using customer stratification and cost to serve information in your sales efforts to maximize...

THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS

Dr. Barry Lawrence PhD, Texas A&MJohn Mansfield, Vice President Business Development, Graybar

Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits

© 2012 Proformative. Proprietary and confidential

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Learning Objectives

After attending this webinar you will be able to:

• Define how customer stratification can identify your most profitable customers

• Define how customer stratification can help improve customer relationships

• Define how to move marginal and opportunistic customers to become more profitable customers


USING CUSTOMER STRATIFICATION AND COST


Industrial Distribution (ID) Program Overview

5


Customer Stratification

6

• High Profitability• No Relationship• Low Cost to Serve• Low Volume

Opportunistic Customers

• High Profitability• Sustained Relationship• Low Cost to Serve• High Volume

Core Customers

• Low Profitability• No Relationship• High Cost to Serve• Low Volume

Marginal Customers

• Low Profitability• Sustained Relationship• High Cost to Serve• High Volume

Service Drain Customers

Customer Life (Loyalty)

Gro

ss M

argi

n

Sales Volume

Cost To Serve (CTS)


How to define the business “we want to do”?

7

© 2010 All Rights Reserved Texas A&M University Supply Chain Systems Lab

Core Customer Profile

Revenue $ 74,207

GM $ $ 18,722

GM % 25.2%

Days to pay 33

# of lines 8

Order size $ 1,532

Returns 11%

Quote conversion 72%

InventoryA & B Items 79%

C & D Items 21%Strategic Suppliers

(Top 70%-80 of Spend)

Supplier – 01 40%

Supplier – 02 30%

Supplier – 03 18%

Supplier – 04 12%

8

Non-Strategic Suppliers (Top 5% of Spend)

Supplier – 07 3%

Supplier – 08 2%


Service Drain Customer Profile

Revenue $ 42,389

GM $ $ 8,194

GM % 19.3%

Days to pay 53

# of lines 4

Order size $ 882

Returns 32%

Quote conversion 22%

InventoryA & B Items 56%

C & D Items 44% Strategic Suppliers (Top 70%-80 of Spend)

Supplier – 01 35%

Supplier – 02 25%

Supplier – 03 20%

Supplier – 04 20%

9

Non-Strategic Suppliers (Top 5% of Spend)

Supplier – 07 20%

Supplier – 08 15%


Life Cycle of a Core Customer

11


Service Innovation – Extend Life of Core Customer

12

Innovation


Profiling the Core Customer

13


Resources

14

Release Date: August 2012

http://www.naw.org


Thank You!

For more info please visit:http://supplychain.tamu.edu

“Total Solutions For Industrial Distributors and Manufacturers”

15


CUSTOMER STRATIFICATION AT GRAYBAR

John Mansfield, Vice President Business Development


Agenda

• Introduce Graybar

• Overview of Customer Stratification Project

• Customer Analytics Co-Innovation

• Pilot Results

• Questions & Discussion


• Wholesale Distributor– Electrical, Communications,

Data Networking, Services

• $5.3 Billion Sales

• 239 locations – (208 US, 30 CA, 1 PR)

• ~7,400 Employees – (2,900 Customer Facing

Roles)

• 1 million products, 4,100 suppliers

– ~75K stocked items– ~50% from top 25 suppliers– ~56% from stock

Graybar


Graybar Customers

• ~117,000 Customers

• Diverse Markets– Construction– Commercial– Industrial– Utility– Government


Customer Stratification Model

Paradox: a statement, proposition, or situation that seems to be absurd or contradictory, but in fact is true


NAW/Texas A&M Research


Key Findings

“…EBITDA of 5.2% could improve to 11.4% by implementing best practices…”

“Customer stratification, in particular, drove EBITDA improvement, which affected other critical processes such as marketing and pricing.”


Benefits

• More Accurate Sales Force Deployment

• Improved Negotiations

• New Growth Opportunities

• Pricing Optimization

• Better Inventory Management

• Better Marketing Communications

• Targeted Sales Force Compensation


Mission

• Leverage Best Practices

• Build Graybar Model

– Relevant– Reliable– Quantifiable, Available Data

• Boosts Profitability


John Mansfield VP Business

Development

Dennis Shaw Director Financial Analysis

Susan Reale Director Operations

Najam Chohan Area Financial Manager

Mark Rog Branch Manager

Byron Bennett Sr. Business Technology

Analyst

Asa Goldkamp Marketing Specialist

Dream Team

Dream Team


CS Practices Levels

Common

Good

Best

Time

Perf

orm

ance


CS Framework

Core, Opportunistic, Service Drain,

Marginal

Customer Lifetime

Value

Customer Buying Power

Sales $, Product Line Penetration

Loyalty

Hits, Trend, Order pattern

Net Profit

Cost To Serve (CTS)

7 Factors

Profitability

GM% and GM$

Customer Stratification: Best Practices for Boosting Profitability, F. Barry Lawrence, Ph.D., Pradip Krishnadevarajan, Senthil Gunasekaran, Copyright 2011 by the NAW Institute for Distribution Excellence


Customer Stratification Summary

Factor Weight

Days to Pay 25%

Order Size 21%

No. Lines 18%

Returns 11%

C & D items 14%

Will Call 4%

Delivery 7%

Factor Weight

Sales $ 50%

Product Lines 25%

# Items 25%

Factor Weight

Orders 35%

Consistency 35%

Trend 30%

Factor Weight

GM $ 50%

GM % 50%

BUYING POWER

COST TO SERVE (CTS)

CUSTOMER LOYALTY

PROFITABILITY

Customer Lifetime Value

Net Profit50% 50%

50% 50%

50%

50%

Customer Stratification: Best Practices for Boosting Profitability, F. Barry Lawrence, Ph.D., Pradip Krishnadevarajan, Senthil Gunasekaran, Copyright 2011 by the NAW Institute for Distribution Excellence


Customer Type Matrix

Customer Lifetime Value

Net

Pro

fit

D C B A

DC

BA DA CA BA AA

DB CB BB AB

DC CC BC AC

DD CD BD AD

Opportunistic Core

Marginal Service Drain


• 7 Locations

• “Typical” Branch

• Different Markets

• Different Sales Teams

• ~$141 million Total Annual Sales

• ~40 Sales People

• ~21 Managers (Sales, Finance, Operations)

Pilot Locations to Test Graybar Model


Tested Graybar Model on Pilot Locations

© 2012 Proformative. Proprietary and confidentialBroaden Our Reach.

Pilot Location Results

>=$10k

25.1%

<$10k8.5%

<$1k42.8%


Insanity:Doing the same thing over and over again and expecting different results.–Albert Einstein


Strategies

“…what we can achieve depends less on the amount of time we possess than on the use we make of our time.”John S. Mill (1806-1873);British philosopher


Paradox: Complex, Yet Simple


Utilizing Customer Stratification

• Sales Force Deployment

• Pricing

• Service

• Inventory Deployment

• Financial

• Marketing


Typical Sales Person


TIME is Money12

39

6

Core

Opportunistic

ServiceDrain

Marginal

$$


Strategies Playbook

39


57 Strategies

Customer Type

Sales Team

Pricing Service Invento

ryFinancia

lMarketi

ng

Core 4 2 3 2 5 3

Opportunistic 3 1 2 2 3 3

Service Drain 2 2 2 2 2 3

Marginal 2 2 2 1 1 3


Data versus Information


Dashboard Conceptualization


Dashboard Results – By Profit Center


Dashboard Results – by Sales Person


Money Page


PILOT RESULTS


• Objective

– Financial Results versus Control Group– Factor Values

• Subjective

– Weekly Blog Posts

Measurement of Success


“After looking at one of my core accounts, I realized we were not writing <Supplier Name> business as we had in the past. By working with the supplier and customer I was able to pinpoint the level we need to be at in order to capture business from customer and lead them away from competitor. As a result, I recently wrote a $13,000 order at a very profitable rate.”

Outside Sales Rep, AKOH

Core Customer Testimonial


“Using the CS system I have identified a few Opportunistic customers that I am going to target. One customer in particular was already on my list of target customers but now seeing their “report card” in CS it has given me even more motivation to make them a Core Customer. Overall their customer lifetime value is a C and their net profit is a B but I am confident that they can become an A customer. According to the CS board there are 6 product lines that we have penetrated with them; those lines brings us healthy orders but not day to day business. Seeing that we have only penetrated 6 lines was an eye opener because they have a huge facility that needs/uses most products that Graybar sells not just the 6.

Going forward- I have scheduled a discussion with the head of their purchasing department as well IT in order to get a better understanding of their business and ordering processes. I have also already met with one of our manufacture rep to discuss the account.”

Account Rep, KCMO

Opportunistic Testimonial


“Customer Stratification has the power to enable us to transform our company from being product-driven to customer-driven. It has helped me understand my customers in greater detail that I call on a daily basis. I started working on my Service Drain customers first. <Customer> was very surprised that the average order only had four lines items out of 287 orders in 2011.”

Outside Sales Rep, KCMO

Service Drain Testimonial


“I think Customer Stratification is fantastic. It has been well-studied and mathematically proven to work. Customer Stratification is a roadmap for success. Yes, there will always be exceptions to the rule and you may find the “diamond-in-the-rough” - the Marginal customer who miraculously sends you $100,000 order, but that is not the norm. That’s when it comes to “knowing your customer”. We are here to KNOW our customers and that is what Customer Stratification is about.”

Inside Sales Rep, OMNE

Marginal Customer Testimonial


Thank You


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