1ushar MkM8411 CusLomer 8elaLlonshlp ManagemenL

CM8 LnLerprlses
1he buddlng enLrepreneur Sam Marcus along wlLh lnvesLor Mr WalLer saw Lhe poLenLlal of
dynamlc growLh ln Mlke's cablneL maklng company and purchased a small 23 year old cablneL
maklng company from lLs founder 2 year earller 1he company compeLed ln baslcally Lwo
segmenLs commerclal and resldenLlal consLrucLlon markeLs Sam envlsloned Lhe company Lo
grow Lo 70 Mllllon ln sales by 2007 1hough commerclal markeL offered Lhe growLh
opporLunlLy Lhe operaLlng cycles were rlgld because of blddlng process whlch only has 32
success raLlo Cn Lhe oLher hand Lhe resldenLlal markeL was small buL has Lhe 'goL' raLlo of 70

1he case ralsed many lnLeresLlng facLs abouL Lhe value of Lhe cusLomer for an organlzaLlon
perspecLlve 8lacksLone belng Lhe blggesL cusLomer offered annual sales of abouL 24 Lo CM8
buL does Lhls relaLlonshlp offered any value add Lo Lhe CM8? ln Lhe end Sam Marcus musL
declde wheLher Lo conLlnue Lhls relaLlonshlp wlLhouL lncreaslng prlces or Lo lncrease prlces
Lhereby LhreaLenlng a relaLlonshlp wlLh CM8's blggesL cusLomer
ke|at|onsh|p w|th 8|ackstone
Clearly lnlLlaLlng a relaLlonshlp wlLh Lhe 8lacksLone was a compleLe sLraLeglc flL for Lhe CM8
enLerprlses CM8 wanLed Lo lncrease lLs revenue 10 Llmes ln comlng 10 years by creaLlng a
scalable and repllcable buslness model 8lacksLone wlll noL only offer CM8 hlgh volume of sales
buL also wlll glve Lhem Lhe sLrong fooLhold ln Lhe resldenLlal markeL share More so wlLh
aggresslve growLh sLraLegy ln mlnd alllance wlLh Lhe 8lacksLone wlll gave CM8 an opporLunlLy
Lo sLandardlze lLs buslness processes ln order Lo beneflL from lmproved operaLlonal efflclencles
LhaL comes because of scale of operaLlons
1he followlng calculaLlon speclfles quanLlLaLlve value of relaLlonshlp of black sLone for CM8
enLerprlses
8lacksLone conLrlbuLlon Lowards Lhe CM8 for year 1998
I|sca| year 1998 kevenue
1oLal 8esldenLlal 1396000
8lacksLone ConLrlbuLlon 210314
of conLrlbuLlon ln 8esldenLlal
SegmenL 1317737
Ls CM 63344


1ushar MkM8411 CusLomer 8elaLlonshlp ManagemenL
1hough Lhe conLrlbuLlon of Lhe sales glven by 8lacksLone does glve a poslLlve conLrlbuLlon
margln Lo Lhe buslness of $ 63344 buL wlLh reference Lo Lhe deLalled calculaLlon menLlon ln Lhe
Lhe relaLlonshlp does hurL Lhe CM8 boLLom llne once Lhe SCA cosLs were Laken lnLo
accounL
1he overall effecL was negaLlve 3444 whlch clearly mean LhaL CM8 has losL money on Lhls
accounL Clearly l belleve Lhls wasn'L Lhe case when Sam declded Lo lnlLlaLe Lhe relaLlonshlp
wlLh 8lacksLone So whaL wenL wrong and where for CM8?
CM8 relaLlonshlp wlLh 8lacksLone deLerloraLed over Llme because of Lhe mulLlple
lmplemenLaLlon dlfflculLles LhaL arlses over Llme CM8 was noL able Lo garner Lhe operaLlonal
efflclencles whlch Lhey LhoughL Lhey would be achlevlng llke for example homeowners were
sLlll vlslLlng showrooms of CM8 for whlch CM8 has Lo have a salesperson avallable ln sLores Lo
serve Lhem
Secondly nelLher CM8 and nor 8lacksLone was able Lo llmlL Lhe lnvolvemenL of Lhe
homeowners ln Lhe deslgn phase whlch agaln cosLs money Lo CM8
Also as homeowners were worklng wlLh many oLher subconLracLors lL creaLed a pro[ecL
coordlnaLlon problem for boLh CM8 and 8lacksLone resulLlng ln lasL mlnuLe deslgn changes
Such changes enLall lasL mlnuLe worklngs on manufacLurlng process and ofLen resulLs ln loss of
maLerlal and lncreases shop floor Llme eLc
Pence l belleve because of Lhe above menLloned reason Lhere exlsLs a gap beLween Lhe
budgeLed shop floor hours and Lhe acLual shop floor hours puL ln on Lhe [ob CM8 wlll be rlghL
because Lhey can [usLlfy Lhe prlce lncrease buL from Lhe 8lacksLone perspecLlve any lncrease ln
prlce mlghL resulLs ln nonconformance of Lhe agreemenL LhaL exlsLed beLween CM8 and
8lacksLone
SubsequenL Lo my undersLandlng of Lhe above menLloned problems menLloned below are
some of my tecommeoJotloos LhaL can help CM8 ln lmprovlng Lhe overall cusLomer value
chaln
prove the Cperat|ona| Lff|c|ency on the shop f|oor As evldenL from Lhe daLa CM8 was
clearly noL dolng a good [ob ln budgeLlng shop floor hours puL ln on Lhe !ob lL wlll be Lough Lo
belleve LhaL much of 69 of unfavorable varlance shown ln exhlblL 6 of case can be explalned
by above menLloned problems 1herefore my hunch ls LhaL elLher Lhe ro[ecL
Managers/ueslgn englneers were noL maklng rlghL assumpLlons abouL a parLlcular [ob or lL ls
Lhe workforce who ls puLLlng lnflaLed numbers on Lhe shop floor Llme spenL on one parLlcular
[ob ln boLh Lhe cases lL ls pro[ecL manager's [ob Lo lmprove Lhe operaLlonal efflclency ln order
Lo reduce Lhe dlfference beLween Lhe acLual and Lhe budgeLed hours As evldenL from Lhe
1ushar MkM8411 CusLomer 8elaLlonshlp ManagemenL
calculaLlon menLloned ln Lhe aLLached exblblt1 lf Lhe revenues are Lo be calculaLed only uslng
budgeLed hours whlch means only Lhe budged hours are spenL on Lhe !ob CM8 can geL Lhe
poslLlve 16 value add on lLs L8l1 / 8evenues
9r|ce based on Actua| shop f|oor hours spent |n the Iob Colng forward CM8 can change lLs
sLraLegy and can sLarL charglng based on acLual Llme spenL on Lhe [ob buL such a sLraLegy enLalls
a rlsk LhaL lL wlll open up Lhelr marglns Lo 8lacksLone whlch agaln can beaL Lhe prlces down
1hls ls Lhe prlce lncrease opLlon buL Lhe prlce lncrease can be [usLlfled Lo Lhe 8lacksLone
managemenL 8ased on my calculaLlon ln xblblt1 (lf ptlceJ tlqbt colom) uslng such a sLraLegy
wlll agaln brlng poslLlve conLrlbuLlon margln Lo CM8 enLerprlses
prove pro[ect coord|nat|on As much of Lhe problems resulLs from poor pro[ecL
coordlnaLlon havlng a sLrong agreemenL ln place wlll glve boLh CM8 and 8lacksLone an
advanLage lf Lhe oLher parLy falls Lo dellver on lLs promlse l recommend Lhe penalLy clause ln
Lhe agreemenL lf any parLy falls Lo dellver on lLs promlses CM8 should make Lhe agreemenL
more sLrong llke llmlLlng Lhe no of changes requlrlng sufflclenL Llme Lo make changes and pre
budgeL approvals before lnlLlaLlng any change on Lhe [ob Slmllarly from 8lacksLone perspecLlve
Lhey can penallze CM8 on laLe dellvery or wrongful dellvery quallLles lssue eLc 8y havlng a rlsk
and reward relaLlonshlp Lhe pro[ecL coordlnaLlon problems can be lmproved
CMk can se|ect|ve|y outsource soe Iobs to d|fferent contractor lf CM8 can'L brlng ln
operaLlonal efflclency lnLo Lhelr company on cerLaln [obs or ln facL as a whole whaL Lhey can do
ls Lo hlre a subconLracLor who can do Lhe [ob for Lhem ln much less prlce 8aLher Lhan loslng a
compleLe buslness wlLh 8lacksLone whaL Lhey can do ls Lo plck and choose whlch pro[ecL Lhey
would wanL Lo do and leave Lhe resL for Lhelr subconLracLors 1hls way Lhey can really opLlmlze
Lhelr efforLs and any rlsks assoclaLed wlLh poor [obs geL Lransferred Lo oLher subconLracLors
ncrease the 9r|ces lf CM8 Lhlnks Lhey are rlghL and belleves LhaL Lhelr prlce doesn'L [usLlfy Lhe
amounL of work needed on Lhe parLlcular [ob Lhey can go ahead and lncrease Lhelr prlces up Lo
Lhe mlnlmum whereby Lhey can make Lhe poslLlve reLurn As menLloned ln Lhe case Lhe
markeL wlll follow sooner Lhan laLer





1ushar MkM8411 CusLomer 8elaLlonshlp ManagemenL
Lxh|b|t 1
8udgeL AcLual lf rlced 8lghL
8evenues from 8lacksLone
$
21684000
$
21031400
$
36679300
As of 1oLal sales 2443747801 2372140762 4137096774

MaLerlal cosLs
$
3637840
$
3468164
$
9336670
Shop Pours 3336 3643 3643
LsL ulrecL Labor CosLs
$
3337600
$
9028800
$
9028800
LsL CCCS
$
10973440
$
14496964
$
18363470
CCCS of 8evenue
$
3062
$
6893
$
3062
LsL CM
$
10708360
$
6334436
$
18114030
CM 4938461338 31069903 4938461338

AllocaLe SCA based on of revenues
1oLal SCA
$
290000000
$
290000000
$
290000000
SCA for 8lacksLone
$
7092669
$
6879208
$
11997381

1oLal L8l1 (CM SCA)
$
3613891
$
(344772)
$
6116449
L8l1 (L8l1/8evenues) 0166733891 0016393213 0166733891