3m Executive Summary Essays

3m Executive Summary Essays 3m Executive Summary Essay 3m Executive Summary Essay Over 50,000 patents extended over 13 technology platforms ranging from abrasives to polymers  ¦ Global company – companies in over 60 countries and 139 plants worldwide  ¦ Strong recognition for standard innovations with practical applications  ¦ Operational efficiencies cost of sales declining and margin % increasing over the years  ¦ IBD’s new strategy was to transform from margin expansion to top line growth  ¦ Corporate brand strength and technology behind its products with exclusive supplier status, product driven organization with strong RD direction, and geographic specialization  ¦ Through lean programs IBD is in progress to shorten the time to go to market  ¦ IBD is acquiring product specialization in tapes and adhesives are 50%-60% division turnover and abrasives are 40%-50%  ¦ Access to experience and knowledge pool of the worldwide organization and profiting from close connection in the marketing strategies of over 50 divisions in 3M  ¦ Natural fit with the culture of the Special and Niche categories  ¦ Groomed employees grow and develop to become product experts Weakness  ¦ IBD had not concentrated on the MRO segment because it was fragmented with slight brand loyalty  ¦ Sales reps were not accustomed to dealing with large corporations driven by networks, procedure and protocol but to store managers of small to medium sized businesses  ¦ IBD did not obtain customer specialization Weak marketing and sales strategy for National accounts  ¦ Quick decision making is lacking because 3M is a large corporation and a bureaucracy  ¦ 3M’s had not changed in terms of product application, service delivery mechanisms, customer expectations and logistics requirements as it has in the Industrial sector  ¦ IBD did not have cadre of â€Å"channel† specialists to complement the product specialists  ¦ IBD does not have an incentive program with reduction in supply chain costs of the large National players  ¦ Lacked to be â€Å"best in class† in logistics fulfillment, standardizing SKU’s and Just-In-Time delivery  ¦ No additional marketing resources were available to IBD Opportunities  ¦ MRO was growing at a double digit rate with large players (mega corporations)  ¦ Currency (3M Canada manufacturer can become more competitive)  ¦ IBD’s share of distributor sales was a measly 2% of the distributors revenue  ¦ In MRO the market share and driving scale was the largest because of its big market, large distributors are surpassing the growth of MRO market, in most product lines there are vacant spaces waiting to be filled, and there is an opportunity area with potential for both revenue and margins in the private labeling  ¦ IBD had to look outside the OEM segment for clients and revenue  ¦ Filtration was a future growth area Based on current technol ogy platforms, the division had recognized 9 product opportunities as having growth potential  ¦ The National category was the fastest growing out of the 4 types to due ongoing distributor consolidation  ¦ National player has a massive sales infrastructure in terms of branches, delivery center, and sales force, therefore IBD’s opportunity the integrate into the market quickly  ¦ The price of goods composed of only 39% of the total cost; the remaining 61% represented a large area of opportunity for supply chain savings Threats  ¦ OEM segment had become mature  ¦ Labour – 1hr of labour and benefits in Canada costs $11. 00US at minimum wage point and China’s labor was less than $0. 5US  ¦ Tracking the customer needs will be more difficult in the MRO market since they are not the end users  ¦ The alteration of currency can change the market trend fairly easily  ¦ When there is a slowdown in the industry where OEM is a part, distributors are always the first to be affected and the last to recuperate  ¦ Decline in Canadian manufacturing was influencing the OEM segment  ¦ MRO segment is fragmented; products could not be specialized  ¦ Off shore trends was growing  ¦ The deficiency of legacy expenses (RD) lowered costs for new competitor  ¦ E-commerce was growing a solid ground; therefore IBD had limited resources to reach end users  ¦ Industrial market was changing in areas of products, service delivery mechanisms, customer expectations and logistics requirements; therefore IBD had to quickly changing with customers needs  ¦ To increase the National distributors power with the manufacturers, hey wanted to cultivate their private label business and build their own equity in the trade  ¦ Constraints and protocols were established by the National players, as a result customized programs for marketing were now required to be created Current State of 3M: IBD’s Business IBD is a global firm that has a strong corporate brand with technology supporting its quality products. There are two types of end user applications IBD has in place; production plants and servicing facilities. IBD is a product driven organization with strong RD and holds over 50,000 patents internationally. Their tapes and adhesives have 50% 60% distribution revenue and abrasives have an astonishing 40% 50%. They were known for regular innovations with practical applications. OEM and MRO are major customer segments for IBD. OEM’s market is maturing and is creating IBD’s growth to be slow. They demand what IBD can support; high-valued items and brand quality since it is a part of the finished product. On the other hand, MRO segment is fragmented with little brand loyalty; hence IBD has not concentrated in this market. The MRO market was growing at a rapid rate and IBD could not ignore this. They commenced lean programs to strive for going to market in 18 months not 6 to 7 years. New marketing strategies were also coming to surface. Today they only receive 2% of the distributors’ revenue. IBD’s current channel seems to be direct selling and their sales are relationship driven. Sales representatives would meet a customer in person to create customer linkage. They would bring a sales toolkit that entailed a line of potential 3M products and technologies together because they are perceived as a sales stimulus. IBD’s key gauge of sales performance was maintaining existing clients and generating repeat customers. Also their clientele was mostly OEM; consequently their end users. Key Stakeholders IBD’s key stakeholders are Mahesh Yegnaswami, Vice-President of IBD, George Buckley, and Senior Management. Mahesh Yegnaswami is IBD’s national accounts manager. He will be recommending a plan of action to the vice-president on how the division will achieve the MRO market and increase organic revenue. The vice-president will take into consideration the plan of action and make the decision to send it forward to the senior management. George Buckley is the chairman, president and CEO of IBD. As a CEO he envisions an annual growth rate to 12% 15% by 2008. His new strategy was to move from margin expansion to top line growth, productivity gains and cost savings to market development and promotions. The senior management are the decision makers in regards to the plan of action and its implementation. They need to have consensus if the new strategy can be successful in obtaining the organic growth goal rate of 12%-15% or not. At IBD there are significant problems that need to be addressed for a successful organic growth. Problems occurred in areas such as logistics, marketing program, and sales model. The most fundamental crisis is that their current sales model will not achieve anticipated growth rate as authorized by IBD in a targeted time-frame. The possibility of revenue may decline since OEM segment is mature. By remaining in the traditional sales model, IBD may lose the opportunity of the growing MRO market ($14 billion) that will allow them to achieve their goal. If IBD does not penetrate the large distributors quickly, the end user may get too comfortable with existing competitors product and not even consider trying 3M. In addition, there is a prospect to penetrate where vacant spaces in most product lines are waiting to be filled. Current sales strategy will not work in the new market because IBD sales force was geared to â€Å"what to sell† and not â€Å"how to sell†. Furthermore their current strategy has a long sales process, which gives the niche market an opportunity to service the OEM market more quickly than IBD. Because they are a large organization and a bureaucracy, their traditional ways of marketing will not penetrate the MRO segment quickly enough to be competitive especially with higher prices. The sales staff is not trained to do relationship selling to National accounts. If IBD does not have the accurate product for the appropriate industry this may damage their company brand. Their overall growth goal of 15% will not be achieved and may cause necessary staff cuts and lower employee moral if IBD continues the same course. Moreover the employees in every department will unintentionally spill their low moral on to their clients. Everyone including the company brand will be affected. Once the principal problem has been addressed, it is important to determine the alternatives that IBD should consider in order to resolve the principal problem. First, an alternative that could be taken is to change nothing that IBD is doing and remain on the current way of conducting business. This would allow IBD to continue selling to their OEM accounts that are willing to pay premium price for 3M products. IBD is aware the OEM market is declining due to a rising Canadian dollar and the growing trend of off shoring to China. This should be considered if IBD chose to run their business as usual. In addition, IBD remained with the current course because their strengths of product innovation, new product introduction, getting â€Å"specified† for in-process usage, building relationships with business customers and working with them closely to reduce their cost of operations. However, IBD will need to consider multiple alternatives in order to make a decision on the best way to solve their principal problem. Another alternative that IBD could pursue is changing the customer focus from the current OEM market to the MRO market. There are four types of distributors in the MRO market, these are: National, Special, General, and Niche. The special and niche types were losing their traditional competitive edge, due to larger players building up domain expertise by acquiring product/process skills also, technologies were going off patent, and the manufacturing was open to all. The market share and driving scale in the MRO market is larger then that of the OEM market. This is because of a variety of major reasons; first the MRO market is larger and estimated to be worth $14 billion Canadian dollars. Secondly, there are vacant spaces in most product lines waiting to be filled, and 3M could capitalize on this. And finally private labeling is an opportunity area with potential for both revenue and margins. Also, Yegnaswami stated that â€Å"changing the customer focus from OEM to MRO gives us (3M) additional sales in the targeted time-frame†. Lastly, a third alternative IBD may take interest on would be to focus and sell to the MRO market in addition to the OEM market. The products catering to the OEM market are those of high-value items that will became part of the finished product. While with the MRO market the products are completely different with a focus on consumables of a low value. In addition, this alternative would allow IBD to focus on both markets keeping existing business in OEM market and grow in MRO. Overall, IBD has three alternatives to consider in order to solve the principal problem of the existing traditional sales model not being able achieve an anticipated growth rate as mandated by IBD within a targeted time-frame. In order for IBD to determine which alternative to focus the company’s efforts, some criteria must be generated in order to conclude to a decision. The criteria is an essential step in the process because it will show how to track the success of the alternative to the principal problem that 3M is having. The criteria is needed in order for IBD to evaluate the alternatives to the main problem. The main criteria in which to base the choice on is if the alternative will be able to achieve the goal of stepping up IBD’s annual organic growth rate from 3 – 5% in recent years to 12 – 15% by 2008. The criteria can be measurable on a quarterly basis by evaluating price values versus target. Therefore IBD will be able to continue to track their growth rate, and see if the alternative chosen is helping them achieve desired results. IBD will be able to see if the chosen alternative is working and make necessary changes to adapt to their strategy and objectives. Each alternative needs to be evaluated, and weighed against the criteria. This is a critical step in the decision on what to do about the principal problem for IBD. Alternative One The first alternative that IBD could take is to continue with their existing strategy, and not change their way of conducting business. This would mean to stay with the focus on the OEM market. Pros This alternative has some positive attributes for IBD to choose this option. Selecting this alternative will allow IBD to keep brand loyalty because in the OEM market, the brand is an important aspect in the buying process. In addition, this alternative will also allow for IBD to maintain their current high margins; this is because OEMs are willing to pay a higher price in exchange for premium products that adds value to their finished product. Also, this alternative will avoid channel conflicts within the industry which benefits 3M by allowing them to sell directly to customers. Cons This alternative is not without its faults to because this course of action ill not allow the company to achieve the mandated growth rate because the OEM business is decreasing. The OEM market is currently declining due to low production costs in China ($11 US vs. .15 cents) and the rising Canadian dollar. Also, the OEM market is currently maturing which would result in a flat line or decrease in sales over the years. Alternative Two The second alternative is for IBD to change their customer focus from the OEMs to the MROs with a focus on the national distributors section. Pros An advantage of this would be that the MRO market is fast growing in double digit rates with mega corporations. This would result in bulk sales and low unit margins would be offset by higher volumes. Also, IBD would not have to invest money on marketing to OEMs because they were already selling to this market and were very experienced and good at it. The distributors will be able to pick up tasks such as marketing and selling for 3M. Finally, the national players have an immense sales infrastructure in terms of branches, delivery centres and sales forces (inside and out) and are secured with large contracts. This would result in 3M being able to capitalize on this by using the national players’ sales force, and large contracts to increase sales. Cons This alternative does have its weaknesses, by dealing with MROs, only the result would be low margins for large volume sales because the MRO market is focused on price. In addition, the MRO industry is highly fragmented and does not care about brand loyalty. This could result in MROs going to competitors as soon as they offer them lower prices. Alternative Three Finally, the last alternative that IBD should consider is to focus on selling to both the OEM market as well as the MRO market equally. Pros If IBD were to take this alternative the company would have to become everything to everybody. IBD would gain variable margins such as high margins with the OEMs as well as low margins for the MROs. Cons However, there are many downsides to this alternative for IBD. They will not be able to specialize in a particular market as they would be able to by selecting other alternatives. This alternative is also very expensive because IBD would have to market to both the OEM and the MRO markets. IBD had a mandate to increase annual organic growth up to 5%. A promising way of achieving this goal is to switch customer focus from OEM to MRO because this industry was growing rapidly and is estimated to be worth $14 billion. Gaining a small piece of this market will upscale their growth portfolio. Continuing with their existing sales plan does not guarantee optimistic results, therefore needing to alter their sales model to serve this new channel and achieve this goal. IBD needs to focus on the ten biggest distributors in the MRO market, particularly National. In order to do that the organization will need some assistance from manufacturers’ reps. These reps will provide access to industry knowledge and experience that was needed because the distributors controlled the MRO market more than the suppliers. Existing relationships and large contracts with these distributors and the manufacturers’ reps will be a large asset that will leap to new contracts with 3M. In addition to servicing the National accounts by manufacturers’ reps, IBD should add three to four customer account managers (internally groomed). They will service each National distributor and ensure that they provide quick responses and push the decision making process. This is imperative because these accounts are in need of great customer care and such requests will not inconvenience the salesperson from focusing on attaining new business. Internal sales force is inexperienced for this new strategy as they are not qualified in dealing with large corporations. Instead they excelled at dealing with managers at small to medium sized businesses. Internal sales representatives will be the key individuals that will get closer to the end users throughout all industries. Their tasks will continue to maintain existing business accounts (particularly the OEMs) in their regional areas and ensure that they carry on as repeat buyers. Products that are sold in this market become a part of the finished product and brand loyalty is significant. As an entering good, it does compromise the quality of the finished product. This segment was mature with little room to grow, however products were perceived as high value and there was more room for profitability. Internal sales representatives will also serve as second level technical support for their existing accounts and end users of National distributors. This will assist in keeping control of end user data and ensure that their full needs are met. Supply chain management can be improved by implementing incentive programs with National distributors to purchase in volumes. This can be done by providing quantity price breaks as enticement to purchase in large volumes. Such strategy will increase production efficiencies, lower costs and provide a healthy inventory turnover. Another incentive that should be implemented is service stock agreements for specialized items. It is an agreement between the manufacturer and the distributor that the supplier will keep requested quantities in stock for them alone. This will cut lead times for the distributor and prevent inventory from turning into slow or obsolete. 3M has already implemented the Six Sigma programs that decreased their lead times and they do not have to carry as much inventory. National distributors had an immense regional infrastructure; therefore they will provide local products to the end users. The next step that 3M must take is to alter their traditional marketing programs that were originally aimed at the â€Å"Regional Specialists† segment. A new focus needs to be directed towards the National distributors. The phase that needs to be addressed immediately is pricing. Products for these distributors are commoditized where price is the key to competing in the market. A new price book will also have to be re-designed to be used as a tool for selling in this industry. The first step of the implementation plan is to schedule a meeting to discuss the new strategy as accepted by the IBD management. This meeting should include the following departments: senior management, human resources, sales staff (inside and out), marketing and business development. Mr. Yegnaswami should assign project managers for each area of implementation; sales model re-design, marketing, and logistics. A project outline will be designed in this meeting to state each milestone and set a target date for completion. Project managers will be given 1 month to gather resources and plan their strategy to move forward. Marketing managers will be responsible to develop a plan to penetrate the new market and this is where the design for the new price book should begin. At this point, human resources and sales managers should begin their research for employers of manufacturers’ reps. Simultaneously, 3M could begin grooming existing employees into Customer Account Managers. They will gain industry knowledge, inside selling tips, pricing, quoting, and telephone skills. Following a month of research for manufacturers’ reps, the sales manager should begin interviews with a minimum of three companies. Their decision should be made within two weeks. A national sales meeting should be scheduled two weeks after the appointment of manufacturers’ reps. This meeting should be used to introduce all inside and outside sales staff, including the customer account managers that will be working jointly with the manufacturers’ reps. Technical salespeople together with the customer account managers (CAMs) will use this time to provide technical product information and company policies (i. e. orporate objectives, return policy, freight policy etc. ). At this moment, the price book should be complete and ready to be introduced to the market. Manufacturers’ reps should use this opportunity to do joint sales calls with the technical reps and use t hem as support for any questions that may be specialized to a product. As a goal to shorten the sales cycle, promote the price book, and provide an incentive for the National distributor, salespeople should offer a discount of 5-10% on the distributor’s first stocking order for all items ordered from the price book. The next step is to hold a quarterly sales meeting (either local or through net meeting). Topics that will be evaluated are: budget versus actual sales and key performance indicators such as number of leads generated, qualified leads and quotes made. At this time the sales manager should evaluate the progress of each manufacturer’s rep. If progress is unsatisfactory, additional support will be provided in order to improve. During the annual meeting A potential risk involved with the new strategy is that 3M could hurt their brand name by creating a cheap image of their product. Currently they sell to a market that values the brand and will pay a premium price for the value that they are getting from the product. Selling to distributors who are price sensitive, 3M will have to consider the fact that they will be leading the market with price and not a premium product. IBD could overcome this issue by carefully evaluating the price elasticity of their products. All changes in price should have a reasonably large effect on the demand. Keeping the elasticity level at one will maximize the revenue and in fact assist in keeping their well known brand. By focusing their marketing efforts on the MRO National distributors, there is a risk that they will be facing channel conflicts. This conflict could exist when manufacturers like 3M and their distributors compete against each other when selling to the same market. IBD must properly design its channel to reflect the products that are sold in their targeted market. They must also mutually establish and align their business goals with their channel partners. In addition effective communication must be a priority with their distributors as these partners are necessary and viable for 3M to gain success. A further risk involved is improper setting of inventory levels. This is crucial to the business with the proposal of selling in volume. If these levels are not set up at appropriate amounts, 3M could be facing stock outs or overstocks that will lead to slow inventory. This could make or break their business. Logistics department should carefully monitor the product movement and make any adjustments to stay proactive with the product demand. If distributors have predictable buying patterns, salespeople could work with them to place blanket orders to ensure that inventory will always be available and their products will be pulled from stock. The last risk involved is that there are a handful of national distributors and if they were to lose business of one distributor, their sales would drop drastically. To overcome these risks, 3M should build close relationships with their distributors, always pledge to have open communications and avoid any risks mentioned above.