3M Canada Case Study Analysis
TaeSung Park And more authors (
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Introduction 3M is a product driven company that has been prominent over the years. 3M Canada’s Industrial Business Division (IBD) has been successfully manufacturing abrasive and adhesive products and now faces a dilemma with the emergence of a new channel to market known as the National distribution channel. In order for IBD of 3M Canada to achieve its new mandate given in May 2006, which is to boost its annual organic growth rate of three to five percent in recent years to twelve to fifteen percent by 2008, consideration on how to venture into this market and position itself through the new channel would not be an option. The analysis on 3M Canada would go about the requirements of the new channel to market which includes an evaluation that fits IBD’s resources, strength and capabilities in its channel design process and also considering the appropriate strategy that will be essential for IBD to ensure its mandate is achieved as well as its long term sustainable growth in the new emergent segment of the market. Shifiting from OEM to MRO Historically, IBD sold business products to two of their customer segments namely original equipment manufacturers (OEMs) that IBD mainly dealt with and only minimal exposure to a few segments of maintenance, repair and overhaulers (MROs). Customers between OEM and MRO IBD Canada varies in product offerings and the buying behaviour of both segments vary. Products catered to the OEMs consisted of high-value items becoming part of the finished product while low value consumables were catered to the MROs. Having said that, the sales relationship will vary for IBD when servicing both of their segmented customers. First off, 3M focused on initiatives such as product innovation, new product development, getting “specified” for in-process usage and emphasizing on product co-
creation with OEMs to reduce their costs of operations, retaining customer needs and loyalty.
Hannaford (1976, as cited in Li, 2011) also asserted that the reduction in the costs of purchasing, product performance improvement and new product incorporation provides a solution to a customer’s bus iness problem by creating value, and product specialisation level
also increases the tendency for customers to use suppliers as sources for newly improved products and developing technical design solutions (Swink & Mabert, 2000, as cited in Ellis, Henke Jr., & Kull, 2012) further supported the buyer behaviour of OEMs. Being a productdriven company with a strong R&D background gave 3M the competitive edge in serving new product offerings towards new or existing customers. Backed by their technical skills and a sales force that are equipped with product knowledge, the company found a natural fit with the ethos of the Special and Niche distribution channel and provided great focus in the OEM market.
On the contrary, the OEM market faced a diminishing growth due to the maturity of the OEM segment with limited prospects of expansion. The rise in Canadian dollars caused the cost of production in Canada to be expensive and that acted as an incentive for many companies to source their production offshore. Although 3M had not outsourced its production as a policy, it encouraged its subsidiaries to pursue regional alliances, such as giving exclusive supplier status and licensed manufacturing. With the declining production in Canada, IBD and its competitors were forced to look for customers and revenue apart from the OEM segment. The MRO segment however was growing at a rapid rate because of the emergence of large scale national distribution channels in terms of branches, logistics centres and aggressive sales force that secured large volumes that worked towards the goal of profitability. As a result, special and niche channels started losing their competitiveness due to the increased product knowledge and skills built up by the national distribution channels. Products were becoming commoditized since technologies were going off-patent, product
specialization lost its premium value which caused both special and niche channels vulnerable to takeovers and gradually being played out by the national players.
Evaluation of 3M Canada The trends in MRO segment also described the common scene of consolidation whereby distribution channels were acquired that fulfilled customers’ consolidated purchases
and only focused on minimal number of distributors with whom they develop transactional relationship, the physical medium of a salesperson was still critical to retaining customers nonetheless. Thus, MRO customers had led IBD to focus less on product specialisation while emphasizing on sales in the MRO market segment. Since products are loosely classified with minimal brand loyalty and price was the key in securing sales, this means that the sales relationship between IBD and MRO segments are solely based on sales volume and market share. By means of this, the market trends in the MRO segment had shed light and provided a decision upon IBD to change their customer focus from OEM to MRO that would generate additional sales in the targeted time-frame in achieving their given mandate. The opportunity for driving scale and market share is larger in the MRO market with an estimated worth of Cdn$14 billion in Canada and by engaging and holding on to the emerging large national distributors that would definitely provide IBD the platform in filling vacant product lines and private labelling potentiality. Such decision to focus on MROs allowed 3M to take opportunity on its existing technology platforms, as having potential growth in bringing their complete line of products perceived as a sales stimulus to their customers which will be inclined to 3M’s initiatives.
However, changing customer focus from OEM to MRO remained a challenge for 3M since they have been accustomed to dealing with individuals, one to one, in the Special and
Niche channels. These channels have minimal requirement and have almost similar needs with the OEM customers and this is an advantage for 3M. Historically, managing such customers was not an issue for 3M but to venture into the emerging MRO market sector, 3M had no choice but have to deal with large corporations as they controlled the MRO market more than suppliers. Driven by large connection, procedure, protocols and even with complex buying processes, MRO proved to be the stepping stone for 3M to achieve its initiatives as well as a sustainable growth for their sales. Though easier said than done, it is obvious that IBD has to step up their current strategy, directing their efforts from OEM to MRO and shifting their emphasis from Special and Niche players to large National distribution channels. IBD’s current strategy was to focus on sales that comprised of four elements: growing the
core business, pursuing acquisitions, concentrating on emerging business opportunities and doubling investments in emerging markets served as an appropriate action altogether in serving the emerging MRO market that is consistent with the change in customer focus that IBD is seeking. If IBD were to adopt such strategy, the IBD must look into how they should engage and hold on to the National distributors and how it should restructure its sales model and operation processes to serve the new MRO channel and to the MRO market for IBD to achieve its objectives.
In order for 3M to position itself in the emerging MRO sector, IBD has to incorporate the channel design process in servicing the new market through the National distribution channel to tackle the targeted market since market trends in MRO had proved that Special and Niche channels are being overtaken by the large distributors. This signified the viable option for IBD to hold on to the large distributors since they have played an immense role in the market. This has shown the implication that a middleman only exist so long as the customer legitimise their existence. Case in point, 3M had already defined their targeted
customer segment in the initial step of the channel design process. Next, IBD has to identify and prioritize the channel requirements of the National distributors in catering 3M’s product
offerings towards the MRO market segment. In this step, IBD needed a different model in targeting the selected market that required different attributes and mindset : selling low-value items to the market; a well-rounded business perspective that provides a common company face to the customer and managing the dynamics of a distribution channel. By venturing into the targeted MRO segment, the National distribution channels required a different approach by 3M in dealing with them, the three main issues IBD faced on how it should restructure its organisational direction towards handling the National distribution channels are IBD’s sales model, supply chain management and marketing programs.
The first issue that is addressed to IBD is its sales model; 3M had always focused of ‘what to sell’ and considered heavily on product innovation and renown technological
platforms as their core competence which indicated the operational efficiencies had taken root in 3M. However, due to the emerging MRO segment and 3M’ s opportunity to serve this segment, this has served as an opportunity for additional sales to achieve the proposed mandate. Therefore, IBD has to make a transition from the current product centric model to a customer centric model, restructuring its sales force to focus on customer specialization while bearing both geographic and product specialization. Restructuring the sales force by having IBD’s salespeople to acquire generic sales skills, on top of technical knowledge, was crucial
in securing sales and to close the gap between the end users and MRO suppliers. The sales force management could be restructured by directing 3M towards a Market-Centred Organization since it is the most suitable option for the organization to learn the specific requirements of MRO. This would allow the salespeople from IBD to be better prepared to identify and respond to buying influentials.
Furthermore, IBD could build a cadre of ‘channel’ specialists to complement the
product specialists by developing a well-rounded salesperson to represent the company in nurturing and building relationships with the customers in the National distribution channels in different regions. For example, Acklands Grainger which is the major Canadian MRO customer value outweighed the value of product customization referring to exhibit 1. 3M Canada could train their salespeople to be more proficient in both technical and sales skills in order for them to cater to their major potential customer. That being said, sales force that shaped salespeople with well-equipped interpersonal skills are important for its ability to service the large National distributors by focusing on what the expectation of the end-user from their distributors and providing the right needs to the channel.
The following issue that ought to be overcome by IBD is the need to restructure their supply chain management that integrates the supply and operation across all supply chain members. By doing so, the supply chain management could be strengthen by linking an incentive program in hopes to reduce supply chain costs for the National distributors as sixtyone percent of the supply chain costs comprised of costs of procurement and cost of inventory which signified greater room for supply chain savings, as shown in Exhibit 5. In addition to that, the Transportation and Industrial divisions in 3M were merged together to effectively improve sales. Hence, supply chain management is focused on the integration of all supply chain processes that add value for customers that ensures IBD to strive 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
that are necessary to place effective supply chain processes to better service the National distribution channels while maintaining a competitive position.
Marketing programs are another issue prioritized for change as previously 3M aimed to create marketing program that catered to Specialized and Niche channels. Marketing programs now needs to be created with the consideration on the constraints and protocols that are strictly imposed by the National distributors. Marketing programs now have to showcase lower price points instead of the conventional premium pricing. With these issues underlined by 3M, IBD now has to consider the third step in its channel design process aforementioned, which is to evaluate and assess the firm’s capabilities to meet customer’s requirement.
Having identified the issues, they have the economies of scale to provide structural changes that would provide the appropriate sales model and improvement in logistics and marketing programs. This would allow IBD to provide the best possible service towards the MRO channels 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 and sustainability of the organization, by the virtue of its multinational organisation success. Once the issues faced by IBD are prioritized, taken into consideration and overcame, IBD would be able to shift its focus from product leadership to a low total cost strategy and would have the capability to service the National distribution channel more effectively.
Recommendations
There are various recommendations for IBD to ensure growth sustainability and generate revenue through its decision to service the National distribution channels to market in the MRO segment. Firstly, 3M should undertake the initiative to break down the silos within its ranks among various divisions since 3M had always adopted bureaucratic way of managing its large organisational structure. As what it is expected, 3M needed to provide coordination in those divisions with different functional responsibilities through a central management committee at the top. It is imperative that 3M has to step out of their comfort zone and take the forefront and loosen up its bureaucratic management to provide quicker decision-making processes. With a quicker decision-making process, there would be a definite improvement in fulfilling supply chain requirements in being ever ready to adapt to product offering changes, customer expectations, and to maintain 3M’s competitive edge in servicing the emerging National distributors and the evolving MRO customers. Other than that, IBD could seize their opportunity towards the idea of using some of its plant capacity to manufacture private labels that could provide an area of opportunity to fill up the vacant spaces in the MRO market. Such action plan would signify that IBD is ready for a full-scale commitment towards supplying the emerging MRO segment through the National distribution channels in the market. Although private label business would not enhance the 3M brand or its market share since the products would not be labelled under 3M, growth in sales volumes could be driven by private labels as the National distribution channels intends to expand its private labelling businesses. Private label business could mean increasing 3M’s growth that would be consistent with 3M’s ambition to maintain existing
business account and generating repeated transactions as their key indicators of sales performance. Moreover, private label business for 3M may not be perceived as demoting its premium brand equity but providing a new brand positioning in catering the MRO market at an affordable and competitive price that is in consistent with the National distributor’s needs.
IBD could also exercise the option of outsourcing their sales. IBD could collaborate with the representatives of independent sales agents and manufacturers for a specific product line. With them having their own sales force, they would work based on commission from a percentage of IBD’s existing business as well as its additional sales. Outsourcing sales could
potentially reduce sales effort and increase 3M’s sales management efficiency in dealing with specific product lines and potentially reducing IBD’s cost to train product and customer sales
expertise in marketing their product offerings.
Conclusion In conclusion, this case study looks at 3M’s decision making process of how it could potentially serve the National distribution channels that markets to the MRO customers through the evaluation of 3M’s current marketing strategy, sales relationships between MROs
and its shift of focus from product orientated to customer centric model. Also, the analysis addresses the main challenges that IBD faced in their sales model, logistics and marketing program that are essential while having assessed 3M’s capabilities and confidence in their
economic advantage to provide efficient and timely operating process and distribution system towards servicing the new channel. In the end, it is imperative for 3M to undergo these changes by adopting the appropriate strategy in order to capture the emerging market due to the dynamic changes in the economic outlook that constantly changes customer demands, taste, and expectations. Market segments are being globalized and if 3M choses to ignore the and remain unchanged in the evolving market, the company would lose its footing in its market position, competitive edge and eventually suffer massive deterioration in its market shares.
