Wesco Case Solution

INTRODUCTION

WESCO started off as a distribution arm of Westinghouse in the year 1922. They primarily distribute products like electrical equipment and supplies (EES), MRO (maintenance, repair and operations) supplies, and supplies for industrial OEMs. They have strong ties with over 150 suppliers like Cutler-Hammer, Thomas & Betts, Philips and Leviton. They provided one-stop solution for all its customer requirements since most of the suppliers made only part of a customer’s total EES requirement, were not able to deal with small volumes and were unable to add value at all stages of the sales process. They had divided their customers into three segments:

Electrical Contractors

They install lighting and electrical systems for construction projects. More preference was given to timely delivery of supplies. $17.9 billion total business of which WESCO gained $465 million in 1996. It is primarily referred to as bid-to-quote business.

Industrial Customers

WESCO’s sales was $1 billion in 1996 from this segment and was expected to grow. Their main requirements were in Maintenance, Repair and Operations (MRO) activities. Their serving segments include utility, manufactured structures, pulp and paper, lumber, petrochemical, mining and metals and transportation. The nature of business was mostly collaborative and they look for long-term contracts.

Commercial, Industrial and Govt. (CIG)

WESCO’s sales was $147.5 million in this segment in 1996. It includes hotels, motels, hospitals, universities and institutional customers.

With sales of $1.6 billion in 1996 in the US & 3% EBIT, WESCO was the 3rd largest full line wholesale EES distributor. To attain $3 billion sales and 5% EBIT by 1999, Ron Haley (CEO) decided to spend $12 million/year on National Accounts(NA) program which mainly targeted large high potential industrial customers. In the backdrop of these expected sales and profits, Jim Piraino, VP marketing for WESCO distribution, has to make a decision on whether to continue with the NA program. He also needs to take a stance on supplier/distributor tiering and alliances. He also needs to decide whether to proactively approach potential NA customers or react to their demand.

PROBLEM STATEMENT

In what ways can Jim Piraino proceed with the existing National Accounts (NA) Program at WESCO so that their target of reaching $3 billion sales and 5% EBIT by 1999 could be achieved

The National Accounts (NA) Program:

• There is significant savings for both customers and WESCO by establishing long-term contracts
• Customers would receive competitive, year-long, national pricing regardless of volume
• There were around 300 NA customers by 1997
• Based on sales volume & commitment, customers were classified into 3 groups – Key, Focus and others
• There were 18 National Account Managers (NAM) across the country, each of whom complemented 10 to 15 customers plus 15 to 20 prospects

Reasons why NA program was not doing so well:

• Customers treated these agreements as non-exclusive  
• Most of the customer’s corporate and local needs were not aligned well
• Cost of serving a customer was very high
• The other contract clients were being neglected
• The whole process was difficult to implement
• There were unanticipated differences in procedures and purchases
• NA agreement and local plants supply were not in agreement
• They became competitor to electrical contractor’s traditional business thus threatening their own business

ALTERNATIVES

Scrap the NA program: In this case $12 million would be straight away added to the bottomline. But WESCO would have to find an alternative way to achieve their target of annual growth in profitability from 12- 16 percent and sales from 6 to 8 percent, which is very difficult.