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10/13/2010 [Type the company name] Group 12 Richa Aggarwal Praveen Sangwan Puneet Madan Piyush Nandan
2009193 2009227 2009230 (á 2009307
Sam Marcus recently purchased a small 25 yr old cabinet-making company from its founder 2 yr earlier, and is looking for dramatic growth. The company competes in commercial and residential construction markets; shortly after the acquisition, the commercial market was good but operating cycle was more rigid but on the other hand residential market was good and more liquid than commercial market, the company gains a large new residential customer. The case traces the changes in prices made at the company to its biggest customer Blackstone and how the relationship with this customer begins to deteriorate. At the end of the case, Marcus must decide whether to fix or end the relationship.
The problem being faced by the company is to decide on whether to continue the relationship with Blackstone or terminate the agreement. The decision now has to be taken in the light of following issues the company is coming across;
Rc Îhat should CMR do about the Blackstone account now? Rc Ôow much profit is being generated by CMR͛s commercial relative to its residential Business? By the Blackstone account? Rc Îas CMR͛s decision to initiate a relationship with Blackstone a good one? Rc Îhat is the nature of CMR͛s business? Ôow does it differ across the two market segments? Rc Îhy did CMR persist in the Blackstone relationship? Ôow would you remedy such a situation? Rc Îhat is the impact of changes made to how the company selects customers and manages customer relationships on company͛s relationship with its customers and Blackstone in particular?
j CMR is look to increase its profit from 7 billion to 70 billion by increasing it access or scalability and by making replicable business by investing in value relationship or creating contacts with general contractor. To achieve its aggressive growth strategy its also made changes in system like introduction to IT , sales Vp and hiring sales team.
The relationship between Blackstone and CMR started when Blackstone needs a trustworthy service provider because earlier experience of Blackstone was not good in terms of delivery and workload so Blackstone give a high volume opportunity to CMR it was what CRM wants it fits its strategy of high growth and that will also improve cash flows. But after some time CMR feels that the cost of serving Blackstone was higher as compare to serve in other residential customer and even due to its customer interference it was much higher than budgeted by looking exhibit 6 and even also increase labor cost which cause it to work 2307 extra hours to work. There are also other issues like Rc Not Strategic Fit ʹ The relation begin with a trust or CMR assumption that Blackstone will help her in gaining scalability and reducing or gaining operational efficiency but this doesn͛t comes true because of homeowners visit to showrooms so this enable CMR to raises process which aggravate their relation. Rc Rigidity in cash flows- As from case facts its was given that the company has taken huge debt and invested lot of money and the growth on commercial business was tough on cash flows because of rigidity in project cycle flow in commercial than residential and there is pressure on generating healthy cash flow so Marcus find it to raise prices to increase profit to reduce to cover higher labor cost from residential with assumption that they did it earlier and other will follow it. Rc Project coordination problem among different subcontractors as mention in case and also another coordination problem face by CMR when they don͛t have lead time to work that cause delay and added $4000 additional cost to CMR.
iscal year 1998 Residential Top 15 Residential A/cs
Revenue 1596 826
iscal year 1998 Revenue from Blackstone % of top 15 residential A/cs
Revenue 2114 25.46%
This huge percentage of 25.46% shows that Blackstone Ôomes is a very important customer. If CMR has to achieve its objectives of making the company
business model in this industry, it has to continue the relationship with Blackstone Ôomes. Exhibit 4 iscal year 1998
Revenue
Commercial Residential Total Total shop Employees Commercial Residential
% of material cost Material Cost 727 24718 4% 1596 26% 41496 8866 % 288676 75 61 14
75 shop employees is given in the case along with hourly rate of $16/hr and SG&A expenses of $2.9million which has been appropriated to residential sector on the basis of revenue contribution. Residential Cost structure Shop Employee Cost SG&A Material costs
as per further calculation we have done we reached at a point that CMR is losing by doing business with Blackstone because on excess labor cost it won͛t able to cover its cost, By looking at exhibit 7(b) it can be said that Blackstone is short of $11.14 per hours of expected revenue which cause losses of 11.14*29 5= $33253 per employee which is huge. So it needed first to have a conversation with Blackstone then if it won͛t agree with new prices then it terminate its relations and looking for other opportunities.
