0 customers or not. If not, it is una ea"ing to gi#e t%em u to ursue a cor orate goa". 0s t%e case suggests, t%is is an issue e#en after t%e /0 agreement %as been signe+. 0"t%oug% uniformit! of nee+s is #er! im ortant, WESCO cannot contro" it. :urt%er, t%e on"! $a! t%at WESCO can get access to t%is t! e of information is +uring t%e im "ementation stage, at $%ic% oint it is too "ate. Ot%er$ise, WESCO gets t%e information %a %a4ar+"!, since it is a"most ne#er t%e case t%at WESCO branc%es $orking se arate"! $ou"+ %a en to ser#e a"" of t%e branc%es of a otentia" /0 customer. .%e resence of e-isting /0 agreements is not contro""ab"e b! WESCO an+ is an effecti#e mec%anism for segmenting customers. 'o$e#er, t%ere is a +o$nsi+e %ere. If WESCO $aits for t%e customer to initiate /0 rograms $it% ot%er +istributors, it runs t%e risk of t%e customer a"so asking t%e ot%er +istributors to manage WESCO as a secon+ tier +istributor. E#en after t%e +iscussion to t%is oint, stu+ents ma! sa! t%at WESCO s%ou"+ get its customers to commit u 9front. .%e instructor s%ou"+ us% t%em at t%is oint an+ ask t%em to 1ustif! t%eir arguments

b! asking t%e fo""o$ing 2uestionD IW%! $i"" in+ustria" customers commit to in#esting in t%e re"ations%i @J .%e instructor can a"so ask stu+ents a 2uestion "ike, I0re !ou suggesting t%at WESCO ask customers to in#est in t%ese re"ations%i s, an+ if t%e! +on>t, +o !ou recommen+ t%at WESCO +ro t%ese customers@ C"ear"!, t%ere nee+ to be a "ot of factors in "ace for customers to artici ate $i""ing"! in t%e rogram, make t%e in#estments, an+ $ork co""aborati#e"! $it% WESCO to ac%ie#e mutua" gains.J .%e rea"it! is t%at customers get into t%ese re"ations%i s in a gra+ua" manner. 0t eac% stage, t%e! are "ike"! to "ook at t%e return on t%eir current in#estments before t%e! make an! furt%er in#estments in t%e re"ations%i . Stu+ents $i"" recommen+ t%at one $a! to accom "is% t%is goa" $ou"+ be for WESCO to %a#e t%e customer agree to co""aborate on a fe$ minor ro1ects. .%e co""aboration rocess re resents an o ortunit! for WESCO to gat%er information about t%e customer t%at is usefu" in +etermining t%eir suitabi"it! as a "ong9term artner. Pro+ucing concrete gains ;an+ %ig%er #a"ue< t%roug% co""aborati#e en+ea#ors can im ro#e t%e c%ances of WESCO being se"ecte+ as a nationa" +istributor an+ of t%e customer being fu""! committe+ to t%e re"ations%i from +a! one. It is e#i+ent to t%e stu+ents b! no$ t%at not on"! +oes WESCO nee+ to be se"ecti#e, t%e! a"so nee+ to %a#e a #er! c"ear im "ementation "an after t%e! %a#e been se"ecte+. 'o$e#er, t%ere is sti"" an incom "ete un+erstan+ing of t%e atterns of re"ations%i +e#e"o ment. .%e instructor can t%erefore +irect t%e stu+ents> attention to t%e case E-%ibit C. W at )oes case E. ibit / te## us+ Is t ere so'et in! t at *e can #earn about t e issues in%o#%e) in i'p#e'entin! t e &A pro!ra'+ I fin+ it usefu" to 2uick"! get some stu+ents to ro#i+e t%e information from t%is e-%ibit as I +ra$ a +iagram "ike t%e one s%o$n be"o$. 'a#ing +ra$n t%e t%ree cur#es on t%e boar+, I %a#e t%e stu+ents inter ret t%ese cur#es. It a"so %e" s to ask stu+ents $%et%er t%e t%ree /0 segments are, in fact, t%ree stages in t%e rocess of re"ations%i +e#e"o ment. .%ere is usua""! a "ot of su ort for t%is "ine of reasoning. Stu+ents $i"" re"ate to t%is issue b! ointing out t%at if an im "ementation rogram is not e-ecute+ ro er"!, t%en WESCO en+s u in a situation $%ere it %as ma+e significant in#estments $%i"e t%e customer %as robab"! not ma+e an! in#estments at a"". In t%is situation, if t%e #o"ume of sa"es are not rea"i4e+, t%en WESCO is going to "ose a "ot of mone!. 0not%er attribute of t%is ana"!sis is t%at it rocee+s t%roug% time base+ on current an+ ast e- erience, an+ t%at it is t%erefore +ifficu"t for a customer to antici ate t%e +ramatic nature of t%e c%ange e- erience+ in becoming a 3ke! /03 customer un"ess t%e! %a#e a"rea+! reac%e+ t%at stage. .%e E#o"ution of /0 &e"ations%i sD !ther NA customers and focus NA customers Prior to initiating t%e /0 rogram, a"" customers %a#e 3ot%er in+ustria" customer3 status. :rom t%e +ata, it is c"ear t%at WESCO>s costs9to9ser#e 3ot%er /03 an+ >focus /03 customers are significant"! %ig%er t%an for ot%er in+ustria" customers. .%is is because of t%e in#estments t%at WESCO makes in t%ese re"ations%i s t%at it +oes not incur in its re"ations%i s $it% ot%er in+ustria" customers. :rom t%e oint of #ie$ of t%e 3ot%er /03 an+ t%e 3ke! /03 customer, t%e #a"ue of t%e /0 contract "ies a"most entire"! in t%e +iscount. 0"t%oug% stan+ar+i4ing rices across a"" "ants $ou"+ %a#e t%e otentia" to cut costs in#o"#e+ in obtaining 2uotes an+ im ro#ing t%e accurac! of bu+get forecasts, "oca" "ants %a#e robab"! not seen t%e situation t%is $a!. Purc%asing agents are robab"! #ie$ing t%e /0 agreement as amounting to a +iscount of one te"e %one ca"". .%e! usua""! get 2uotes from ot%er +istributors, using WESCO>s rice "ist as a benc%mark from $%ic% to negotiate $it% WESCOMs com etitors. 0 $orse scenarioD because urc%asing agents ten+ to be e#a"uate+ on t%e basis of t%e +iscounts t%e! can +eri#e from +istributors, stan+ar+i4e+ ricing mig%t mean t%at t%e! $i"" be +isincente+ from urc%asing from WESCO, since t%eir ta"ents in negotiation $i"" be irre"e#ant to suc% urc%ases.

In summar!, t%ese customers +o not see a significant increase in #a"ue, an+ $%ate#er margina" increase t%e! +o see is because of "o$er rices t%at t%e! are no$ getting. 8an! of t%em %a#e ossib"! gotten into t%ese agreements 1ust to c%err!9 ick t%e best rices. .%ese customers are not intereste+ in going an! fart%er. Hnfortunate"! for WESCO, t%e! %a#e "itt"e or no o$er to take an! "ega" action gi#en t%e incom "eteness of t%ese agreements5contracts an+ t%e re"ati#e o$er imba"ance in t%e customer>s fa#or.B "ey NA customers In t%e case of >ke! /03 customers, t%e stor! is #er! +ifferent. WESCO>s costs9to9ser#e t%ese customers go +o$n +ramatica""!. .%is is robab"! because t%e 1oint acti#ities an+ +etai"e+ im "ementation "ans +e#e"o e+ an+ e-ecute+ $it% t%e customer are "ea+ing to better or+ering atterns, re+uce+ a+ministration costs, etc. 0t t%e same time, t%e customer is beginning to see muc% greater #a"ue in t%is re"ations%i . Prices %a#e gone +o$n s"ig%t"! furt%er. .%e main oint %ere is t%at ke! /0 customers not on"! benefit from t%e re"ations%i , t%e! are a"so co""aborating $it% WESCO to continuous"! im ro#e rocesses an+ s!stems. It is im ortant for t%e instructor to bring t%e stu+ents> attention to case E-%ibit 1A. 0s t%is e-%ibit oints out, 9C) of t%e #a"ue +eri#e+ in t%e /0 rogram "ies in areas ot%er t%an rice. 'o$e#er, t%e ro+ucti#it! im ro#ement an+ transaction cost re+uctions t%at toget%er account for C6) of /0 sa#ings cannot occur unti" t%e customer treats t%e /0 agreement as being e-c"usi#e an+ acti#e"! artici ates in t%e re"ations%i . :urt%er, concrete sa#ings t%roug% in#entor! re+uction, S7H +e"etions, an+ ro+uct substitution, $%ic% toget%er account for near"! B6) of #a"ue a++e+ t%roug% t%e /0 rogram, re2uire t%at t%e customer an+ WESCO un+ertake an in#entor! au+it an+ 1oint"! im ro#e t%e rocess. O#era"", WESCO is robab"! ab"e to +e"ig%t t%e 3ke! /03 customers an+ +o it in a $a! t%at is #er! rofitab"e to WESCO. =ot% si+es %a#e a "ot to gain from maintaining t%is re"ations%i an+ stan+ to "ose a "ot if t%e re"ations%i $ere to terminate. Since t%e #a"ue recei#e+ b! t%e customer %as been ac%ie#e+ t%roug% t%e 1oint co""aborati#e acti#ities of t%e customer an+ WESCO, t%e com etition is s%ut out. Hn"ess t%e customer %as t%e time or inc"ination to sit +o$n $it% anot%er su "ier an+ recreate t%is rocess, t%e! kno$ t%at it $i"" be +ifficu"t to get t%e same "e#e" of benefits from an! ot%er su "ier. .%is is a big "earning oint for stu+ents an+ t%e instructor mig%t $ant to ensure t%at e#er!bo+! is c"ear about t%e s%ift in t%e rocess as one mo#es from 3ot%er /03 an+ 3focus /03 to 3ke! /03 customers. In fact, t%e instructor s%ou"+ take a fe$ minutes to summari4e t%ese issues in t%e fo""o$ing manner. So%e students are li2el' to conduct the )ollowing anal'sis which the instructor needs to %anage care)ull'& 3he' will calculate the dollar $alue o) "rice discount )or the >other ./? custo%ers as )ollows& #ase +:hi-it 2 lists the %ean annual "urchases "er >other ./? custo%er as @22; 000& #ase +:hi-it 19 gi$es the -rea2down o) sa$ings )or a )ull' i%"le%ented A2e' ./A custo%er& Fro% the case we 2now that this custo%er "urchases @1 %illion "er %onth )ro% *+S#,& #ase +:hi-it 5 suggests that *+S#, gi$es its -est discounts to its largest ./ custo%ers so it see%s reasona-le to assu%e that the custo%er "ro)iled is recei$ing as good or -etter a discount than the a$erage @9&6 %illion-"er-'ear A2e' ./A custo%er& *ith this in %ind we 2now that the custo%er(s annual sa$ings e:ceeds 20B o) @12 %illion )or a sa$ings o) o$er @2&= %illion annuall'& ,) that we 2now )ro% case +:hi-it 19 that )i$e "ercent o) the sa$ings (C@120 000) deri$es )ro% "rice i%"ro$e%ent& 3hus the "rice discount wor2s out to a""ro:i%atel' one "ercent& Fro% case +:hi-it 5 we see in the "rice inde: that ten inde: "oints se"arate A2e'A "rices )ro% Aother industrialA custo%er "rices& Since A2e'A "rices ha$e a discount o) around one "ercent and Aother industrialA custo%er "rices ha$e no discount we can esti%ate discounts )or >)ocus ./? custo%ers at 0&;B and )or Aother ./A custo%ers at 0&5B& 3hus the discount o))ered -' *+S#, to Aother ./A custo%ers wor2s out to a-out one hal) o) one "ercent& 3he instructor should clari)' that these are $olu%e discounts o) the list "rice as stated in the agree%ent& 4n all li2elihood these list "rices would -e negotiated -' the two sides and would -e signi)icantl' lower than list "rices a$aila-le to other non-./ custo%ers&
=

1.

Price KineD See T& E. ibit 1 9 Hn+er t%e /0 rogram, WESCO offers !ear9"ong, nationa" ricing regar+"ess of #o"ume at an! one customer site. :or 3focus /03 an+ 3ot%er /03 customers, WESCO a!s for t%e "o$er rices b! gi#ing u margins. Once t%e customer reac%es t%e 3ke! /03 stage an+ t%e re"ations%i is fu""! im "emente+, WESCO is ab"e to get better rices t%roug% better "anning, so rices for t%e customer can go +o$n $it%out %urting WESCO>s margins, an+ WESCO maintains rofitabi"it!. Cost KineD See T& E. ibit 0 9 .%e ear"! stages of t%e /0 rogram in#o"#e substantia" in#estments on WESCO>s art in or+er to ac2uire t%e customer. In t%ese stages, t%ere is "itt"e or no in#o"#ement from t%e customer. 'o$e#er, once im "ementation %as been successfu""! com "ete+ an+ t%e customer mo#es to t%e 3ke! /03 stage, WESCO>s costs "ummet because t%e customer is no$ in#esting in t%e re"ations%i . In a++ition, t%e! are a+a ting t%eir rocesses to matc% WESCO>s ca abi"ities an+ #ice #ersa, rea ing efficienc! gains t%roug% re"ations%i management. Customer Va"ue KineD See T& E. ibit 1 9 .%e instructor can oint out t%at in t%e 3focus /03 an+ 3ot%er /03 stages, t%e re"ations%i is a+#ersaria", insofar as t%e customer is e-tracting #a"ue at WESCO>s e- ense. 'o$e#er, in t%e 3ke! /03 customer stage, t%ere is an e- "osion in customer #a"ue an+ t%is is ac%ie#e+ in a co""aborati#e mo+e. 0t t%is oint, it is #ita" to +iscuss t%e im ortance of t%e im "ementation rogram. 0s is %ig%"ig%te+ in t%e case, t%e bui"+ing of a successfu" /0 rogram is not 1ust about getting t%e rig%t customer. It is a"so about +e#e"o ing an im "ementation "an t%at ensures bu!9in from bot% si+es at a"" "e#e"s. .%is is critica" to t%e success of t%e re"ations%i . .%e instructor can %ig%"ig%t t%is issue b! +ra$ing t%e %ocke! stick t%at ca tures t%e im act of ac2uiring an+ retaining customers. .%e instructor can use t%is %ocke! stick to s%o$ t%e fact t%at WESCO can make mone! on"! if t%e firm is ab"e to e-ecute t%e im "ementation an+ get t%e customer to in#est in t%e re"ations%i as $e"". If t%is is not +one rig%t, t%en WESCO can $in+ u in t%e s%a+e+ region an+ continue to "ose mone! in+efinite"! in t%e re"ations%i . .%e instructor s%ou"+ be #er! +e"iberate in t%is art of t%e +iscussion to a#oi+ "osing t%e stu+entsM attention to t%is oint. .%is can a"so ser#e as an i+ea" "earning for t%e instructor to return to "ater in t%e +iscussion an+ ask t%e stu+ents $%et%er it makes sense for WESCO to tr! to con#ert e-isting ot%er /0 an+ focus /0 customers into ke! /0 customers. 0t t%is oint, t%e instructor ma! c%oose to segue into t%e issue of t%e organi4ationa" "imitations of WESCOMs /0 rogram. One $a! to +o t%is is to us% t%e issue of WESCO being stuck $it% focus customers an+ ask a 2uestion in t%e #ein of $%at it means for WESCO t%at t%e ranks of focus customers are s$e""ing near"! as fast as t%ose of ke! customers in t%e rogramD %o$ man! focus customers can eig%teen /08s con#ert to t%e ne-t stage, t%at is, make into Ike! /0 I customers@ Is &A2 capacity an issue ere+

,.

A.

WESCO current"! %as 1* /08s managing an /0 rogram t%at in#o"#es C6 ke! customers, 166 focus customers, an+ 1C6 ot%er /0 customers. .%is $orks out to an a#erage of s"ig%t"! un+er t%ree ke! customers, ( focus, an+ * ot%er /0 customers er /08. /08Ms res onsibi"ities in t%e e#o"ution of /0 agreements $ork out as fo""o$sD Sta!e &A2 co''it'ent Ti'e,ra'e $rospectin! Acti%e Se##in! :"e-ib"e Varies A69B6) (99 mont%s I'p#e'entation u to C6) ,9A mont%s 2aintenance 1C)N In+efinite

Kooking at t%e time t%e /08s s en+ on t%e secon+ t%roug% fourt% stages, if a /08 is in stage t$o or t%ree an+ is maintaining t%ree ke! accounts, t%en t%ere remains "itt"e or no time at a"" for ros ecting. In a++ition, $it% t%e time an+ customer a""ocations, t%e /08s $i"" en+ u o#er9committe+

once t%eir fift% ke! customers mo#e into t%e im "ementation stage. .%is means t%at barring c%ange, t%e ma-imum number of a++itiona" ke! customers is A,. Possib"e so"utions to t%ese rob"ems are some$%at com "icate+. 'iring more /08s is +ifficu"t because t%e rocess of rofessiona" +e#e"o ment takes time an+ nee+s to be "anne+ out far in a+#ance. 0 secon+ o tion in#o"#es minimi4ing /08Ms res onsibi"it! b! e- an+ing t%e su ort ser#ice staff to take o#er muc% of t%e maintenance ro"e. .%is "an cou"+ ser#e t%e +oub"e ur ose of +ecreasing t%e /08Ms commitments $%i"e creating a grou of managers t%at cou"+ ser#e as a oo" of can+i+ates for /08 ositions in t%e !ears to come. 3oin! a ea), * at is !oin! to appen+ Can t is &A pro!ra' be sustaine) o%er ti'e+ W at *i## appen i, ot er co'petitors a#so )e%e#op &A pro!ra's+ a .%e sustainabi"it! of t%e /0 rogram is going to be affecte+ b! c%anges in su roac%es an+ com etiti#e t%reats. "ier management

WESCO +e#e"o e+ t%e /0 rogram in res onse to EES customers conso"i+ating t%eir su "ier bases, im "ementing 2ua"it! certification rograms, an+ +eman+ing "o$ rices. 'a#ing re+uce+ t%e rocurement costs in re"ations%i s $it% t%e to C to 16 su "iers, t%ese customers no$ fin+ t%at rocurement costs for ot%er categories of 8&O su "ies e2ua" or e#en e-cee+ t%e costs of t%e su "ies t%emse"#es, an+ %a#e e- an+e+ to o#er *6) of tota" rocurement costs. In or+er to re+uce t%ese rocurement costs, t%ese customers are a"rea+! s%ifting to ne$ rocurement mo+e" mo+esD su "iers tiering or forming su "ier a""iances. In t%e case of su "ier tiering, se#era" im ortant issues arise. .%e most im ortant one is t%e issue of $%at business is WESCO in. S%ou"+ WESCO take on su "!ing 1anitoria" su "ies to one customer, in+ustria" gases to anot%er, an+ so on@ Can t%is affect WESCO in t%e "ong9run@ Does WESCO %a#e t%e com etenc! to manage non9tra+itiona" "ines of business@ .%ose in su ort of t%is mo#e $i"" use t%e same "ogic as t%at use+ b! 'a"e!. 0ccor+ing to 'a"e!, WESCO s%ou"+ take on an! ne$ business as "ong as it is rofitab"e an+ it ensures t%e continuit! of WESCOMs re"ations%i s $it% its im ortant customers. .%is is art of 'a"e!Ms Integrate+ Su "! conce t. .%ose $%o are against it $i"" oint to t%e face t%at t%is a roac% $i"" $ork on"! as "ong as it is manage+ from Pittsburg. .%e! $i"" suggest t%at t%e a roac% can "ea+ to a "ot of c%aos, confusion, an+ "osses if t%e "oca" branc%es are a""o$e+ to customi4e offerings to "oca" customers. .%ere is usua""! a "ot of energ! in t%is art of t%e +iscussion. It is im ortant for t%e instructor to %ig%"ig%t t%e fact t%at t%ere is a"$a!s a c%ance t%at #en+ors can take customi4ation to a oint $%ere eac% re"ations%i un rofitab"e. 0s $e"", t%ere is sometimes #er! "itt"e "earning from one re"ations%i t%at can be transferre+ to ot%er re"ations%i s. O#era"", t%ere is consensus t%at t%is can be goo+ for WESCO if +one rig%t. Stu+ents are "ess ent%usiastic about t%e a""iance o tion. .%eir reser#ations stem from t%e fact t%at WESCO $i"" %a#e to make furt%er ma1or in#estments in $orking $it% ot%er 8&O su "iers $it%out t%e com ensation t%at goes a"ong $it% tiering. O#era"", in eit%er case, t%ere is a "arger eri" as $e"". .%e /0 rogram is +esigne+ to e- "oit efficiencies t%at arise form t%e re+ictab"e +eman+ ensure+ b! "ong9term contracts to t%e benefit of bot% customer an+ +istributor a"ike. If, %o$e#er, becoming a fu""! im "emente+ ke! /0 customer is not t%e en+ of t%e erio+ of %ea#! in#estment but instea+ on"! a %iatus before t%e ne-t ram 9u , t%en t%e economics of t%e rogram ma! be furt%er ske$e+ against WESCOMs goa"s. .%is rob"em can be com oun+e+ if customers $ant first to urc%ase t%roug% an /0 agreement, t%en to %a#e WESCO ser#e as a first9tier +istributor in a su "! tier, t%en to urc%ase from an a""iance of +istributors $%o $i"" team u to ro#i+e a one9sto so"ution. :urt%er, WESCOMs com etitors are ursuing simi"ar customer management strategies to its o$n, so t%e t%reat ose+ b! otentia" com etitor /0 rograms is rea". Stu+ents ma! oint out t%at rofits $i"" not be sustaine+ for se#era" reasons. :irst, customers are migrating a"" t%e time. 0s +escribe+ abo#e, as soon as WESCO gets t%roug% one stage, customers begin to +eman+ e#en more ser#ice an+ su ort from WESCO.

Secon+, com etitors $i"" fo""o$ an+ +e#e"o t%eir o$n /0 rograms. .%is is not as muc% of an issue. Es ecia""! if t%e customer an+ WESCO %a#e co""aborate+ an+ s%are+ t%e %uge gains in t%e re"ations%i , it ma! be un"ike"! t%at t%e customer $i"" $a"k a$a! from t%e re"ations%i or t%at com etitors $i"" be ab"e to re "icate t%e gains eit%er in su "ier "earning or in t%e rocess of ro"e +efinitions, goa"s an+ ob1ecti#es setting, an+ continuous monitoring. 0t t%is time, t%e instructor can ose t%e fo""o$ing 2uestion to bring stu+ents back to t%e issues t%at Piraino is current"! face+ $it%D IC"ear"! WESCO is s%ort on /08 ca acit!. :urt%er, WESCO %as t$ice as man! focus an+ t%ree times as man! ot%er /0 customers as it +oes ke! customers. W%at is !our a+#ice to Piraino@J Ho* )oes a## t is attention bein! pai) to t e &A pro!ra' a,,ect WESCO4s abi#ity to ser%e its ot er custo'ers+ Stu+ents usua""! "ose sig%t of t%e fact t%at WESCO %as ot%er t! es of customers t%at it nee+s to ser#e as $e"". .%e case %as +etai"s on customer, organi4ation, an+ ot%er issues t%at %ig%"ig%t t%e im act of t%e /0 rogram on ot%er customer t! es. :or e-am "e, t%ere is Jo%n W%itne!>s 2uote, $%ere %e sa!s t%at /0 customers +eman+ a "ot of ser#ice t%at is not commensurate $it% t%eir sa"es #o"ume9 eit%er current or otentia". W%itne! is referring to t%e fact t%at s en+ing more time $it% /0 customers comes at t%e e- ense of attention t%at %e can a! to %is tra+itiona" customers. 0not%er e-am "e can be foun+ in Karr! Wort%ington>s 2uote, $%ere %e sa!s t%at %is branc% %as been force+ to c%ange t%e $a! it +oes its business to an e-tent t%at it mig%t not be in a osition to ser#e its tra+itiona" customers, i.e., t%e contractors, an! more. .%ere is a"so information in t%e case on t%e sa"es a roac% re2uire+ to ser#e t%e +ifferent t! es of customers. 0s Piraino oints out, in or+er to manage /0 accounts sa"es re s nee+ to %a#e a farmer menta"it!, an+ to manage contractors t%e! nee+ to be "ike %unters. .%e instructor nee+s to ensure t%at stu+ents are kee ing t%is issue in min+ as t%e! make +ecisions on t%e /0 rogram. .%e instructor mig%t $ant to run a s%ort "ecture on t%e +ifficu"ties of organi4ing t%e sa"es an+ marketing effort to maintain an+ manage a ortfo"io of customers. :or e-am "e, in or+er to +o t%is successfu""!, WESCO nee+s to t%ink t%roug% #er! carefu""! $%et%er it s%ou"+ a+o t a genera"ist a roac% $%ere a sa"es erson se""s to a"" t! es of customers, or a s ecia"ist a roac% $%ere a sa"es erson se""s to on"! a s ecific t! e of customers. .%is issue a"so e-ists at t%e "e#e" of t%e branc%. ?i#en t%e ric%ness of issues $it% t%e /0 rogram +esign, I %a#e foun+ t%at t%is is an area t%at gets asse+ o#er b! t%e stu+ents in t%is case. Conse2uent"!, I take a fe$ minutes in c"ass to bring t%is to t%eir attention. .%is $orks $e"" for me since I get into issues in t%is area in greater +etai" in t%e WESCO case t%an I +o in t%e session imme+iate"! fo""o$ing t%is one. W at s ou#) WESCO )o *it t e &A pro!ra'+ W at are your reco''en)ations+

.%ere are se#era" areas t%at nee+ to be co#ere+ %ere. .%e issue of /08 ca acit! means t%at, gi#en t%e current number of /08s an+ t%e +ifficu"t! of a++ing more t%an a #er! sma"" number to t%at staff in t%e s%ort term, it $i"" be #er! +ifficu"t to a++ man! customers to t%e /0 rogram. One $a! to %an+"e t%e /08 ca acit! issue is to %ire e-ecuti#es to take o#er some or a"" of t%e maintenance functions t%at t%e /08s current"! +o. =! cutting +o$n on t%e time s ent on maintenance, t%e /08s $ou"+ be free+ u to +o more ros ecting, $%ic%, gi#en a better customer segmentation rocess, %as t%e otentia" to !ie"+ better resu"ts for WESCO. .%e rob"em of t%e e#o"ution of rofitabi"it! means t%at gro$t% in t%e number of focus customers t%reatens t%e ambitious rofitabi"it! goa"s set out b! 'a"e!. .%us, c%anging t%e gro$t% rofi"e of t%e /0 rogram becomes a ke! factor in ac%ie#ing success.

In t%e most o timistic of scenarios, it is ossib"e t%at WESCO cou"+ use a segmentation rocess to fin+ a grou of ,* ne$ customers $%o come c"ose to fitting t%e i+ea" rofi"e for an /0 customer an+ $%ose tota" EES urc%ases fa"" bet$een E1, an+ E1C mi""ion er customer er !ear ;an+ $%ose urc%ases from WESCO cou"+ reasonab"! reac% t%e E16 mi""ion mark at t%e ke! "e#e"<. If t%e e-isting /08s cou"+ eac% +e#e"o one or t$o of t%ese otentia" /0 customers into suc% a 3ke! /03 customer +uring t%e four9!ear erio+, t%en t%e sa"es goa" cou"+ be met $it%out increasing t%e ranks of t%e /08s. 0not%er a roac% $ou"+ be to fin+ a grou of as man! suc% customers from among t%e current focus /0 an+ ot%er /0 customers. .%is $ou"+ a"so %e" b! re+ucing t%e number of ot%er /0 an+ focus /0 customers, $%i"e a"so being s"ig%t"! more rea"istic, as ,* ne$ an+ erfect customers mig%t be +ifficu"t to fin+ ;$%ere $ere t%e!, after a"", $%en WESCO signe+ t%e first A66 customers@<. /e#ert%e"ess, b! sticking to customers $it% $%om WESCO a"rea+! %as some ac2uaintance, t%e c%ances of fin+ing ones $%o $i"" be amenab"e to fu"" /0 im "ementation are some$%at im ro#e+. .%e rob"em t%at remains is t%at t%is a roac% re2uires WESCO to stick $it% customers co""ecte+ t%roug% a "ess $e""9 refine+ segmentation rocess t%an t%e one t%e! no$ %a#e. 0"t%oug% it mig%t make it ossib"e to reac% re#enue an+ rofit goa"s in t%e s%ort9term ;e#en t%is is +oubtfu", as t%ere is recious "itt"e s ace for mistakes<, it ma! not be a goo+ "ong9term strateg!. I %a#e foun+ t%at at t%e en+ of t%is +iscussion, t%ere is an e#en s "it bet$een t%ose $%o t%ink t%at WESCO s%ou"+ use t%e /0 rogram on"! in t%e reacti#e mo+e in t%e future an+ t%ose $%o $ou"+ "ike WESCO to be more roacti#e. Teac in! Strate!y In or+er to faci"itate a ro er ana"!sis of t%e $ea"t% of issues +iscusse+ in t%is case, t%e instructor mig%t $ant to break t%e +iscussion into se#era" t%emes. T e'e 1- .%e best "ace to start t%is case is $it% an action "an. .%e centra" 2uestion %ere is $%et%er WESCO s%ou"+ be roacti#e or reacti#e in managing its /0 rogram. I %a#e not %a+ a stu+ent or e-ecuti#e $%o %as recommen+e+ t%at WESCO scra its /0 rogram If I +i+ get some sentiment in t%at +irection, I $ou"+ make sure t%at it $as not s2uas%e+ remature"!. &at%er, I $ou"+ tr! to get t%is stu+ent;s< to i+entif! t%e sources for fi""ing t%e ga "eft b! t%e /0 rogram. .%is art of t%e +iscussion s%ou"+ take aroun+ 1C minutes. T e'e 0- .%e ne-t art of t%e +iscussion focuses on t%e ro"e of WESCO as a +istributor, %o$ WESCO a++s #a"ue to its customers an+ su "iers, an+ %o$ t%e /0 rogram $as initiate+. .%is art of t%e +iscussion s%ou"+ take about 1C minutes as $e"". T e'e 1- 'ere t%e +iscussion centers on t%e reasons $%! t%e /0 romises to9+ate. rogram %as not +e"i#ere+ on its

.%is is a #er! im ortant art of t%e case +iscussion an+ t%e instructor s%ou"+ a""ocate at "east A6 minutes to it. T e'e 4- .%e instructor no$ nee+s to get stu+ents to recommen+ an! c%anges t%at t%e! $ou"+ "ike to make to t%e /0 rogram an+ t%e im "ications of t%ese c%anges. It is a"so im ortant to s en+ time on t%e im act of su "ier tiering an+ t%e formation of su "ier or +istributor a""iances5 consortiums on t%e /0 rogram. .%is art of t%e +iscussion takes about 1C minutes, "ea#ing t%e instructor $it% about C minutes to summari4e t%e "earning oints in t%e case. $ostscript /0 WESCO refocuse+ its efforts in managing t%e /0 rogram. 0s far as 'a"e! $as concerne+, t%e rogram $as critica" to %is gro$t% strateg!. WESCO %ire+ managers to take o#er t%e maintenance

functions, t%ereb! re"ie#ing t%e /08s to focus on t%e +e#e"o ment of ne$ /0 customers. In a++ition, after an e-tensi#e recruitment effort, WESCO $as ab"e to a++ se#era" /08s to its current teams. Piraino a"so con+ucte+ a t%oroug% re#ie$ of t%e e-isting 3ot%er /03 an+ 3focus /03 customers to i+entif! customers t%at $ere goo+ ros ects but $it% $%om t%e im "ementation rogram %a+ not been %an+"e+ correct"!. Piraino an+ %is team t%en +e#e"o e+ a com re%ensi#e "an t%at focuse+ on re9 im "ementing t%e /0 rogram $it% t%ese customers. Current resu"ts suggest t%at t%is effort $as #er! successfu" as $e"". WESCO continues to take on non9tra+itiona" "ines of business re2ueste+ b! its "arge an+ im ortant customers. 'o$e#er, t%e +ecisions are sti"" ma+e in Pittsburg on a case b! case basis. .%ere is no current "an to ass t%is res onsibi"it! on to t%e branc% offices. O#era"", base+ on numbers in t%e secon+ %a"f of1997, t%e /0 rogram a eare+ to be back on track