1. How to Manage Big, Powerful Clients - Profitablyby
Professor Malcolm McDonald
Emeritus Professor,
Cranfield School of Management
27th October 2009

2. Agenda Challenges Their expectations and demands
Why price is important to clients
The impact of price on profits
How powerful clients classify their suppliers
The expectations and demands of powerful clients
How to respond as a supplier
How world-class suppliers classify powerful clients
How to develop profitable strategies for powerful clients

3. Challenges
Market Maturity
Globalisation
Customer/Client power

4. Challenges
Market maturity

5. Technology Production Sales Accountancy Fads Marketing
© Professor Malcolm McDonald

6. Challenges
Globalisation

7. New global leaders
Leaders ?
2nd tier
New guerrillas
Guerrillas
Embrionic markets
Growing markets
Mature markets

8. Challenges
Client power

9. Double your money: cut spend on purchases
Other costs
(44%)
Purchases
(50%)
Profit (6%)
Other costs
(44%)
Purchases
(44%)
Profit (11%)
‘Purchasing: adding value to your purchasing through effective supply management’ Institute of Directors, September 2003

10. Client power Big clients are getting bigger
clients are rationalising their supplier base
clients have become more sophisticated
clients want tailor-made solutions
The cost of serving clients is increasing
Suppliers and clients are developing new ways of working together

11. Increasing client concentration...
Sales to the top 5 clients as a % of total supplier sales over 25 years. 76 64
% of total 44
supplier 39
sales 24 18 16 14
Biscuit
Biscuit
Board/
Board/
Speciality
Speciality
Metal
Metal
Manufacturer
Manufacturer
Packaging
Packaging
Adhesives
Adhesives
Bearings
Bearings
t-25
t.o
From: Profitable Customers, Charles Wilson

12. Client power Big clients are getting bigger
clients are rationalising their supplier base
clients have become more sophisticated
clients want tailor-made solutions
The cost of serving clients is increasing
Suppliers and clients are developing new ways of working together

13. Increasing costs of interfacing with clients
Costs of the frontline (Sales, service, trade promotions etc. over 15 years
140
Interface costs £'000 per client (adj. for inflation) 60 15 9
t-15
t.0
t.-15
t.0
Top 10% of clients
Bottom 10% of clients
Supplier to the print industry (turnover £200M)
Source: Profitable clients, by Charles Wilson

14. What is a Key Client? Percentage of our business Turnover
“Added Value”
Potential

15. Desirable factors in suppliers
% of Criteria for partnership respondents
Ease of doing business 100
Quality (product) 100
Quality (people factors) 100
Volume related 64
Added value/value for money 64
Company culture 36
From ‘Key Account Management’ Cranfield University School of Management, 1996

16. Suppliers are still interested principally in volume
Whilst they are interested in the potential for ‘added value’, most still do not measure account profitability
From ‘Key Account Management’ Cranfield University School of Management, 1996

17. The widening rift between profitable and unprofitable clients:
% of company profit by client decile (each decile = 10% of client base)
% of total
% of total
company
company
profits
t-15
t.o
profits 29 17 16 26 15 22 13 20 12 10 7 8 6 4 4 1 -3 -3 -3 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10 10 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10 10
Largest 10%
Smallest 10%
Largest 10%
Smallest 10%
of clients
of clients
of clients
of clients
client decile groups
client decile groups
Adapted from: ‘Profitable clients’ by Charles Wilson

18. LOVE
HATE
High
Sales
Potential
Low

19. How well do you know the real profitability of the top ten accounts?%
Not at all
Totally

20. Creating closer relationships with supply chain partners
DIRECTORS
DIRECTORS
From
Marketing
Marketing
Operations
Operations
Information
Systems
Sales
Purchasing
Information
Systems
Supplier
client

21. Creating closer relationships with supply chain partners
Directors
selling company
Directors
buying company To
Marketing
Marketing
Operations
Operations
Key-Account
Co-ordination
Supplier
Supplier
Development
client
Information
Systems
Information
Systems

22. Strategic Purchasing Development Core Nuisance Exploitable
SUPPLIER PREFERENCE A T R C I V E N S
Development
Core
Nurture Client
Expand Business
Seek New
Opportunities
Cosset Client
Defend Vigorously
High Level of Service
High Responsiveness
Nuisance
Exploitable
Drive Premium Price
Seek Short Term Adv.
Risk Losing client
Give Low Attention
Lose Without Pain
VALUE OF BUSINESS
Source: PMMS Consulting Group

23. Supplier Relationships as a Source of Business Advantage
Business Contribution Criteria
Business Process Criteria
Business Process Criteria
Type
Type
Strategic
Suppliers
“First mover” advantage
Channels to market
Reverse revenue generation
VP lead
Business strategy driven
“A team” on both sides 10 10
< 1% of suppliers
Point-to-point solution
Technology access
Operational advantage
Relationship manager
Strategy from CatMan
SLA scorecard 20
Preferred
Suppliers
600
c. 20% of all
suppliers
1, 350
Commodity
Suppliers
Cost improvement
Superior service levels
Ease of transaction
Managed locally
Performance monitored
E-enabled
3,000
c. 80% of all suppliers

24. “Must Have’ Criteria Drive Hard and Soft Measures
Maximum economic and strategic leverage, i.e. product / market differentiation.
Attainment of time to market, quality & productivity objectives.
Shareholder value creation.
Blending core competencies, leadership capabilities & complementary strengths (allowing outsourcing of non-core capability).
Adding real productivity & value (significant cost savings & revenue potential).
Globally focused, linkages to new business opportunities & capable of complementing the business focus.
Attainment of high performance, low cost & strategic objectives (producing unique design, integration & marketing capabilities).
1. Vision
2. Culture 3.
Impact
4. Intimacy
5. Balance
Sharing of long-term vision and orientation.
Global focus and commitment with service & support capability.
Defined but yet flexible boundaries.
Similar or complementary values.
Understanding of the process to deal with differences.
Flexibility in approach since circumstances may change over time. An exit route needs to exist.
Readiness to share ideas & information.
Not overly locked into a competitor.
An element of demonstrated commitment from both sides.
Readiness for risk taking and sharing of costs.
Building trust and, thereby, moving to intimacy.

25. Preliminary selection of key accounts

26. Key account preliminary categorisation
Top 15 (in volume/revenue generated) B
Next 30 C
Next 55

27. Preliminary Selection of Key Accounts
Supplier Business
Strength with client
High
High
Strategic
Star
Account
Attractiveness
Large
Status
Streamline
Low
Medium
Small

28. The relational development model
Integrated
Strategic intent of seller
Interdependent
Cooperative
Basic
Exploratory
Strategic intent of buyer
Adapted from a model developed by Millman, A.F. and Wilson, K.J.
“From Key Account Selling to Key Account Management” (1994)

29. Exploratory Basic Co-operative Interdependent Integrated
Directors
Accounts
Marketing
Service
Selling company
Buying company
Production
Purchasing Manager &
Key Account Manager
Inbound logistics &
Order processing/
client service?
Co-operative
Interdependent
Integrated

30. Relationships and the client profitability trap£m
160
Sales
140
120
Total costs
100
Cost of sale 80 60
Attributable overheads 40
Contribution 20
-20
Basic
Co-operative
Interdependent
Integrated

31. Integrated KAM Selling company Buying company Key Account Mgr Buyer
Operations
Focus Team
R&D
Focus Team
Finance
Focus Team
Key
Account
Mgr
Buyer
Environment
Focus Team
Market Research
Focus Team
Marketing
Focus Team
Cranfield University School of Management 1996

32. Value Added - Cost = Profit Support Activities Infrastructure
Human Resource
Management
Product & Technology
Development
Procurement
Value
Added - Cost
= Profit
- Legal, Accounting, Financial Management
- Personnel, Pay, Recruitment, Training,
Manpower Planning, etc
- Product and Process Design, Production Engineering,
Market Testing, R&D, etc
- Supplier Management, Funding,
Subcontracting, Specification
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
SALES &
MARKETING
SERVICING
eg.
Quality Control
Receiving
Raw Material
Control
etc
Manufacturing
Packaging
Production
Maintenance
Finishing Goods
Order Handling
Despatch
Delivery
Invoicing
client mgmt
Order Taking
Promotion
Sales Analysis
Market
Research
Warranty
Education /
Training
Upgrade
Primary Activities
Many activities cross the boundaries - especially information based activities such as:
Sales Forecasting, Capacity Planning, Resource Scheduling, Pricing, etc

33. The key client portfolio
Supplier business strength with client
High Low
High
Strategic
investment
Selective
investment
Key account
attractiveness
Pro-active
maintenance
Management for cash
Low

35. High
Low
Relative client Satisfaction X
Key Account Selection Matrix Tool - KA Selection Matrix
Chart
Display Spend:
Display Group:
National
Spend with Us
client: College Group Relative client Satisfaction: Account Attractiveness: 4.40 Spend
Show Groups
Redraw
Account Attractiveness 2 4 12 7 10 3 8 6 5 1
_______________
Supplementary
Service Elements
1 Alexander Smith $14,000,000
2 Ash & Williams $13,000,000
3 College Group $12,000,000
4 F T Group $9,900,000
5 Harpers $7,600,000
6 Parker $9,400,000
7 Quality Insurers $16,200,000
8 Randsome $14,500,000
9 Royal & Co $6,400,000
10 Thompson Group $32,000,000
11 Tudor Rose $8,000,000
12 Woods $11,500,000
clients on Chart X ID
Name
Maximum Spend
Relationship Stage
Co-operative
Basic
Exploratory
Integrated
Interdependent 11 9

36. Selecting and categorising clients by potential
Supplier business strength with client
High Low
High
Strategic
investment
Selective
investment
Strategic
Star
Account
attractiveness
Pro-active
maintenance
Management for cash
Status
Streamline
Low

37. Key measurements in KAM evaluation
Profitability
KAM
Cost
reduction
Growth

38. Setting expectations of account performance
KAM
high
KAM
high/
medium
Supplier business strength with customer
High Low
High
Account
attractiveness
KAM
medium
KAM
low
Low

39. Category Description Strategic clients Status clients Star clients
Streamline clients
Description
Very important clients, but the relationship has developed still further, to the level of partnership.
The relationship is ‘win-win’; both sides have recognised the benefits they gain from working together.
clients buy not on price but on the added value derived fro being in partnership with the supplier.
The range of contacts is very broad and joint plans for the future are in place.
Products and services are developed side-by-side with the client. Because of their large size and the level of resource which they absorb, only a few clients fall into this category.
Very important clients (in terms of value).
Commit to security of supply and offer products and services which are tailored to the client’s particular needs.
Price is less important in the client’s choice of supplier.
Both parties have some goals in common.
The two organisations have made some form of commitment to each other.
Invest as necessary in these clients in order to continue the business relationship for mutual advantage, but do not over invest.
Price is still a major factor in the decision to buy but security of supply is very important and so is service.
Spend more time with some of these clients and aim to develop a deeper relationship with them in time.
These clients usually want a standard product, ‘off the shelf’. Price is the key factor in their decision to buy.
The relationship is helpful and professional, but transactional.
Do not invest large amounts of time in the business relationship at this stage.

40. Strategic intent of seller Interdependent
Integrated
Strategic intent of seller
Interdependent
Cooperative
Basic
Exploratory
Strategic intent of buyer
Adapted from a model developed by Millman, A.F. and Wilson, K.J.
“From Key Account Selling to Key Account Management” (1994)

41. Key Client Analysis

42. Business Partnership Process1
Market / segment
selection criteria
Client’s
Basic
CSF
Analysis
Process 2
Defining and selecting
target key accounts
The Applications
Portfolio Analysis 3
Industry driving forces
analysis
For each key account
Strategic
High Potential 4
Client’s objectives
analysis
Gaining
Advantage
Our
objectives,
strategies
and plan
for T + 3
Client’s annual report
summary and financial
analysis 5
Avoiding
Disadvantage 6
Client’s internal value
chain analysis
Key Operational
Support
Client’s buying process
and information needs
analysis 7 8
Our sales history with
the client 9
Competitive analysis

43. The application portfolio
Strategic
High Potential
Applications which
are critical to
achieving future
business strategy
Applications which
may be critical in
achieving future
business strategy
Creating
Advantage
Applications upon
which the
organisation
currently depends
for success
Applications which are valuable but
not critical
to success
Avoiding
Disadvantage
Key Operational
Support
Adapted from Professor Chris Edwards, Cranfield School of Management

44. The market understanding process
The “Marketing” Director
Sales
Mfg. IT
Finance &
Accounting HR
Logistics
R & D
Etc.
Marketing
KA A
KA B
KA C
KA D
Etc.

45. Concern for making the sale
Blake and Mouton 9
1/9
The clients friend
9/9
The problem solver
5/5
Compromise “Method” approach
Concern for client
1/1
The order taker
9/1
The pressure salesman 1 1 9
Concern for making the sale

46. Significant differences
Buying companies valued...
integrity
Trust
Selling companies valued…
Selling skills
Negotiating skills

47. Developing key account professionals
Commercial awareness
Interpreting business performance
Advanced marketing techniques
Business planning/strategy
Finance
Project management
Interpersonal skills

48. Some key findings from KAM research
Key account management is a strategic activity
KAM is fashionable, but difficult
KAM can develop beyond partnership to synergy
There are mismatches between suppliers and clients
KAM does reduce costs and improve quality but these are rarely measured
A key account manager needs far more skills than a sales person
KAM needs a client-focused organisation

49. Appendix
KA Planning Process

50. The output of the key account planning process Diagnostic tools/
ie. The contents of the KA Strategic plan
techniques
Phase 1
Mission statement
Mission statements
Goal setting
Financial summary
Supplier’s trading history
Market research
Phase 2
Key Account Overview
Buying process
Market segmentation
Situation review
(i) For the customer
Definition of business
Gap analysis
STEEP analysis summary
Product life cycle analysis
Diffusion of innovation
Market structure summary
Ansoff matrix
STEEP analysis
Market mapping
Key account
opportunities/threats
by product
by market
Critical success factors analysis
overall
Key account strengths &
SWOT analyses
Key Account
Competitor
Analysis
weaknesses
by product
Porter’s value chain analysis
by market
overall
Issues to be
addressed
Key account
assumptions
Downside risk assessment
Key account portfolio
Summary
Key account objectives
by product
Porter matrix
& strategies
by market
BCG matrix
overall
Directional policy matrix
Key Account
Strategies
Product
Ansoff matrix
Price
Promotion
Place
Directional policy matrix
Response elacities
The marketing mix
Supplier objectives
Phase 3
Strategy
Supplier strategies
Formulation
Phase 4
Resource
Forecasting
Resource
Allocation
Requirements/budgets
Budgeting