September 24 & 25, 2008 Documenting Value to our Customers NAW – Large Company CEO Panel Discussion

September 24 & 25, 2008

Documenting Value to our Customers

NAW – Large Company CEO

Panel Discussion

September 24-25, 2008 2008 NAW Large Company CEO Conference

Margin Erosion

• Steel, energy, plastics and other costs are going up;

• Customers are putting pressure on suppliers for a lower price;

• Every dollar of margin lost translates to a direct dollar loss in profitability;

How have these market trends impacted your profits?

Purpose of Documenting and Selling Solutions


Contractual Savings

• More end-users are relying on TCO savings to meet cost-reduction targets;

• How many millions of dollars in sales do you have tied to contractually guaranteed savings?

• In many cases companies have dropped prices to meet these goals or even paid the customer cash penalties;

Tools for documenting value result in higher margins and satisfied customers.



74 % - Yes

26 % - No

End-users were asked if the ability for a distributor to provide documented cost savings would enable the distributor to earn a larger portion of their business:

Source: Value Added Partners



Benefits

• Establishes a clearly defensible competitive position; • Creates long-term partnerships with key customers;• Results in increased profit opportunities;• Opportunities for share gains.

Key Consideration

• Choosing the right customers;– Who and who not to offer the services to;



Assessing the Opportunity

Identifying the right accounts*;

Partner vs. Price;– Creating and documenting value takes time and

commitment on both sides;

– Long-term alliances;• Access to multiple levels of contact;

– Focused on value and not simply transactions;

– Genuine desire for win-win relationships.*John Monoky, Univ. of Michigan; Strategic Account Management


Sales Strat Value Documentation


Sales Strat Value Documentation


Documenting Value

How many ways can we reduce TCO?

– IT investments have helped many companies find new and unique ways to create value.

– Activity-Based Costing software helped Lewis-Goetz identify;

• those accounts where we should focus our TCO savings efforts;

• And, those where we should not.


Profit and Loss ScorecardStrategic Customer Case Study


Order History

Customer Invoice Invoice Ship Shipment Opening Number Number Date Date Method Balance

41. 075553 5455459 12/13/2004 12/10/2004 UPS $41.44

42. 075552 545511 12/13/2004 12/10/2004 Our/Del $3.88

43. 075537 545414D 12/14/2004 12/10/2004 UPS Red $42.31

44. 075585 545933 12/14/2004 12/13/2004 Our/Del $482.62

45. 075586 545935 12/14/2004 12/13/2004 Our/Del $264.54

46. 075587 545936 12/14/2004 12/13/2004 Our/Del $38.16

47. 075613 546346 12/15/2004 12/14/2004 Our/Del $768.49

48. 075614 546347 12/15/2004 12/14/2004 Our/Del $42.90

Strategic Account Case Study

Activity-Based management has been able to identify unprofitable, time consuming

orders.


Conclusions

Numerous orders were small and timely. Over a three week period the following occurred:

32 orders processed;

Total revenue - $7,178;

Average Order Size - $224;

18 orders were under $100.

Each order required work to be done by inside sales, administrative, and hydraulic shop personnel. This results in substantial costs at both Lewis-Goetz and the customer.

Lewis-Goetz uses Activity-Based Costing management as both an internal analytical tool as well as an external value-added tool.

Strategic Account Case Study


Conclusions

• Key customers are demanding TCO reductions;• Clearly understand which customers deserve and

value a TCO approach;– Focusing on TCO reductions takes emphasis off price;– Opportunity for longer-term relationship;– More difficult for business to be taken.

• Investing in IT tools will help with;– Identification of accounts that should be a focus of TCO

documentation;– Identifying unique ways to create value;– Documenting the value that is created through your supply

partnership.

September 24 & 25, 2008

Thank you.

Documents

September 24 & 25, 2008 Documenting Value to our Customers NAW – Large Company CEO Panel Discussion