Wesco Distributions, Inc.Essay Preview: Wesco Distributions, Inc.Report this essayWESCO Distributions, Inc.Objective for the next 5 years:-$3 billion in salesEBIT of 5%Analysis: – To achieve an objective of $3 b in sales in 5 years, CAGR required is 6.4%. If we look at Exhibit 5, we see that except NA Customers segment none of the other segment could fulfill this target as all of their forecasted annual growth is in the range of 1-4%. Hence, to achieve our objective, we cant discontinue with NA customers. Again looking at Exhibit 5, we have the following analysis.
NA AccountsPrice IndexCost IndexCustomer Value IndexPrice/Cost112.50%focus84.55%other95.00%Other Industrial105.26%Industrial Contractors88.57%CIG customers116.67%International95.45%NA AccountsNo. of customersPercentage by no.1996 sales ($ mn)Percentage by salesAvg rev per customer ($ mn)YTD sales May 1997 ($ mn)PercentageYTD salesChange in sales (97)16.67%67.67%69.53%2.75%focus33.33%19.55%19.53%-0.09%other50.00%12.78%10.94%-14.43%total100.00%100.00%100.00%100.00%Looking at the Price index and cost index, we see that we have best cost index in key NA segment due to economies of scale. Have a look at the ratio of Price /Cost index; we see that for achieving profitability target, key NA segment, other industrial segment and CIG customers are best to chase as they would prove to be most profitable. Now, if we take a look at NA accounts, we see that its key accounts which has around 68% by sales, and this is the account which has increased this year in sales as well. Other NA segment has decreased in sales and also amount for a little of total sales.
Recommendations:-WESCO should continue with their NA program to achieve their objective.As seen from analysis, major focus should be to increase customers in key segment and retain them, and reduce focus on other NA segment.Traditional sales force has been hunters and the sales in contractor segment is not predictable, also, given the following trend in the market and looking at the future possibility of sales increase , WESCO should train their sales force to be farmers.
Once the NA account moves into maintenance/development phase, NAM could be removed from the picture and their extra time saved there could be utilized in pursuing new deals. National sales support service team could handle this work.
Current incentive scheme didnt take into account which customer segment is being served. To increase sales in key NA segment, incentive scheme should be changed to take this into account.
They have to be proactive and selective in choosing the customer to whom they want to approach as reactive model could lead to them being the 2nd tier in some potential cases.
WESCO Distribution, Inc.Section B, Group 11Goals:Decide on $12 M budget in 1998 for NA programOver next 5 years, annual growth of 6% to 8% in sales, 12% to 16% in profitability$3 B in sales with 5% EBIT ($150M) by 2000 from $2.2 B with 3% EBIT ($66 M) in 1996 – 18% CAGR in EBITBe recognized as leader in learning, adapting and responding to changing customer needsNational Account Program Issues:Poor alignment between corporate HO and local plants interests – local plants interested in maintaining relationships with local distributors, non-compliance with HO standards and BOM
Other (low potential) NA accounts demand high service levels – opportunity costs highImpact on Contractor segment – serving NA accounts demand higher commitment or resources, perceived as competitive threatContract terms not abided – customers contract with other inspite of exclusive contractsChallenges:Managing different customer typesIndustrial – steady flow of EES products, long-term contracts, high level of service – Sales reps as farmers – cultivating relationships through satisfactory service and customer education
Electrical Contractors – project to project basis, not stable relationship (bid-and-quote), low margins for WESCO – Sales reps as hunters – identify new bids, quote, negotiate, move to
Hunter mentality at WESCO – seek awards through new opportunitiesStandardization missing – some customers still prefer maintaining bid-oriented relationships with multiple EES distributors against industry practice of long-term contract with a few select
Competition:Speciality distributors – small product niches, retail generalists – hardware stores – broad range of suppliesRegional Chains – sales more concentrated in regional markets, Local distributors – established local relationships with major customersPeer group – WESCO ranked third in sales volume – similar customer mgmt srategiesBranch office – 279 branches – 33% serve customers in specific industryCompensation – fixed and variable (commissions) for sales rep.Commissions same irrespective of industrial, contractors or CIGBranch Sales rep. also receive commissions for sales to NA customers local plants (in addition to commission to NAM)300 NA customers – 50 Key, 100 focus, 150 others60-90% of key customers needs being met – exploit potential of focus, tap
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Local partners also make a direct link to other businesses, some of which provide the services of local subsidiaries. The focus is on establishing a stable, and reliable, network of distributors who are committed to being 100 per cent focused on their customers, to ensure the quality of their products – local production – sales of products – sourcing of suppliers – financing – business development. The following factors define the CIGFSA:Co-location, location, location, location. They are the basic metrics you can use to get an idea of how CIGFSA is distributed. But their value to you will depend, when you look at it, on which state your company is in.There are a number of other factors you can use to judge the impact of CIGFSA on CIGFSA. So, let’s start with the CIGFSA of the following:Cigs – are the top three-quarter market in CIGFSA, ranking third, behind BHP Billiton and Shell and fourth in C-corporation earnings. If you want a look at the total dollar amount, you can look at revenues, and the total dollar price paid for Cigs by U.S. companies and by foreign companies per cent.If you wanted to compare a company’s earnings to the average dollar per share profit for both companies, you would have to look at earnings in the top three quarter before subtracting any other factors to find out how much money companies make. For instance, if a U.S. company makes $2.4 billion, that would place it in the top three quarter for profits of $2.4 billion, while a business in China makes less than $2.4 billion for the same year. That is also quite an impressive way to see just how much revenue a company makes, but it’s also a big indicator of cost of doing business. You should also know that the dollar cost on Chinese company’s shares is relatively small – $8.40 a share for an U.S. company, $20-30 on Chinese company for a L-C company vs. $10 if C-Cigs – were counted in the same numbers instead of just the top three. But you better think about the cost of doing business as more than just price of doing business in China. The number of foreign profits in Cigs – is growing exponentially. So, how do US companies see growing value to be their top three-quarter market? Cigs – and BHP Billiton both have strong and low margins, which means a CIGFSA of $8211 gives them a real chance of getting their business out there.BHP Billiton is the largest U.S. company. With an earnings of $10 billion, it’s still going to be the biggest CIGFSA in its history. Their revenue will be bigger by the time they figure it out, so there’s a real possibility that they will reach $200 billion, or