THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS

Dr. Barry Lawrence PhD, Texas A&M
John Mansfield,...
Learning Objectives

•
•

•
USING CUSTOMER STRATIFICATION AND COST
Industrial Distribution (ID)
Program Overview
Customer Stratification
Customer Life (Loyalty)

•
•
•
•

High Profitability
No Relationship
Low Cost to Serve
Low Volume
...
How to define the business “we want to do”?
Core Customer Profile
Revenue

$ 74,207

GM $

$ 18,722

GM %

25.2%

Days to pay

33

# of lines

8

Order size

$ 1,532
...
Service Drain Customer Profile
Revenue

$ 42,389

GM $

$ 8,194

GM %

19.3%

Days to pay

53

# of lines

4

Order size

...
© 2010 All Rights Reserved  Texas A&M University  Supply Chain Systems Lab
Life Cycle of a Core Customer
Service Innovation –
Extend Life of Core Customer
Profiling the Core Customer
Resources

Release Date: August 2012

http://www.naw.org
14
“Total Solutions For Industrial Distributors and Manufacturers”

Thank You!

For more info please visit:
http://supplychai...
•
•
•

•
•
Graybar
• Wholesale Distributor
– Electrical, Communications,
Data Networking, Services

• $5.3 Billion Sales
• 239 locati...
Graybar Customers

•

•
–
–
–
–
–
NAW/Texas A&M Research
Key Findings
Benefits
•
•

•
•
•
•
•
Mission
•

•
–
–
–
•
John Mansfield
VP Business
Development
Dennis Shaw
Director
Financial
Analysis

Asa Goldkamp
Marketing
Specialist

Byron B...
CS Practices Levels

Performance

Best
Good
Common

Time
Core,
Opportunistic,
Service Drain,
Marginal

Customer
Lifetime
Value

Net Profit

Customer
Buying Power

Loyalty

Cost To...
COST TO SERVE (CTS)

PROFITABILITY

Factor

No. Lines

Net Profit

50%

50%

50%

50%

BUYING POWER
Factor

50%

Weight

S...
A

Customer Type Matrix
DA

CA

BA

B

CB

BB

AB

C

Core

DB

DC

CC

BC

AC

Marginal

D

Net Profit

Opportunistic

AA...
Pilot Locations to Test Graybar Model
•

•
•
•

•
•
•
Tested Graybar Model on Pilot Locations
>=$10k
25.1%
<$10k
8.5%

Broaden Our Reach.

<$1k
42.8%
Insanity:

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

© 2010 All Rights R...
Paradox: Complex, Yet Simple
Utilizing Customer Stratification
•

•
•
•

•
•
Typical Sales Person
12
Marginal

9

Core

Service
Drain

Opportunistic

6

3
Strategies Playbook
Customer
Type

Sales Team

Pricing

Service

Inventory

Financial

Marketing

57 Strategies

Core

4

2

3

2

5

3

Oppor...
Data versus Information
Dashboard Results – By Profit Center
Dashboard Results – by Sales Person
Money Page
Measurement of Success
•

–
–
•

–
Core Customer Testimonial
Opportunistic Testimonial
Service Drain Testimonial
Marginal Customer Testimonial
Please join us at www.proformative.com to ask any
additional questions you may have and to continue this
conversation with...
Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits
Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits
Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits
Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits
Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits
Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits
Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits
Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits
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Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits

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"Customer stratification" may sound like an odd idea in a climate where any paying customer is a good customer. Still, the sales force has at least two issues to deal with: First, who do I call on that will give me an order and pay for it? Second, who should I be calling on, it's one thing to get an order and be paid for it, but has the company made money? Customer stratification answers these questions and many other ones. Customer stratification measures how much business a customer does with us (sales), how profitable they are in gross margins, how loyal they are, and how costly they are to serve (to protect net margins). Each of these dimensions has a bearing on the sales force's questions. Without the right analysis, the sales force can make decisions about who to spend time with and give services based on their perspective of the customer relationship.


This Customer Stratification Webinar video is from the Proformative webainar "Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits" held on October 9, 2012. The webinar features presentations from F. Barry Lawrence, Ph.D., Program Director, Industrial Distribution Program, Texas A&M University and John Mansfield, Vice President Business Development, Graybar Electric.

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  • There are many benefits that distributors experience from customer stratification, but these are some of the key gains are: Inventory – helps you maintain or increase service levels for key customers while reducing/redeploying inventoryPricing – helps you price customers based on opportunities and the cost-to-serve associated with each customersNegotiation – if a sales person has information about the characteristics of the customer with respect to other customers, they will be better positions to make judicious decisionsSales Force – sales time is scarce; knowing who the key customers are allows sales reps to better focus their time; and allows managers to make sure we have the best sales people calling on our most important customersCompensation – allows distributors to have information that could establish compensation plans that align sales force objectives with company objectivesGrowth – creates a process to guide development of strategies to identify and capture new product or end-market opportunitiesMarketing – allows allocation of marketing budgets judiciously across customer types by media type with a higher ROI
  • Once we know the final Customer Lifetime Value and Net Profit rank, a ranking matrix is then used to assign a final customer type to each customer. This creates four types, with four tiers within each type, to give a total of 16 different groups.So for instance, a customer ranked A on both Net Profit and Customer Lifetime Value would be AA, a top-tier core customer, while one ranked BB would still be a core customer, but a lower-tier core customer.Each of these tiers is important, because as we present the data, it will provide more actionable information for the sales force and management. The next core customers are most likely to come from the borderline quadrants. There are 100 variables included in the final model, making it extremely comprehensive, yet relatively easy to implement within our system.Customer stratification provides Graybar a measurable scale of customer importance that is connected directly to shareholder value.
  • There are numerous ways to use customer stratification to make better decisions involving customers directly or indirectly. There are six key areas that the Customer Stratification team is concentrating our efforts on as shown here.The team will develop a playbook for each customer type, with strategies around each of these areas.
  • Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits

    1. 1. THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS Dr. Barry Lawrence PhD, Texas A&M John Mansfield, Vice President Business Development, Graybar
    2. 2. Learning Objectives • • •
    3. 3. USING CUSTOMER STRATIFICATION AND COST
    4. 4. Industrial Distribution (ID) Program Overview
    5. 5. Customer Stratification Customer Life (Loyalty) • • • • High Profitability No Relationship Low Cost to Serve Low Volume Core Customers • • • • Marginal Customers • • • • Low Profitability No Relationship High Cost to Serve Low Volume High Profitability Sustained Relationship Low Cost to Serve High Volume Service Drain Customers • • • • Sales Volume Low Profitability Sustained Relationship High Cost to Serve High Volume Cost To Serve (CTS) Gross Margin Opportunistic Customers
    6. 6. How to define the business “we want to do”?
    7. 7. 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% Inventory A & B Items 79% Strategic Suppliers C & D Items 21% (Top 70%-80 of Spend) Non-Strategic Suppliers (Top 5% of Spend) Supplier – 01 40% Supplier – 02 30% Supplier – 03 18% Supplier – 04 12% Supplier – 07 3% Supplier – 08 2% © 2010 All Rights Reserved  Texas A&M University  Supply Chain Systems Lab
    8. 8. 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% Inventory A & B Items 56% C & D Items 44% Strategic Suppliers (Top 70%-80 of Spend) Non-Strategic Suppliers (Top 5% of Spend) Supplier – 01 35% Supplier – 02 25% Supplier – 03 20% Supplier – 04 20% Supplier – 07 20% Supplier – 08 15% © 2010 All Rights Reserved  Texas A&M University  Supply Chain Systems Lab
    9. 9. © 2010 All Rights Reserved  Texas A&M University  Supply Chain Systems Lab
    10. 10. Life Cycle of a Core Customer
    11. 11. Service Innovation – Extend Life of Core Customer
    12. 12. Profiling the Core Customer
    13. 13. Resources Release Date: August 2012 http://www.naw.org 14
    14. 14. “Total Solutions For Industrial Distributors and Manufacturers” Thank You! For more info please visit: http://supplychain.tamu.edu © 2010 All Rights Reserved  Texas A&M University  Supply Chain Systems Lab 15
    15. 15. • • • • •
    16. 16. Graybar • 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
    17. 17. Graybar Customers • • – – – – –
    18. 18. NAW/Texas A&M Research
    19. 19. Key Findings
    20. 20. Benefits • • • • • • •
    21. 21. Mission • • – – – •
    22. 22. John Mansfield VP Business Development Dennis Shaw Director Financial Analysis Asa Goldkamp Marketing Specialist Byron Bennett Sr. Business Technology Analyst Dream Dream Team Team Mark Rog Branch Manager Najam Chohan Area Financial Manager Susan Reale Director Operations
    23. 23. CS Practices Levels Performance Best Good Common Time
    24. 24. Core, Opportunistic, Service Drain, Marginal Customer Lifetime Value Net Profit Customer Buying Power Loyalty Cost To Serve (CTS) Profitability Sales $, Product Line Penetration Hits, Trend, Order pattern 7 Factors GM% and GM$ 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
    25. 25. COST TO SERVE (CTS) PROFITABILITY Factor No. Lines Net Profit 50% 50% 50% 50% BUYING POWER Factor 50% Weight Sales $ 50% Product Lines 25% # Items 25% 50% Customer Lifetime Value 18% 11% 14% 4% Delivery GM % 50% 21% Will Call 50% 25% C & D items GM $ Days to Pay Order Size Weight Weight Returns Factor 7% CUSTOMER LOYALTY Factor Weight Orders 35% Consistency 35% Trend 30% 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
    26. 26. A Customer Type Matrix DA CA BA B CB BB AB C Core DB DC CC BC AC Marginal D Net Profit Opportunistic AA Service Drain DD CD BD AD D C B A Customer Lifetime Value
    27. 27. Pilot Locations to Test Graybar Model • • • • • • •
    28. 28. Tested Graybar Model on Pilot Locations
    29. 29. >=$10k 25.1% <$10k 8.5% Broaden Our Reach. <$1k 42.8%
    30. 30. Insanity: Doing the same thing over and over again and expecting different results. –Albert Einstein © 2010 All Rights Reserved  Texas A&M University  Supply Chain Systems Lab
    31. 31. Paradox: Complex, Yet Simple
    32. 32. Utilizing Customer Stratification • • • • • •
    33. 33. Typical Sales Person
    34. 34. 12 Marginal 9 Core Service Drain Opportunistic 6 3
    35. 35. Strategies Playbook
    36. 36. Customer Type Sales Team Pricing Service Inventory Financial Marketing 57 Strategies 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
    37. 37. Data versus Information
    38. 38. Dashboard Results – By Profit Center
    39. 39. Dashboard Results – by Sales Person
    40. 40. Money Page
    41. 41. Measurement of Success • – – • –
    42. 42. Core Customer Testimonial
    43. 43. Opportunistic Testimonial
    44. 44. Service Drain Testimonial
    45. 45. Marginal Customer Testimonial
    46. 46. Please join us at www.proformative.com to ask any additional questions you may have and to continue this conversation with your peers and the experts you heard from today.

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