3m Canada - Industrial Business Division

3M Canada: Industrial Business Division (Case Write up)

Submitted By Sameeta Rajpal

1. Situation: 

The target is to boost its annual organic growth rate of 3 to 5 % to 12-15% in 18 months. IBD’S primary market segment that is OEM is a volatile customer group influenced by economy and inflation. Ultimately the division was forced to shift their overall focus from OEM markets to MRO market, to remain competitive. The company faces a dilemma with the emergence of a new type of channel to market known as the National distribution. IBD’S current strategy to focus on sales comprised of four elements and entering MRO market segment was well aligned with its strategy as well as its goal to achieve growth.                                                                                                                                                                        

1. Issue:

Maturity of focused segment (OEM) has gradually resulted in low sales performance. On top of that they had high unfamiliarity and low exposure to the MRO segment. Customer orientation regarding product offerings and buying behavior among OEM and MRO is completely different.MRO products were low-value products and national distributors wanted a single company face to deal with in comparison to OME that requires dedicated salespeople for different divisions and high-value products. It is obvious that the sales relationship for IBD will vary for both segments. IBD sales model was highly product centric and lacked customer specialization. But with MRO segment they had to change the strategy as it was customer focused and products were classified with minimal brand loyalty.  The Price was the only key to secure sales in the MRO segment. Changing customer focus from OEM to MRO was a challenge because they were accustomed to deal with individuals one to one in the Special and niche channels. Those customers had minimal requirements and almost similar needs. On the contrary, In MRO market they had to deal with large corporations. Corporations were driven by extensive procedures, protocols and complex buying processes. The real challenge for IBD was to determine how to attract National distributors and restructure its sales model and operations to serve the new channel. The main issues as categorized by Yegnaswami are Sales model, supply chain management and marketing plan.

1. Possible Solutions:

Restructuring its sales model:  

• The sales force could be restructured by directing 3M to become a market-centered organization. Instead of focusing on technical skills and know-how, the sales force should be trained in generic sales skills.
• Alternatively, they could train a group of salespeople having expertise in product know how to be champions in channel management as well. So that they can better cater the national distributors.

              Solutions for Supply chain management:

• They need to reform their supply chain network that integrates both supply and operation across all supply chain members. By doing so IBD could get a competitive edge, they can design some kind of incentive program to reduce supply chain costs for National distributors as it is evident from Exhibit 5 that 61% of supply chains cost comprises of Inventory and procurement.
• In addition to transforming whole supply chain, They already have their transportation system merged with their division, they can take advantage of this opportunity and add value for customers in logistics fulfillment such as effective replenishment process, provide responsive technical support to the end user and to each individual National distributors, offer “total solutions”, and quicker decision making process, standardizing stock keeping units (SKUs), and just-in-time delivery.

                    Solutions for Marketing Programs:

• For OEM their marketing strategy was completely different. Previously they were creating marketing program for special and niche markets now they have to create Marketing programs for National distributors and for that they need to follow certain protocols and take into consideration any limitations on Marketing by MRO market.
• Previously they used to highlight premium price and innovativeness as their value proposition but now they have to change their value proposition to lowest price along with best quality. They should also highlight the costs reduction benefit that they are trying to do with their effective supply chain and transportation business.

1. Evaluation of strengths and weaknesses of Possible solutions :

Every possible solution carries with it pros and cons.

• By becoming market centered organization, this option would allow them to be better prepared to identify and respond to those who are the main influencers from the buying houses.
• But training salespeople would carry with itself cost of training and time associated with it.
• By devising incentive program for reducing supply chain costs, they would be able to lure national distributors to do business with them because 69% is a huge lot of costs for any company.
• Using own transportation business as a catalyst for decreasing supply chain costs would effectively help in improving sales for the entire IBD division.
• Devising incentive plan might not be the cost effective option for the company.
• Using transportation system as a total solutions supplier might cannibalize the profits of the IBD and transport division.
• Changing the positioning as well as pricing mechanism of products might hurt the well maintained brand image of 3M.

1. Recommendations:

They have the economies of scale to provide changes in structure that would provide the appropriate sales model and improvement in logistics and marketing programs. This would allow IBD to provide the best possible service to the MRO segment through the development of an efficient and timely distribution system to achieve IBD’s mandate of increasing 3M Canada’s annual growth rate as well as seeking long term growth. In order to achieve all this they should follow certain recommendations.