WESCO DISTRIBUTION INC-Analysis by Group TWO Section D

Situation Analysis:- With $1.6BN 1996 USA sales & 3% EBIT((overall $2.2BN globally),WESCO is the 3rd
largest full line wholesale EES(Electrical Equipment & Supplies) distributor in the USA. To attain $3BN sales
and 5% EBIT by 1999, Ron Haley(CEO) decided to spend $12MM/year on National Accounts(NA) program
which targeted larger high potential industrial customers.
Issue:- In the backdrop of below-expected sales and profits, Jim has to make a strong business case for
continuing the NA program. He also needs to take a stance on supplier/distributor tiering and alliances. Most
importantly, he needs to decide whether to proactively pitch to potential NA customers or react to their demand.
Analysis;-The customer segmentation is attached below. Note the uniformly low market shares.
Segment
Electrical
Contractors
Industrial
Customers
CIG Customers

Mkt Size/Share
$17.9BN/2.6%
$16.7BN/6%
$5.9BN/2.5%

Customer needs
Deliver in time with the
least possible price.
One stop solution for
MRO needs
N/A

Relationship
Tender
based
Long Term
JIT
Stable

Trend noticed
N/A
Tiering
N/A

Given the nature of the business (distribution has traditionally wafer thin margins), margins can grow only
with value added services for which industrial customers are the best bet. As Figure 1 shows, the national
players count for only 14% of the total market. This fragmented market may lead to price competition but can
be exploited to persuade NA clients to appoint a single integrator to take the relationship hassles.
But the NA strategy while logically sound, has failed to consider the people oriented ground realities. Even if
corporate HQ wants centralized sourcing, one point contact etc, the plant personnel prefer to build relationships
with the local distributors to ensure supplies in the best interest of the plant. NA agreements have succeeded and
failed due to this factor. Also, the largely autonomous branches have not been fully considered. Merely ensuring
dual crediting of sales to their local plants under NA agreement, does not detract from the fact that they get
merely the same commission % for a high contact farming business. Instead of building relationships with a
small local plant of NA client, the branch salesman may prefer to hunt easier clients. This may be outweighed
by giving him a higher split of the commission for servicing an otherwise small local NA client plant.
As Figure 2 shows, there is low market share in the high potential segments (and vice versa). If WESCO picks
a few industry segments to focus on(like its national competitors have already done), it could gain market share
and build strong domain knowledge for value added services in those segments.
As Exhibit 13(in case) shows, there can be significant cost savings split into order cost(20%), energy(20%) and
operationally(inventory, productivity etc>42%). The transaction cost savings would specially interest companies
in the low-inventory era where frequent orders(and resultant greater ordering costs) exist.
Final Recommendations
The local branches should be included in the NA team that concludes the final negotiations. They(the branches)
can provide feedback on rapport with local plant, cost aspects etc so that suitable safeguards/controls can be
built in the contract itself. Also, the staffing ratio of NA serving branches should reflect the increased need for
internal salespersons who are to build the relationship at the plant level.
Sustainable and profitable growth comes from competitive advantage-where both customer and WESCO gain.
From Figure 3, we note that (i)Key NA (ii)Other Industrial Customers (iii) CIG customers can be serviced more
profitably than existing business. So the recommendation is Continue the NA program proactively pitching
for tiering business but limit targets to the existing Key NA accounts while cherry picking Other Industrial
Customers using the rationale outlined above.

Exhibits(based on case facts)

Sales($ BN)
Others
22%

National Chains
14%

Regional Chains
6%

Speciality
6%

Top250 Full-line
18%

Other Full-line
34%
Figure 1-Sales Share of various Distribution Channels

40
35
30
25
20
15
10
5
0

Industrial Customer Map

High Market
Potential($BN)
Market Share(%)

Figure 2-Industrial Customer Market Size versus Wesco's mkt share

25
20
20
15
15
10
10
5

Extra Value FROM customer

0

Extra value TO customer

0
-5
-5

-5

-5 -5

-10
-12

-15
-20

-10

-17

Figure 3 Customer Wise Internal Competitive Advantage Analysis(figures in % versus 100 as base case in Exhibit 5)