Wesco Distribution

Contents

Back Ground and Problem Statement------------------------------------------3 Analysis----------------------------------------------------------------------------------3 National Accounts programs: Pros and Cons----------------------------------4 Proposed changes in the NA programs------------------------------------------4 Annexures------------------------------------------------------------------------------5-7

Group K

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1 Background and the Problem Statement

In June 1997, Jim Piraino, VP of marketing for WESCO Distribution, Inc is preparing for a yearly review meeting with WESCO CEO Roy Haley. Haley wants the firm to reach annual growth goals of 6% to 8% in revenues and 12% to 16% in profitability over the next five years. The growth strategy is centred on the National Accounts program (NA), which WESCO has developed to serve its major industrial customers in response to recent changes they have made to their business processes. However, as of June 1997, the NA program has not delivered the expected increases in sales and profitability. At the same time Jim Piraino understands from existing sale force that several issues are hindering the progressing the ambitious project including Internal resistance to change at customer plant locations caused by poor alignment between customers plant and corporate level interests. Opportunity costs of serving some of the NA customers are too high. Increased to resource allocation to NA customers results in poor service to other customers.

2 Analysis
Roy Haley wants to achieve a YOY revenue growth of 8% and profit growth of 14%. His target revenue and target profit for the year 2000 are $3000 million and $111 million respectively. We believe that if Wesco Distribution continues on its current path Roy Haley will miss his bottomline target by $400 million for the year 2000. The calculations for these are shown in Exhibit A. We regard the $400 million to be a conservative estimate as it assumes that Wesco will be able to target customers with the National Account Program and at the same time, maintain a 1-3% revenue growth for other customer segments such as CIG, Electrical Contractors, etc. Considering the above short fall and the expected market growth rate in the NA segment of customers, WESCOS should look to increase its customer base in the Key customers by 100% - from 50 to 100 nos Focus customers by 100%- from 100 to 200

These additional customers at a revenue growth of approximately 17% y-o-y will contribute $350 m to the bottom line. Increasing its market share at a time when it is struggling with its existing NA customers might seems like a daunting task. But we believe with the correct distribution strategy and increased focus on key and focus class of accounts ( NA) will give WESCO a shot at achieving $3 Billion revenues by 2000.

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3 National Accounts Program

WESCOs National Accounts program is established under the premise that large contracts could mean significant savings to both customers and WESCO.

PROS NA program created customer lock in and high volume long term contracts Increased market share and better profits NA program can potentially lower the customer's price sensitivity and temptation to switch WESCO can build high level of trust through close networks with customer team Increased market share and better profits NA program builds customer value and enhances cooperation.

CONS Needs more resource allocations to manage the NA customers Improper selection of NA customers results in high opportunity costs of serving customers Demand huge investments in time and money If stalled at the implementation level, the project will result in high costs and low margins Unanticipated differences in procedures and purchases across customer sites have made implementation difficult. Differences between customers corporate and plant level teams makes implementation difficult

Through programs like energy audits, WESCO will gain access to information on customer requirements and will be able to leverage that to create more value Potential for creation of strategic alliances and tier allocations with NA customers

4 Proposed changes in the NA Program

Choosing the right NA partners: WESCO needs to be more selective in choosing NA prospects. They have to use the customer segmentation based on purchase profiles. Group K Page 4 of 7

 Proper implementation of NA at the plant level WESCO needs to develop trust among both corporate level and plant level team to ensure proper implementation of NA programs. Purely top-down initiatives have the reverse problem of bottom-up initiatives. Local customer plants may have been doing business with a particular distributor for decades and not be interested or motivated to break off a relationship in which they are successful at getting good prices. Role of senior management

WESCO needs to develop trust among both corporate level and plant level team to ensure proper implementation of NA programs. On time involvement from senior management will help reduce friction between local implementation teams and clients

Role of consultants Consultants will help develop the necessary rapport, which is missing in the current approach, between implementation team and customers. Consultants can also drive the change management programs and thereby make customers more conducive to change Choice between Tiering and Alliances ( Distribution strategy)

In order to reduce these procurement costs, the customers are shifting to new procurement model models: suppliers tiering or forming supplier alliances. In case of alliances, WESCO has to invest heavily in the infrastructure and logistics systems. At the same time, there is risk in terms of new form of competition and lack of profitability in operations. We propose WESCO to adopt tiering and become a one stop solution provider to customers. This strategy is in line with Haleys vision of developing the organization to become capable of offering integrated solutions to customers.

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Exhibit A
Projected Sales based on Target

Actual 1998 Sales 1999 Sales 2000 Sales ($ ($ ($ millions) millions) millions) 364 426 498 246 288 337 71 83 97 47 54 64 750 765 780 493 157 702 2,467 508 162 716 2,577 523 167 731 2,699

Customer Type NA Customers Key Focus Other Other Customers Industrial Contractors CIG International Total

1996 Sales 1997 Sales ($ millions) ($ millions) 266 311 180 211 52 61 34 40 721 735 465 148 675 2,275 479 152 689 2,367

The above projected sales assume a growth rate of: 17% for NA Industrial customers 3% for Industrial Contractors 2% for other industrial customers 3% for CIG 2% for International

Target Set Across Company 1998 Sales 1999 Sales 2000 Sales 1996 Sales 1997 Sales ($ ($ ($ ($ millions) ($ millions) millions) millions) millions) 2275 2457 2654 2866 3095 66 75 86 98 111

Revenue Profit

The above figures are based on Roy Haleys targets. Revenue growth = 8% Profit Growth = 14%

Projected Sales (May 1997-Year end 2000

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Customer Type Key Focus Other Total

1996 Proj Sales Proj Sales Proj Sales Proj Sales $ millions 1997 1998 1999 2000 180 214 253 301 357 52 60 69 80 92 34 34 33 33 32 266 307 356 413 482

YTD Sales May 1997 89 25 14 128

Proj Sales for 1997 are estimated using the actual sales till May 1997 Proj Sales from 1998-2000 are estimated based on sustaining the previous years revenue growth rate

Total Sales from Customer Segments excl NA 2000 NA 2000 Projected revenue based on half yearly 1997 revenues Total Shortfall $ millions

2,201

482 2,683 413

Group K

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