In 1991, National Office Supplies (now a part of Staples), a $125 million business headquartered in Hackensack, New Jersey, lost one of its largest customers, Countrywide Funding, based in Pasadena, California. Countrywide, then the largest domestic home mortgage and lending firm, was benefiting hugely from prevailing low interest rates at the time. Its growth was explosive—it was adding 20 branches every two to three months. More critically to National, though, Countrywide was a $600,000-a-year customer—or rather, an ex-customer.
According to Rich Mistkowski, whom National brought in as national account manager to recover the customer, National lost Countrywide because it was managing the account "by assumption." For instance, National had assumed that longevity equaled loyalty. That assumption led National down a reactive path in service quality and in relationship management. The prior account manager sold—or rather wrote orders from—one person in procurement. He had not bothered to analyze Countrywide's purchasing practices to see if National could offer it a competitive and compelling value equation. Neither had he developed metrics to measure National's performance at Countrywide. As a result, neither the account manager nor National really understood what was at stake—until Countrywide's VP of procurement, a volatile individual, noted little value in the National relationship and booted it out.
In October 1991, Mistkowski moved to southern California and started to analyze Countrywide's office-supplies procurement processes. He found that Countrywide, which at that point had 104 regional branches, was buying all of its office supplies, computer supplies, and copier supplies from a local California supplier, which in turn was shipping those supplies to each of the offices via UPS.
Mistkowski made some assumptions (which turned out to be conservative) and started totaling these costs. He assumed that in a given two-month period, each Countrywide branch was sending 26 orders at $100 each to its office-supplies vendor. Each of these orders cost $50 to ship UPS second day. This meant that in any two months, Countrywide was spending $135,000 on shipping and $270,000 on product. Annually that came to $1,620,000 in shipping and $3,240,000 in product costs. Mistkowski also determined that many Countrywide branches, unhappy with the corporate vendor's service levels, were buying office supplies locally and paying retail prices. At the same time, Countrywide was incurring huge billing-processing costs because the vendor was sending each branch an individual bill for each order—using Mistkowski's assumptions, a total of 156 bills per branch per year.
These cost figures were excellent news for National because its distribution system and bulk purchasing could help save Countrywide a bundle. Mistkowski determined that National's Los Angeles office alone could supply 89 percent of all Countrywide branches' office-supply needs—within 24 hours and with no additional shipping charges. It could supply the remaining 11 percent within 48 hours, again with no shipping charges. Throw in National's other distribution centers—in Chicago, Atlanta, Dallas (where National had seven distribution centers), Baltimore, Boston, and New Jersey—and National could immediately cut Countrywide's annual office-supply freight expenses by $1.6 million and, in the process, give better service and product prices. Unlike Countrywide's vendor, National bought in bulk and therefore received an additional 35 percent discount, some of which it would pass on to Countrywide. This was an opportunity that account managers dream about.
After he had presented his business case for recovering the Countrywide relationship to National executives, Mistkowski started to develop multiple relationships at Countrywide to understand Countrywide's business and the members of the buying group to whom he could best present National's value equation. Mistkowski could see that, with its explosive growth, Countrywide was not much focused on savings, but he could also see that Countrywide really didn't understand how much it was overspending on office supplies.
In April 1992, Mistkowski got his toe in the Countrywide door when it awarded National its Xerox toner and cartridge business, worth more than $1.7 million to National. This time, National took nothing for granted regarding the Countrywide relationship. Mistkowski formed an internal Countrywide team at National, composed of the regional VP to whom he reported, National's president, a customer-service specialist, and three other employees from the National Customer Service Team. In August 1992, the National-Countrywide team began scheduling monthly meetings at which National quantified all savings Countrywide was reaping by doing business with National, National's performance (percent fill rates, etc.), and any service problems that had emerged and how quickly they had been solved. National also instituted EDI billing, which it estimated created an additional minimum 10 percent savings in Countrywide's procurement costs.
Another landmark event occurred in August 1992, when Mistkowski finally established a relationship with an executive who could simply say "yes" to making National a sole-source vendor for Countrywide's office supplies. Countrywide had initiated a total-quality initiative, and its VP of quality assurance was looking for ways to improve service and lower costs. Mistkowski laid out the financial case he had developed almost nine months earlier, demonstrated savings in the existing toner and cartridge business, and finally heard the question he had been waiting for—the VP of quality assurance asked why National wasn't supplying all of Countrywide's office products. Mistkowski said he'd love to do that (he'd been drafting a proposal for months). Countrywide crafted an RFP that was almost custom-tailored to National's capabilities. In October 1992, National won the business. A lost customer worth $600,000 a year suddenly returned to National as a five-year sole-source contract worth $5.5 million a year.
As part of this contract, Countrywide established a shared-savings program in which, if an item's former cost was $10 and National could supply the same item at a 10 percent discount, Countrywide shared the savings with National by paying $9.50 for the item. This shared-savings plan was to continue, with a notable exception, described below.
In strategic account relationships, very little remains stable. In December 1993, Countrywide's VP of procurement (the volatile person who originally ended the National relationship) was replaced by an executive whom Countrywide charged with removing $300,000 from its office-supplies purchasing costs. Mistkowski and his team decided to think long term and make a large investment in the Countrywide relationship.
Mistkowski went to the new VP of procurement and laid out a plan that would allow Countrywide to save not just $300,000, but $650,000+ during the next 12 months. First, Mistkowski showed that Countrywide was currently buying OEM office products, such as an IBM cartridge, for $200 each. A remanufactured cartridge with the same specs, on the other hand, cost only $125. Because the cartridges were Countrywide's number-one purchased item, a switch to remanufactured parts meant saving $450,000 a year in cartridge costs alone. Several other OEM parts could be replaced with remanufactured parts for an additional $200,000 in savings a year. In an hour's presentation, Mistkowski provided the means by which the new VP of procurement could exceed his savings targets and make his bonus. National gave up some revenue and margin, but Mistkowski believed this was an investment in the overall relationship, which, given Countrywide's still booming growth (it now had 450 locations), National would recoup. And he was correct. By quantifying both Countrywide's value to National and National's value to Countrywide, Mistkowski had transformed a former account into one of National's largest customers.
National Office Supplies didn't really think about Countrywide's lifetime value until it was booted out. Only then did National ask hard questions and make critical investments in recovering the Countrywide relationship. It assigned a national account manager to Countrywide and had the patience to let that account manager do his job. That job included quantifying the value that National provided to Countrywide. When National saw the results—an account moving from $600,000 to $0 to $5.5 million a year—it decided to redesign its national account management program using Mistkowki's approach.
We are now regularly seeing accounts that require their suppliers to quantify the value they deliver—sometimes when the customer itself does not quantify value delivered to its customers. At the same time, more supplier executives want a detailed reporting of the value, both of strategic accounts and the account management program.
Firms that do quantify the value they receive from and deliver to customers tend to be more successful in their strategic account management. BOS, Holland, and National were each able to take away share from their competitors because no one else in their industry had differentiated on quantified value. Value quantification remains a strategy that can differentiate a supplier's offerings to strategic accounts. One of the very best strategic account managers we know, when asked what his job was, replied, "I deliver value to my customers and my company. I regularly tell both what that value is and then I tell them again and then, just for a change of pace, I tell them again. Unless it is quantified, value doesn't exist."
Firms that do quantify the value they receive from and deliver to customers tend to be more successful in their strategic account management.