WESCO Distribution Inc.

By:

Deepak ChavanY.Sreenivasa ReddyPraveen Katiyar

Start up Founded in 1922, as the distribution arm of Westinghouse After disappointing performance in the early 1990s, sold to the

investment company of Clayton, Dubilier & Rice (CD&R), in 1994

Roy Haler taken over as CEO and rebounded the revenue to $2.2 bn, became third largest distributor in EES (Electrical eqpt. and supplies) in USA by 1996 globally

Suppliers : - have strong ties with over 150 suppliers - majors–Cutler-Hammer, Thomas & Betts, Philips and Leviton - Suppliers make only part of customers total EES

requirements, cannot deal with small volumes and unable to add value at all stages of the sales process

Products: Primarily electrical products, MRO (maintenance,

repair and operating) Supplies, and supplies for industrial Original Equipment Manufacturers (OEM’s):

Electrical Supplies – fuses, terminals, connectors Industrial Supplies – cutting and other tools, safety

equipment, etc. Distribution – circuit breakers, transformers, etc. Lighting Wire and Conduit Control, Automation & Motors Data Communications – premise wiring, patch panels,

etc.

Cont…

Customers: Segmented

1. Electrical Contractors $17.9bn total business of which WESCO gained $465mn in

1996. Referred to as ‘bid-to-quote’. Transactional in nature Installs lightning and electrical systems for construction

projects. Preference will be given to timely delivery of supplies

2. Industrial Customers $1bn in 1996 & expected to grow Maintenance, Repair and Operations (MRO) is main Serving segments include utility, manufactured structures,

pulp and paper, lumber, petrochemical, mining and metals and Transportation

Collaborative in nature and look for long-term contracts

3. Commercial, Industrial and Govt. (CIG) $148 mn sales – include hotels, motels, hospitals,

universities and institutional customers

Competitors:

1. National Chains – 5 Competitors - placed third in sales2. Regional Chains – 8 competitors3. Full line Distributors – Sales ranging from $20-$200

million – 250 Local Distributors4. Full line Distributors – Sales ranging from $0-$20 million5. Specialty Distributors 6. Others - Retail generalists

Major Competitors

Customer does not recognize need or opportunity

Recognizes Customer need or opportunity

Customer recognizes value & decide to act

Ensures that customer identifies WESCO as

potential solution

Customer Commitment towards WESCO

Value is created, demonstrated and

documented mutually

Customer works with WESCO on next value creation

WESCO Selling story

Branch Office Organization

Has 279 branches in US Maintains own inventory and own P&L responsibility. Substantial autonomy in its own territory Marjory serves customers in a specific industry 1 branch manager, 4 outside sales reps, 4 inside sales

reps, 1 warehouse specialist and 1 administrative officer Outside sales reps acquire customers, while inside sales

reps ensure their retention Disadvantage of serving narrower customer base and

cooperation between branches is limited

Trends in the EES industry in 1980s & early 1990s

Examining the procurement costs, improve supply chain efficiency, reduced inventory, long-term collaborative JIT contracts

Some customers still prefer old ways and are resist to change

Total Procurement Cost

Cost of Product itself

Cost of Acquiring the productRequisitions, negotiations, issuing POs,Receive materials, invoices handling, Accounts payable records, distribute

Cost of Handling the productInventory control, taxes,Insurance, Depreciation,

Obsolescence, storage area

WESCO National Account Program

Significant savings for both customers and WESCO by establishing long-term contracts, started in mid 1995

Customers will receive competitive, year-long, national pricing regardless of volume

Major contracts are product driven and minimal value added services and 80% are just for lamps

By 1997, there were 300 customers Based on sales volume & commitment, customers are

classified into 3 groups – Key, Focus and others 18 National Account Managers (NAM) across the country Each complement 10 to 15 customers plus 15 to 20

prospects Local Sales Reps are assigned to look at local level

Building NA Agreements

NAMs called the customers of high potential / Prospects Presentations are made at Corporate level on Total cost of

ownership, inventory reduction, emergency Service ‘ An average MRO order from an Industrial customer

ranges from $135 and the processing of an order takes $150’

When the prospect shows interest, then NAMs moved to local level and presentations are made to DMs

NAM become part of National Implementation Team (NIT) travels to the customer site for finalizing contract

Meet with Local Implementation Teams (LIT) and implementation of program starts

Getting customer visits by NIT after implementation

Success story & Integrated Supply Reduce the Inventory costs, energy costs and procurement

costs by EDI at entire customer local plants Acquiring 2 local distributor branches and opening a new

branch to serve customer better Sales has increased tenfold and reached $1 mn/month WESCO was able to document 20% cost savings to the

customer, far more than expected For most of the customers, 70% of the annual procurement

budget is accounted by top 5 – 10 suppliers The purchase dollar volumes and effort makes customers to

go beyond Transactional, and focus on TCO Commitment to change from the top management is vital Customers are demanding to form Supplier tiers NA Customers/prospects as us to take up different business

Analysis – What should WESCO do? A proactive approach in managing the NA program

would definitely fulfill the company’s visions of becoming a $ 3 billion company with an average EBIT of over 5% by the year 2000 (from its 1996 figures   of $ 2.2 billion company with an EBIT of around 3%.)

Though the current position was not conducive to continue the program further, because the company was already at a loss of complete 2% in their revenue as compared in the previous year, still looking towards a long term prospective this program can gain higher margins if a planned strategy and proper segmentation of customers is created by the management

Effectively managing the sales team is also essential for the management because a substantial amount of cost is incurred in maintaining this force

Proper training is to be given to NAMs and Sales Reps

Analysis – What should WESCO do? Should continue and coordinate MRO procurement and

materials management activities across multiple locations for industry-leading industrial and commercial companies

Individual roles and responsibilities may vary, but it's a sure bet you and your company have a number of things in common with WESCO's other national customers. You want leverage. Leverage gained through a well-coordinated, national program that delivers:

A uniform, competitive price across all locations National programs combined with local service and support Knowledgeable people and effective processes for nationwide

contract administration, opportunity identification, and problem resolution

e-Procurement readiness and leading-edge technologies Rapid, effective implementation Documented cost savings, year after year

Analysis – What should WESCO do? WESCO's Value-Add Services leverage every possible

cost savings opportunity to add to your bottom line. Lighting Audits/Energy Audits for energy savings Consignment Services for reduction of inventory costs Electronic Procurement for reduced transaction costs Buying Power for uniform competitive pricing at all

locations Proxy Distribution Network for reduced supply chain

management costs Customer Inventory Management for increased

productivity and reduced maintenance Application Engineering for product quality

improvements Training Services for increased productivity

Analysis – What should WESCO do? Customer-based activity levels – as measured by order

processing, delivery and invoicing transactions – declined Although order volume and the workload associated with

processing, picking, packing, and shipping remained nearly constant, the revenue value per transaction declined, as customers drove down inventories and conserved cash through reductions in capital spending

Restructuring of the distribution network to be done and more number of new branches to be acquired/installed

Should also make use e-procurement with suppliers and Online shopping tools for customers to get globally