Grainger will drive the future of material requirement for operations (MRO) purchases through strategic operations by focusing on growing current customers and embracing new technologies that will strengthen the company’s current capabilities. Over the last three years Grainger has made significant investments into emerging technologies that allow for more efficient workflow and faster turnaround times on sourcing quotes for those hard to find items or “one-offs”.An internal audit of Grainger shows that of a stable, forward thinking and very strategically planned company that looks for top quality people who will provide world class service to its customers. Grainger has two very strong key initiatives that they are focusing on. The first is market expansion – a multi-year program to gain share by improving customer coverage and overall positioning of its product and service offering in the top metropolitan markets in the U. S.The second is product line expansion – in 2006, Grainger begin introducing a broader and deeper product offering that will help them better serve customers across more unplanned purchasing situations.
In order to achieve those goals, we need to assess there current and past performance, including there internal strengths and weaknesses. In comparison with the previous five years, Grainger’s financial strength is having an upward trend in the following areas: Net Sales, Net Earnings, Total Assets, and Cash Dividends paid per share.In addition to Grainger’s financial strengths the company overall has low debt and strong cash flow. Below is a detailed analysis of there financial position as of February 2008: •Net sales have increased from $4. 6 billion in 2002 to over $6. 4 billion in 2007 •Net earnings have increased from $226 million in 2002 to over $420 million on 2007 •Total Assets have increased from $2. 6 billion in 2002 to over $3. 0 billion in 2007 •Increased cash dividends from $0.
73 per share in 2002 to $1. 34 per share in 2007 •Stock price has increased from $56 in 2004 to $87. 20 per share as of today Return on Equity has increased from 12. 9% in 2003 to 19. 7 in 2007 •Return on invested capital has increased from 20. 6% in 2003 to 28.
5% in 2007 •Gross profits in comparison to 2006 have risen over 10% •During 2007 Grainger repurchases 7. 1 million shares of there common stock One area of weakness, yet also opportunity and a strategic plan at Grainger in the long term- it to buy back stock options. In fact, on April 30, 2008, Grainger announced that its board of directors has authorized the repurchase of up to an additional 10 million shares of the company’s outstanding common stock.
Since 1984, Grainger has returned more than $2. 7 billion to shareholders by repurchasing more than 59 million shares of stock on a split-adjusted basis, reducing the number of shares outstanding by more than 31 percent. Repurchases under the new program are expected to be made from time to time in the open market and/or privately negotiated transactions. The repurchased shares will be available for general corporate purposes. As of March 31, 2008, the company had approximately 77 million shares of common stock outstanding (grainger. com, 2008).
Grainger creates lasting value by engaging in the following activities: providing maintenance, repair, and operating (MRO) supplies to people who maintain facilities. Grainger is a logistical operations company that does this quickly, effectively, consistency and profitably with a human touch by utilizing sophisticated information technology and being a supply-chain expert (Keyser, 2008). In 1999 Grainger launched a phone based service department called “FindMRO” with the soul purpose of finding those one-products or spot buys that customers could not locate or price effectively.The service, now today know as “sourcing” has an extensive database of over 12,000 suppliers and over 5 million products. With 24 hours customers receive an answer and price options from there Grainger representative. By linking customers, supply chain partners and products Grainger becomes a personal shopper for its customers, saving them time, resources, and financial liability. Grainger’s current mission is to be known to their customers as the high-performance team…their reliable, go-to source for vast product selection, fast turnaround, competitive pricing, excellent counsel and superb service.
Objectively Grainger looks to use a mix of specializing customer service and technical support to go beyond the means of what customers expect. Grainger drives to be a one-stop-shop to its MRO customers and deliver exceptional service and product availability. Strategically, Grainger is committed to being their customers’ first choice. One of Grainger’s most valuable assets is the employees that keep the company moving forward. By offering them quarterly training and extensive product knowledge opportunities, it can be assured that the right message is delivered from supply chain partner, to employee to its customers.While utilizing technology and direct employee to customer interaction, Grainger has a goal to strategically place the right products in the right places that are economically justifiable. By using the advances in sales and lost sales captures, Grainger is able to determine with a 91% product availability how to deliver customer demand and reduce failures to a minimum.
At Grainger, core competencies come from the top of the ladder and flow down through strategic management and system resources. These include, product nowledge, system integration, product to customer manage solutions, marketing and the Grainger Catalog – more commonly known in the industry as “The Red Book”. The grainger. com website, which hit $1 billion in sales in 2007 had, until recently been operating at a negative margin, with a write-off of $125 million in 2001, grainger. com has gone back to the basics.
Yet, one of Grainger’s most significant core competencies will always be with the company’s knack to efficiently manage logistics, supply chain and warehousing of over 188,000 products in 9 distribution centers, and over 450 branch based stores.According to Harps (2002) Grainger continually reinvents itself to meet the changing needs of its customers. One example is that customers have the option to “call”, “click”, or “stop by” to order product. Another significant change has been the explosive expansion of the product line since 2001 – from 100,000 to over 188,000 in 2008. As Grainger continues to lead the industry its focus must be to maintain product deep and breath that is economically justifiable to meet the needs and service levels of its current and future customers.
The focus on ebusiness, market expansion and availability will be key to the future success. In addition, to clearly understanding the opportunities within the walls of the company, Grainger must stay focused on product knowledge, supply chain and logistics. There are several significant external threats facing Grainger today, currently the future conditions of the economy are being watched closely, which is also having an effect on the internal strategies of the company.
Grainger uses the methodology of identifying its threats and seeing them as business opportunities.The engagement of the small to medium sized enterprises (SME) or the “mom and pa” businesses is another area of focus for the coming years at Grainger. Typically, customers in the SME area have more of a connection to the local companies and not so much major corporations. External areas that Grainger has little to no control over have take shape over the past several years.
Recently the destructive mother-nature has enabled Grainger to find opportunities in emergency deployment of much needed product to areas that have been hit hardest by tornadoes and hurricanes.Even the increasing prices of fuel and while fuel surcharges have almost doubled in recent years, Grainger has been positioned themselves as a valuable resource to those communities that have been effected heavily. The current economic trend and global conditions of the financial market also have Grainger keeping a close eye on there bottom line. With the housing market in a pinch, unemployment rates edging up and consumer confidence trending down, Grainger has needs to keep a watchful eye on how companies are spending there dollars.This has lead to an increase in companies going to a more learn manufacturing process and putting pressure on vendors to deliver even better and more effectively.
In the next decade Grainger plans to strategically grow at a rate that market conditions will demand. This will allow the company to sustain pricing and product availability with its vendors, which being fiscally responsible with its cash flow. If history is a good trend indicator of the future, profits, market share and performance will all trend upwards for Grainger in future years to come.Grainger will need to explore a certain amount of risk in the opportunities that are presented, in addition to exploring the threats. Certain failures on the part of the competition could also leave an open door for Grainer to take advantage of. The clear communication of the strategic opportunities to all employees will keep an open door for employee feedback and decision making.
One very significant external threat to Grainger is the competition in the market place.There are many small companies eroding Grainger’s market share, as a percentage, individually is rather insignificant, however collectively – at a regional level, it can reduce overall customer experience. Grainger needs to identify there competition and the advantages those companies bring to the table. The biggest competitor – McMaster Carr whose product offering is close to half a million products, of which 98% ship from stock has recently been on the front steps where Grainger failed to meet the customer’s expectations.
Through carefully planning and pproach methods, Grainger will need to look at its product offering, in addition Grainger uses an external sales force, whereas, the competitor uses strictly catalog sales and marketing. Grainger’s strategy and strategic choices will need to focus on the following strategic objectives to achieve the organizations long and short term goals. Defined below are the details of those strategic objectives. Market Position: •Achieve double-digit revenue growth annually. •Drive new product expansion sales with double-digit growth by year end. Growth: •Drive Sourcing revenue to over $100 million by year end.Productivity: •Control Freight to Sales expense, not to exceed 5% based on monthly revenues. •Maintain a monthly Line (product) availability at 92.
2% on planned inventory dollars. •Ship customer order’s same day 99. 00% of time each month.
Employee: •Maintain annual employee retention to 85%. Technological Position: •Engage employee learning, development and growth by offering no less than 25 Grainger Learning Center (GLC) classes per quarter. •Maintain internal technology spend at $100 million that drives productivity and reduces resources by 10% per year.In addition to the objectives listed above, Grainger needs to build and utilize current companywide strengths. In addition to growing the product line by over 50,000 products (Grainger, 2008) the company is exploring expansion plans that include opening storefront branches in Central America, in addition to Mexico, Canada, and China. Due to the diversity of the market share in the MRO field, Grainger is expected to further its product line offering to over 400,000 SKU’s by 2010 (Chernikoff & McCormick, 2008).
Driving on the experiences of history and future economic conditions, Grainger will need to diversify its market spend and capital investments to maintain continuing stock buybacks, which will increase cash on-hand and lower cash payments on dividends that are paid out quarterly. The resulting increase in cash, can be utilized in technology enhancements, employee training, and market expansion projects. In determining practicable strategic alternatives to Grainger’s tactical objectives it will be important to ask the following the questions: * What is an ideal alternative? * What is a poor alternative? What are some reasonable alternatives? * What is good and/or negative about each alternative choice? For each of the five strategic objectives, alternatives are listed below to support each area. Market Position: Drive sales to $7.
5 billion by fiscal year end 2008 while increase product offering by at least 10%. Growth: Deliver Sourcing Market options and marketing plan to 10% of the top customers in each of five regions (Central, West, North East, South East & Great Plains) Productivity: Maintain current transportation costs that will not to exceed 10% of sales nor drive availability under 91. %. Employee: Educate 80% of the current employee base on Lean Process by year end 2008. Technological Position: Continue grainger. com development to drive sales while keeping internal technology resources inline with 2008 budget. The strategic choice for Grainger for the coming year, based on my research and knowledge is recommend as follows: Develop and complete market expansion projects for the top 25 U.
S. metro areas, to help increase sales by 7% to 10%, while achieving operating margins of 10% to 11%, which will deliver earnings per share of $5. 65 to $6. 00. (Grainger, 2008)Historical as Grainger has completed marketing expansion projects, typical results have driven sales that justify capital expenditure projects with 4-6 years.
While each market has its own unique characteristics, the overall concept of bringing Grainger into market areas that can drive sales growth and opportunity are driven by results. Assessing and ranking all potential contributions allows executives to make choices about where and how much to invest. In addition, Grainger will need ongoing comparisons of costs against returns as efforts go forward so Grainger can decide whether to continue investing in these efforts.
According to Porth (2002) elements of organization structure include chain of command, span of control, and form of degree of centralization. The principal chain of command suggests that an employee should report directly to one supervisor. To achieve a strong implantation strategy, communication within the internal and external chain of command is vital pieces that must fit together. When an employee has to report to two or more supervisors, conflicts have risen and priorities are never very clear.
Grainger must initiate two key alignments to continue employee retention at or above 85%.The first is to ensure a clear and direct line of open communication with every employee’s direct supervisor. This includes making sure that communication from the top down is not broken. The lines of communication are often broken down in several different methods, and by the time that information reaches an employee, the message can be (and mostly is) skewed.
This key element is a primary reason conflict happens between employees and supervisors. The second key area of alignment Grainger must have in places to maintain employee retention is to regularly obtain employee feedback.Good employee criticism helps foster relationships and identifies any roadblocks employees feel they are having. Grainger’s sales are driven primarily by one on one sale(s), either by phone or face to face employees. This puts Grainger on the front lines with employee to consumer relationships and offers a unique customer perspective of what they need to operate there business’ effectively and efficiently. Grainger’s over all sales challenge will to maintain positive sales growth in a slow economy by diversifying there offering, finding new areas of business opportunity in the On Sight Solutions (OSS) area.This area of keep stock programs on sight at a customer’s location ensures the continuing operations of Grainger’s customers.
To help drive a double digit growth, Grainger will need to add 25% more items each year, including vehicle maintenance and raw materials (Grainger, 2008). To ensure proper selling of these items, Grainger will to align its training and selling skills area between new products and employees. Sourcing has been a weak area for sales in the past for Grainger. However, with new management behind the wheel of the Sourcing Operations, a key look at every piece of business that Grainger can capture is been offered.While there are a few current challenges within the operations area of Sourcing, the overall benefit to align Sourcing and Sales together makes good financial sense. Proper training of Grainger’s Sourcing capabilities and processes are needed to ensure a seamless transfer of product to consumer, including the daily challenge of timely quotes and delivery of invoices. In addition to process training, availability and employee communication must play a first step role it the operations of Sourcing. By aligning employee understanding and Sourcing objectives, both areas will be able to maximize the abilities and service the customer.
This can be achieved while driving sales and reducing overall costs. Sourcing provides Grainger a new foot in the door of its customers who have extra-ordinary circumstances in there operations and lack the outside link to obtain materials or “one-offs” in a timely manner. The overall power and network of Grainger partners (vendors) gives Grainger a solid link between the most productive ways to bring products direct to consumers in an efficient manner. Transportation and Supply Chain must maintain monthly line (product) availability at 92. 2% on planned inventory dollars. In addition, they must ship customer order’s same day 99.
0% of time each month. With the overall increase in gas prices and transportation loads becoming more and more demanding, obtaining cargo freight and over the road freight will continue to be a big challenge for Grainger. It will be important for Grainger to align itself with vendors to ensure they are maximizing truck loads and while efficiently managing inventory. As mentioned in previous strategic areas, communication with be a key factor to ensure alignment of this process and that all employees have a clear understanding of the effects transportation costs have on the business.
Simple stating “the increase in the costs of fuel have driven up the costs of transportation dramatically” is a true, but also a global issue that any reasonable person understands. Grainger must implement a limited “free-freight” policy on shipments to ensure accurate freight costs are captured on large orders. Overall communication and understanding of how freight costs affect the system must be communicated from top-level management in a direct, yet believable manner.Employee retention, marketing and the drive to increase sales all encompass on common issue – education. To implement an educational strategy, not only does communication play an important role, however knowledge will be key to aligning to the learning classes within he entire Grainger system. In order to maintain internal technology spend at $100 million that drives productivity and reduces resources by 10% per year, Grainger must effectively offer classes that will initiate sales while helping to reduce redundancy and resources.
One example is to provide customers with better ordering solutions that provide the most accurate information at the time of order, which includes vendor delivery time on out of stock items and new item inception. This is a key alignment area for Grainger to ensure all employees fully understand the learning system in place. To strategically understand each employee, Grainger must also drive future growth development and career plans for all employees.
This understanding will enable managers and directors to fully understand the needs of what they need to teach there employees and how to drive them so they reach there goals.While operating a company with a very diverse workforce this is a very challenging area, which is also a strong driving factor that communication is a key factor to implement any strategy and enable proper alignment with all departments. Grainger’s over all strategic implementation needs to have good solid direction from the top down. Successful execution of strategy requires change in all areas of an organization.
The best strategy in the world, can fail if the proper execution is not proposed. Consideration of strategy is not just the management portion of strategy execution, but also, the people, cultural and organizational factors.Utilizing a three year pro-forma and balanced scorecard to measure the indicators and performance objectives, Grainger’s goals and process strategy for their strategic are as follows: Grainger posted record sales of $6. 4 billion, up 9% over the previous year.
Employee commitment and genuine interest the company helped drive these results. The future of Grainger will be the investment and technology investment into the employees. Grainger posted record earnings of $4. 94 per share, up 17% over the previous year. In addition to the repurchasing of 7.
million shares, Grainger also generated pretax return on invested capital of 28. 5% (Grainger, 2008) Balanced Scorecard According to Cook (2001) Grainger credits the “balanced scorecard” approach—a measurement system that includes not only financial measures, but also internal process, employee, and customer measures—with helping it cut supply chain costs significantly, shave inventory, and boost its on-time shipping performance. “Our metrics have helped us drive the performance of our supply chain,” (Cook, 2001). Internal: * Increase product line expansion by 90,000 per year for then next 5 years. Maintain inventory Turns a 4.
5 per year. * Transition SAP system from 4. 7 to 4. 9 by year end. * Continue to drive productivity and operating efficiencies * Maintain 5% overtime costs.
Customer: * Drive customer availability to maintain 99% same day shipments * Product availability for incoming orders 93% * Increase customer base in the small to medium size base by 10%. * Maintain Lost Sales at 4. 5% by year end.
Financial: * Drives double digit sales growth by end of 2008. * Maintain freight costs, not to exceed 5% of net sales per year. * Hold inventory dollars not to exceed $1,000,000,000 by year end.Future: *Drive sales to the small/medium sized business. * Maintain technology spend each year to $25 million.
* Hold COGS at 60% of net sales. For Grainger to achieve it strategic goals, the current and future leaders will need to identify the current economic situation, assess business and consumer needs for the products in which they offer and utilize the most cost effective network of branch and distribution centers to maximize customer availability while considering long term objectives and placing product where it is economically justifiable.Grainger continues to grow both in physical inventory, customer base and financial success the key drivers that will keep the strategic opportunities are inception to market with new products, continuing to balance stock performance with an increase in buy back options, and creating the best in class performance for the On-Sight-Solutions network of inventory. By driving the factors that breed success in with implementing inventory solutions on sight with customers, not only does this drive down internal costs, but increases customer loyalty and client service satisfaction. Executive SummaryIn comparison with the previous five years, Grainger’s financial strength is having an upward trend in the following areas: Net Sales, Net Earnings, Total Assets, and Cash Dividends paid per share. In addition to Grainger’s financial strengths the company overall has low debt and strong cash flow. Key indicators in the current economic market place give Grainger a steady advantage over the competition – the main factor being the employee – consumer relationship building that Grainger installs into everyone of employees – ownership and empowerment. These two factors alone will drive the main focal points of this strategic plan.
To be a market leader in the MRO business and an over all financially successful company that delivers shareholder value, Grainger must strategically utilize its currents resources to drive employee knowledge. A solid top-down direction driven metric will enable all areas of the company focus on driving the key indicators of performance. The supply chain will maintain inventory dollars and drive same day shipments, while marketing will hold the Grainger name to the public eye, including emergency management and response, and product management and sales will drive the customer solutions.Bringing home the Grainger Value Vision plan, or commonly known as GVV, gives customers an overall cost savings structure that drives all areas of MRO within an organization.
Internal areas, such as customer service are hard proven areas that knowledge and training are fully sportive and key factors to customer relationships and driving sales. This area will be pivotal to ensuring the goals are outlined clearly and expectations of employees are defined. Coaching will be a regular topic to help drive employee ambition and success.In closing, Grainger’s presence in the market is a driving factor in the MRO business today and continuing with the rich tradition that W. W. Grainger first set out to uphold some 80 years ago, it still a living and breathing fire at the helm.
I would encourage the leaders of Grainger to focus on double-digit growth, employee retention, knowledge based building and a full appreciation and understanding of the Grainger Value Vision. The focus is too drive shareholder value, while maintaining a customer base and keeping that trend of sales moving upward.Reference:Chernikoff, H.
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