Transcript Key Account Management

How to Manage Big, Powerful Clients Profitably
by
Professor Malcolm McDonald
Emeritus Professor,
Cranfield School of Management
27th October 2009
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
Challenges

Market Maturity

Globalisation

Customer/Client power
Challenges

Market maturity
© Professor Malcolm McDonald

Technology

Production

Sales

Accountancy

Fads

Marketing
Challenges

Globalisation
New global leaders
Leaders
?
2nd tier
Guerrillas
Embrionic markets
Growing markets
New guerrillas
Mature markets
Challenges

Client power
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
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
Increasing client concentration...
Sales to the top 5 clients as a % of total supplier sales over 25 years.
76
64
% of total
supplier
sales
44
39
24
16
Biscuit
Manufacturer
From: Profitable Customers, Charles Wilson
14
Board/
Packaging
t-25
Speciality
Adhesives
t.o
18
Metal
Bearings
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
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
t-15
t.0
Top 10% of clients
Supplier to the print industry (turnover £200M)
t.-15
9
t.0
Bottom 10% of clients
Source: Profitable clients, by Charles Wilson
What is a Key Client?
Percentage of our business

Turnover

“Added Value”

Potential
Desirable factors in suppliers
Criteria for partnership
% of
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

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
The widening rift between profitable
and unprofitable clients:
% of company profit by client decile (each decile = 10% of client base)
% of total
company
profits
% of total
company
profits
t-15
17
16
t.o
29
26
15
22
13
20
12
10
7
8
6
4
4
1
-3
1
2
Largest 10%
of clients
3
4
5
6
7
client decile groups
8
9
10
Smallest 10%
of clients
-3
1
2
Largest 10%
of clients
3
4
5
6
7
8
-3
9
10
Smallest 10%
of clients
client decile groups
Adapted from: ‘Profitable clients’ by Charles Wilson
LOVE
High
Sales
Potential
Low
HATE
How well do you know the real profitability of the
top ten accounts?
38
32
27
2001
23
22
2002
2003
2004
21
20
19
%
19 19
19
18
16
15
15
13
2005
13
12
11
10
10
9
10
9
8
6
6 6
6 6
6
5
6
5
4
4
3
3
2
1
1
Not
at all
2
3
4
5
6
7
8
1 1
9
Totally
Creating closer relationships
with supply chain partners
D
I
R Marketing
E
C Operations
T
O Information
R Systems
S
Supplier
From
Sales
Purchasing
D
I
Marketing R
E
Operations C
T
Information O
Systems R
S
client
Creating closer relationships
with supply chain partners
Directors
selling company
To
Directors
buying company
Marketing Marketing
Key-Account
Co-ordination
Supplier
Operations
Operations
Information
Systems
Information
Systems
Supplier
Development
client
Strategic Purchasing
SUPPLIER PREFERENCE
A
T
T
R
A
C
T
I
V
E
N
E
S
S
Development
Core
Nurture Client
Expand Business
Seek New
Opportunities
Cosset Client
Defend Vigorously
High Level of Service
High Responsiveness
Nuisance
Give Low Attention
Lose Without Pain
VALUE OF BUSINESS
Source: PMMS Consulting Group
Exploitable
Drive Premium Price
Seek Short Term Adv.
Risk Losing client
Supplier Relationships as a Source of
Business Advantage
TypeType
10
10
600
• “First mover” advantage
• Channels to market
• Reverse revenue generation
• VP lead
• Business strategy driven
• “A team” on both sides
Preferred
Suppliers
• Point-to-point solution
• Technology access
• Operational advantage
• Relationship manager
• Strategy from CatMan
• SLA scorecard
Commodity
Suppliers
• Cost improvement
• Superior service levels
• Ease of transaction
• Managed locally
• Performance monitored
• E-enabled
c. 20% of all
suppliers
1, 350
3,000
c. 80% of all suppliers
Business Process
Criteria
Strategic
Suppliers
< 1% of
suppliers
20
Business Contribution
Criteria
“Must Have’ Criteria Drive Hard and Soft Measures
1.
Vision
• Sharing of long-term vision and orientation.
• Global focus and commitment with service & support capability.
• Defined but yet flexible boundaries.
2.
Culture
• 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.
3.
Impact
• 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).
4.
Intimacy
• Readiness to share ideas & information.
• Not overly locked into a competitor.
5.
Balance
• An element of demonstrated commitment from both sides.
• Readiness for risk taking and sharing of costs.
• Building trust and, thereby, moving to intimacy.
Preliminary selection of key accounts
Key account preliminary categorisation
A
B
C
Top 15 (in volume/revenue generated)
Next 30
Next 55
Preliminary Selection of Key Accounts
Supplier Business
Strength with client
High
High
Strategic
Large
Account
Attractiveness
Status
Low
Medium
Small
Star
Streamline
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)
Selling company
KA
Mgr
Ops
Buying company
Directors
Directors
Purchasing Manager &
Key Account Manager
Inbound logistics &
Order processing/
client service?
Production
Co-operative
Production
Accounts
Accounts
Marketing
Service
Marketing
Service
Selling Company
Operations
Focus team
R&D
Focus team
Key Acct
Mgr
Integrated
Environment
Focus team
Buying Company
Finance
Focus team
Market research
Focus team
Joint
Board Meetings
Main
contact
Board
Admin
Basic
Exploratory
Interdependent
Ops
Board
Buying company
Key
Customer
Contact
Admin
Selling company
Relationships and the client profitability trap
£m
160
Sales
140
120
Total
costs
100
80
60
40
20
0
-20
Cost of
sale
Attributable
overheads
Contribution
Integrated KAM
Selling company
Buying company
Operations
Focus Team
R&D
Focus Team
Key
Account
Mgr Environment
Focus Team
Finance
Focus Team
Buyer
Market Research
Focus Team
Marketing
Focus Team
Cranfield University School of Management 1996
Support Activities
Infrastructure
- Legal, Accounting, Financial Management
Human Resource
Management
- Personnel, Pay, Recruitment, Training,
Manpower Planning, etc
Product & Technology
Development
- Product and Process Design, Production Engineering,
Market Testing, R&D, etc
Procurement
- Supplier Management, Funding,
Subcontracting, Specification
INBOUND
OPERATIONS
LOGISTICS
eg.
eg.
Quality Control Manufacturing
Packaging
Receiving
Production
Raw Material
Control
Control
Quality Control
etc
Maintenance
etc
OUTBOUND
LOGISTICS
eg.
Finishing Goods
Order Handling
Despatch
Delivery
Invoicing
etc
SALES &
MARKETING
eg.
client mgmt
Order Taking
Promotion
Sales Analysis
Market
Research
etc
SERVICING
eg.
Warranty
Maintenance
Education /
Training
Upgrade
etc
Primary Activities
Many activities cross the boundaries - especially information based activities such as:
Sales Forecasting, Capacity Planning, Resource Scheduling, Pricing, etc
Value
Added - Cost
= Profit
The key client portfolio
Supplier business strength
with client
High
Low
High
Strategic
investment
Key account
attractiveness
Low
Selective
investment
Pro-active Management
maintenance
for cash
K.A. Attractiveness
Factors
Volume/value
10-7
6-4
3-0
X weight
15
Growth/potential %
30
Profit potential%
40
‘soft’ factors
15
100
Key Account Selection Matrix Tool - KA Selection Matrix
X
http://www.TheMarketingProcessCo.com
Chart
______________
Display Spend:
Spend with Us
Display Group:
National
ID Name
1
2
3
4
5
6
7
8
9
10
11
12
High
2
7
Account Attractiveness
4
10
12
X
clients on Chart
Show Groups Redraw
Maximum Spend
Alexander Smith
$14,000,000
Ash & Williams
$13,000,000
College Group
$12,000,000
Supplementary
F T Group
$9,900,000
Harpers Service Elements
$7,600,000
Parker
$9,400,000
Quality Insurers
$16,200,000
Randsome
$14,500,000
Royal & Co
$6,400,000
Thompson Group
$32,000,000
Tudor Rose
$8,000,000
Woods
$11,500,000
5
1
3
6
8
11
Exploratory
9
Low
High
X
Relationship Stage
Integrated
Supplementary
Service Elements
Low
Basic
Interdependent
Relative client Satisfaction
Co-operative
client: College Group Relative client Satisfaction: 0.80 Account Attractiveness: 4.40 Spend
Selecting and categorising clients by
potential
Supplier business strength with client
High
High
Low
Selective
Strategic
investment investment
Strategic
Star
Account
attractiveness Pro-active Management
maintenance for cash
Status
Low
Streamline
Key measurements in KAM evaluation
Profitability
KAM
Cost
reduction
Page 37
Growth
Setting expectations of account
performance
P
P
KAM
high
Supplier business
strength with customer
G
C
High
Account
attractiveness
KAM
medium
P
Low
C
Page 38
G
High
Low
Strategic
customers
Star
customers
Strategic
investment
Selective
investment
Status
customers
Streamline
customers
Pro-active
maintenance
Manage for
cash
G
C
P
C
KAM
high/
medium
KAM
low
G
Category
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.
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)
Key Client Analysis
Business Partnership Process
1
Market / segment
selection criteria
2
Defining and selecting
target key accounts
3
Industry driving forces
analysis
The Applications
Portfolio Analysis
For each key account
4
5
6
Client’s objectives
analysis
Client’s annual report
summary and financial
analysis
Client’s internal value
chain analysis
Strategic
Client’s
Gaining
Advantage
Basic
CSF
Analysis
Avoiding
Disadvantage
Process
Key Operational
7
Client’s buying process
and information needs
analysis
8
Our sales history with
the client
9
Competitive analysis
High Potential
Support
Our
objectives,
strategies
and plan
for T + 3
The application portfolio
Creating
Advantage
Avoiding
Disadvantage
Strategic
High Potential
Applications which
are critical to
achieving future
business strategy
Applications which
may be critical in
achieving future
business strategy
Applications upon
which the
organisation
currently depends
for success
Applications which
are valuable but
not critical
to success
Key Operational
Support
Adapted from Professor Chris Edwards, Cranfield School of Management
The market understanding process
The “Marketing” Director
Marketing
Sales
Mfg.
IT
Finance &
Accounting
HR
Logistics
R&D
Etc.
KA A
KA B
KA C
KA D
Etc.
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
1
9/1
The pressure
salesman
9
1
Concern for making the sale
Significant differences
Buying companies valued...
– integrity
– Trust
Selling companies valued…
– Selling skills
– Negotiating skills
Developing key account professionals

Commercial awareness

Interpreting business performance

Advanced marketing techniques

Business planning/strategy

Finance

Project management

Interpersonal skills
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
Appendix
KA Planning Process
Key Account
Planning
Process
Phase 1
The output of the key account planning process
ie. The contents of the KA Strategic plan
Mission statement
Diagnostic tools/
techniques
Mission statements
Goal setting
Financial summary
Phase 2
Situation review
(i) For the customer
Key Account Overview
Key account
opportunities/threats
Key Account
Competitor
Analysis
Key account strengths &
weaknesses
Issues to be
addressed
Supplier’s trading history
Buying process
Definition of business
STEEP analysis summary
Market structure summary
by product
by market
overall
by product
by market
overall
Key account
assumptions
Key account portfolio
Summary
Key account objectives
& strategies
Key Account
Strategies
Phase 3
Strategy
Formulation
Phase 4
Resource
Allocation
Supplier objectives
Supplier strategies
Resource
Requirements/budgets
Market research
Market segmentation
Gap analysis
Product life cycle analysis
Diffusion of innovation
Ansoff matrix
STEEP analysis
Market mapping
Critical success factors analysis
SWOT analyses
Porter’s value chain analysis
Downside risk assessment
by product
by market
overall
Product
Price
Promotion
Place
Porter matrix
BCG matrix
Directional policy matrix
Ansoff matrix
Directional policy matrix
Response elacities
The marketing mix
Forecasting
Budgeting