WESCO Distribution, Inc.
WESCO Distribution, Inc. began in 1922 as the distribution division of Westinghouse. It did well enough until the early 1990s, when it was sold off to Clayton, Dubilier, and Rice (an investment company) in 1994. Roy Haley was brought in as CEO and led the company to become the third largest full-line wholesale electrical equipment and supply distributor in the country. In fact, WESCO s sales in the United States alone were over $1.6 billion.
The company had three main types of customers. The first, Electrical Contractors, who installed lighting and electrical systems for construction projects, accounted for $465 million of WESCO s sales. These were referred to as bid-and-quote transactions. Since contractors had to bid for their contracts, they, in turn, would then solicit bids from their chosen EES distributorships. These distributorships would then compete to prove that they had the fastest delivery and, more importantly, the lowest overall price.
The second group of customers was the Industrial Customers. This group accounted for more than $1 billion of WESCO s 1996 sales. Also, the Industrial Customers group was expected to keep growing in significance to the company. The main EES need that WESCO could meet was with their Maintenance, Repair, and Operations (MRO) activities. These activities would include such things as replacing a broken switch, repairing a worn out motor before it failed, or upgrading a lighting or drive system for increased efficiency. The Industrial Customers group consisted of businesses like utility, manufactured structures, pulp, paper, and lumber mills, petrochemical, mining and metals facilities, and transportation.
The third group was made up of Commercial, Institutional, and Government Customers (CIG). This was the smallest market in 1996 with only about $145,000 in sales. The companies included in this faction were hotels and motels, hospitals, universities, and government organizations. Despite the relatively small sales figures that WESCO realized from the CIG group, there was a large market out there particularly government customers and they wanted a greater share of the $5.9 billion that market represented.
WESCO began its NA (National Accounts) program because it felt that large contracts for EES (electrical equipment and supplies) could monetarily benefit both WESCO and their customers. By agreeing to give their business exclusively to WESCO, the NA customers would receive competitive pricing, throughout the entire year regardless of volume. It was originally designed to serve large, high potential industrial customers. Moreover, in its beginning, most of these contracts were mainly for individual products. According to the case, over 80% of the agreements were just for lamps.
The idea behind the NA program was that the customers would exclusively buy EES products from WESCO, therefore allowing the supplier to give them exclusive price breaks. Additionally, this would benefit WESCO and its customers by promoting a more collaborative relationship with each other. This would grant WESCO the ability to learn their client s business practices (helping WESCO to forecast their sales), and in turn provide their customers with better quality and service. However, this didn t work out quite as planned. The customers bought the WESCO products, but then proceeded to buy from other suppliers, as well. In fact, many of their customers signed contracts for the same products with WESCO s competitors.
The NA program is a good idea, but it needs to be remodeled. First of all, the sales and profitability figures are probably a little too optimistic, especially when you consider that they are in the distribution business. Even if they could attain the numbers that Haley wants, it would be increasingly difficult to sustain them. As he said, providing more value is the most important factor, but it must be done in a way that is quantifiable and also improvable. In the maintenance level of the relationship, WESCO does decrease their costs enough to make the proposed margin. However, that appears to be almost exclusively in MRO supply. The Electrical Contractors Group, which account for about 25% of WESCO s business, remains somewhat lower at between 11 and 18 percent. Just getting to the maintenance stage of the relationship though could negate much of that finally attained profit. This does not even mention that customers want you to continually prove that you are earning their business by further service upgrades and discounts.
Secondly, if part of the sales representative s or branch manager s job is for him to call on every NA customer, then that is his job. I don t care how good of a salesman he is, if he doesn t complete his job responsibilities, then I don t need him. On the other hand, if there is simply too much of an additional workload on the sales staff then that should be evaluated, as well. Also, the National Accounts Managers (NAMs) program should be optimized to focus, not only on their territory and special projects such as the National Implementation Teams (NITs), but also on the hard-sell NA customers abroad. Furthermore, there should be more of them (this is a big company) and they should be used to assist the branches that need more help, not to create easy sales for the branches that would get the sales anyway.
Lastly, and most importantly, I think that they should take a more passive approach to their NA program. By Piraino s own words, Some of the most successful national accounts have begun with requests from customers and, In all our success stories, our branch managers and field reps had existing relationships with the customer s local personnel. This should be an alarm going off throughout WESCO. With their NA customers, I believe that they should take the customers that they have satisfactory existing relationships with and stay focused on them. This does not mean that they should not try to expand, rather that they should do it at a more conservative pace. Instead of spending all of their time recruiting these numerous customers and then having to do business with unreceptive partners, they should focus on what they do best. What’s more, they need to re-educate their sales staff to concentrate on adding value for their client s business, not just making a sale. Additionally, they need to be compensated in a way that positively promotes this way of thinking. The company and its personnel need to concentrate on procurement costs, system efficiencies, sole-source supplying, and also tighter integrated supply.
As far as the non-competing alliances go, I don t think that there was enough information to make a good argument either way. I think that it would depend on the other members involved and need an iron clad set of contracts to keep it feasible.