GROUP 8CMR enterprises

Q.1 What should CMR do about the Blackstone account ?y Problem areas : y Miscommunication and lack of coordination y Reluctance from Blackstone to share their information y Less focus on the Residential business than the commercial business(InfoCentral)Three alternative ideas of 3 camps : Current problems are not unusual and its a matter of time and it will be sorted out There are some problems but they are fixable. Focus on the residential business is needed as it is on the commercial business . Lack of proper implementation of InfoCentral . Reluctance of Blackstone team to change Termination or at least a significant restructure.

Which way should CMR go ?y CMR should not loose Blackstone by any means because Blackstone is one of

y

y y y y

the biggest source of earning for the CMR & CMR needs growth to pay its debt & fund expansion efforts. CMR should try to maintain a healthy relationship with Blackstone through continuous talk & sharing of information.CMR should tell the importance of the InfoCentral system and persuade it to share their data so that the process could be streamlined. InfoCentral has been made keeping in mind the commercial business only, So it should be made compatible to the Residential business also. Also they should communicate that for mutual benefit the homeowners should not be made to contact them directly They can offer the product at lower prices only if one final communication is made from the contractor side and not from homeowners By this we hope that Blackstone will understand and try to co-act for value creation in the transaction

Q.2 How much profit is being generated by CMRs commercial relative to its residential business? By the Blackstone account?y Commercial:

Sales = 1 Contribution margin- 0.48 => variable cost=0.52 COGS = 0.34 Other variable overhead = 0.18 y Residential work: Sales = 1 Contribution margin = 0.38 => variable cost = 0.62 COGS = 0.26 Other variable overheads = 0.36

y The variable overheads are double that of commercial. The reason is quite

y y y y

y

simple. They have to invest extra time (90 mins)and also the conversion efficiency is less. If this is reduced to half i.e. the original value the contribution margin rises to 0.56 which is higher than commercial. Also COGS of 0.26 are sold at 1. So if the COGS of 0.34 is sold will be sold at 1.3 So we are already selling at higher price. The higher price is due to the extra time spent. Although a fully aware customer will be ready to pay higher price. But here, its not possible to explain the situation. (this is also the reason of conflict with Blackstone) So clearly price increase is not a viable strategy in this case.

3. Was CMRs decision to initiate a relationship with Blackstone a good one?

Positives Residential market was a great opportunity Blackstone was the biggest customer in the area Immediate market share and volume Willing to pay full price Stability

Negatives Consolidated Market Inability of InfoCentral Were tough on the sub contractors Overstaffing

Q4) What is the nature of CMRs Business? How does it differ across the two market segments?

Custom Architectural millwork industry Installed woodwork, cabinetry, and furnishing for businesses &high end homes $ 6.8 Million Annual Sales in 1997, top 5 % in industry

Residential

Customize cabinets(Kitchen and bathroom) , Millwork for new and remodelled homes Only 15 % home builders contracted for custom cabinetry for high end homes $ 4.8 B in US in 1996

Commercial

Executive suites and lobbies for office buildings Customized wood interior components for banks and doctors offices $ 5 Billion US, 1996

Commercial

Owner Paid for jobs

Designer Designed and developed detailed drawings

General Contractors Plan to finished project Solicited bids from subcontractors such as CMR No salespeople but have plan rooms

ResidentialHome Owners

Designer/ Architect

Contractor

Subcontractor(Mikes Cabinet)

Continued..y Continued to sell under Mikes Cabinets name y Increase in residential sales y Maintained showrooms where homeowners could view

options for cabinetsy Contractor gives allowance of $6000 for cabinets

kitchen and bathrooms y Homeowner visits showrooms and decides on cabinets y Price is above allowance, customer pays the difference

5. How did the CMR-Blackstone relationship evolve over time? Highlight important events and actions that influenced this evolution

Year 1

Year 2

Blackstone offered chance to be the only subcontractor

Faced problems with communication & coordination

Monopoly enabled CMR to gain 25% of its residential revenues from Blackstone customers

Increased prices by 7% resulting in overall increase of 15-20% for customers of Blackstone

Last minute changes affected operations

Lot of issues with Blackstone

Increasing Conernsy InfoCentral y Lack of accountability y Least contribution from Blackstone y Growing clout of Blackstone Catch 22 situation for Marcus

6. Why did CMR persist in the Blackstone relationship? How would you remedy such a situation?

y Blackstone provided stability y Friction was caused due to Blackstones internal issues y Team facing Blackstone was experienced y Tweak InfoCentral to suit Blackstone y Raise the bar by leveraging experience with Blackstone

y Any Questions?