3M Canada Case Study Analysis

TaeSung Park
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Introduction
3M is a product driven company that has been prominent over the years. 3M Canadas
Industrial Business Division (IBD) has been successfully manufacturing abrasive and
adhesive products and now faces a dilemma with the emergence of a new channel to market
known as the National distribution channel. In order for IBD of 3M Canada to achieve its
new mandate given in May 2006, which is to boost its annual organic growth rate of three to
five percent in recent years to twelve to fifteen percent by 2008, consideration on how to
venture into this market and position itself through the new channel would not be an option.
The analysis on 3M Canada would go about the requirements of the new channel to market
which includes an evaluation that fits IBDs resources, strength and capabilities in its channel
design process and also considering the appropriate strategy that will be essential for IBD to
ensure its mandate is achieved as well as its long term sustainable growth in the new
emergent segment of the market.
Shifiting from OEM to MRO
Historically, IBD sold business products to two of their customer segments namely
original equipment manufacturers (OEMs) that IBD mainly dealt with and only minimal
exposure to a few segments of maintenance, repair and overhaulers (MROs). Customers
between OEM and MRO IBD Canada varies in product offerings and the buying behaviour of
both segments vary. Products catered to the OEMs consisted of high-value items becoming
part of the finished product while low value consumables were catered to the MROs. Having
said that, the sales relationship will vary for IBD when servicing both of their segmented
customers. First off, 3M focused on initiatives such as product innovation, new product
development, getting specified for in-process usage and emphasizing on product cocreation with OEMs to reduce their costs of operations, retaining customer needs and loyalty.

Hannaford (1976, as cited in Li, 2011) also asserted that the reduction in the costs of
purchasing, product performance improvement and new product incorporation provides a
solution to a customers business problem by creating value, and product specialisation level
also increases the tendency for customers to use suppliers as sources for newly improved
products and developing technical design solutions (Swink & Mabert, 2000, as cited in Ellis,
Henke Jr., & Kull, 2012) further supported the buyer behaviour of OEMs. Being a productdriven company with a strong R&D background gave 3M the competitive edge in serving
new product offerings towards new or existing customers. Backed by their technical skills
and a sales force that are equipped with product knowledge, the company found a natural fit
with the ethos of the Special and Niche distribution channel and provided great focus in the
OEM market.

On the contrary, the OEM market faced a diminishing growth due to the maturity of
the OEM segment with limited prospects of expansion. The rise in Canadian dollars caused
the cost of production in Canada to be expensive and that acted as an incentive for many
companies to source their production offshore. Although 3M had not outsourced its
production as a policy, it encouraged its subsidiaries to pursue regional alliances, such as
giving exclusive supplier status and licensed manufacturing. With the declining production in
Canada, IBD and its competitors were forced to look for customers and revenue apart from
the OEM segment. The MRO segment however was growing at a rapid rate because of the
emergence of large scale national distribution channels in terms of branches, logistics centres
and aggressive sales force that secured large volumes that worked towards the goal of
profitability. As a result, special and niche channels started losing their competitiveness due
to the increased product knowledge and skills built up by the national distribution channels.
Products were becoming commoditized since technologies were going off-patent, product

specialization lost its premium value which caused both special and niche channels
vulnerable to takeovers and gradually being played out by the national players.

Evaluation of 3M Canada
The trends in MRO segment also described the common scene of consolidation
whereby distribution channels were acquired that fulfilled customers consolidated purchases
and only focused on minimal number of distributors with whom they develop transactional
relationship, the physical medium of a salesperson was still critical to retaining customers
nonetheless. Thus, MRO customers had led IBD to focus less on product specialisation while
emphasizing on sales in the MRO market segment. Since products are loosely classified with
minimal brand loyalty and price was the key in securing sales, this means that the sales
relationship between IBD and MRO segments are solely based on sales volume and market
share. By means of this, the market trends in the MRO segment had shed light and provided a
decision upon IBD to change their customer focus from OEM to MRO that would generate
additional sales in the targeted time-frame in achieving their given mandate. The opportunity
for driving scale and market share is larger in the MRO market with an estimated worth of
Cdn$14 billion in Canada and by engaging and holding on to the emerging large national
distributors that would definitely provide IBD the platform in filling vacant product lines and
private labelling potentiality. Such decision to focus on MROs allowed 3M to take
opportunity on its existing technology platforms, as having potential growth in bringing their
complete line of products perceived as a sales stimulus to their customers which will be
inclined to 3Ms initiatives.
However, changing customer focus from OEM to MRO remained a challenge for 3M
since they have been accustomed to dealing with individuals, one to one, in the Special and

Niche channels. These channels have minimal requirement and have almost similar needs
with the OEM customers and this is an advantage for 3M. Historically, managing such
customers was not an issue for 3M but to venture into the emerging MRO market sector, 3M
had no choice but have to deal with large corporations as they controlled the MRO market
more than suppliers. Driven by large connection, procedure, protocols and even with complex
buying processes, MRO proved to be the stepping stone for 3M to achieve its initiatives as
well as a sustainable growth for their sales. Though easier said than done, it is obvious that
IBD has to step up their current strategy, directing their efforts from OEM to MRO and
shifting their emphasis from Special and Niche players to large National distribution channels.
IBDs current strategy was to focus on sales that comprised of four elements: growing the
core business, pursuing acquisitions, concentrating on emerging business opportunities and
doubling investments in emerging markets served as an appropriate action altogether in
serving the emerging MRO market that is consistent with the change in customer focus that
IBD is seeking. If IBD were to adopt such strategy, the IBD must look into how they should
engage and hold on to the National distributors and how it should restructure its sales model
and operation processes to serve the new MRO channel and to the MRO market for IBD to
achieve its objectives.

In order for 3M to position itself in the emerging MRO sector, IBD has to incorporate
the channel design process in servicing the new market through the National distribution
channel to tackle the targeted market since market trends in MRO had proved that Special
and Niche channels are being overtaken by the large distributors. This signified the viable
option for IBD to hold on to the large distributors since they have played an immense role in
the market. This has shown the implication that a middleman only exist so long as the
customer legitimise their existence. Case in point, 3M had already defined their targeted

customer segment in the initial step of the channel design process. Next, IBD has to identify
and prioritize the channel requirements of the National distributors in catering 3Ms product
offerings towards the MRO market segment. In this step, IBD needed a different model in
targeting the selected market that required different attributes and mindset : selling low-value
items to the market; a well-rounded business perspective that provides a common company
face to the customer and managing the dynamics of a distribution channel. By venturing into
the targeted MRO segment, the National distribution channels required a different approach
by 3M in dealing with them, the three main issues IBD faced on how it should restructure its
organisational direction towards handling the National distribution channels are IBDs sales
model, supply chain management and marketing programs.

The first issue that is addressed to IBD is its sales model; 3M had always focused of
what to sell and considered heavily on product innovation and renown technological
platforms as their core competence which indicated the operational efficiencies had taken
root in 3M. However, due to the emerging MRO segment and 3Ms opportunity to serve this
segment, this has served as an opportunity for additional sales to achieve the proposed
mandate. Therefore, IBD has to make a transition from the current product centric model to a
customer centric model, restructuring its sales force to focus on customer specialization while
bearing both geographic and product specialization. Restructuring the sales force by having
IBDs salespeople to acquire generic sales skills, on top of technical knowledge, was crucial
in securing sales and to close the gap between the end users and MRO suppliers. The sales
force management could be restructured by directing 3M towards a Market-Centred
Organization since it is the most suitable option for the organization to learn the specific
requirements of MRO. This would allow the salespeople from IBD to be better prepared to
identify and respond to buying influentials.

Furthermore, IBD could build a cadre of channel specialists to complement the

product specialists by developing a well-rounded salesperson to represent the company in
nurturing and building relationships with the customers in the National distribution channels
in different regions. For example, Acklands Grainger which is the major Canadian MRO
customer value outweighed the value of product customization referring to exhibit 1. 3M
Canada could train their salespeople to be more proficient in both technical and sales skills in
order for them to cater to their major potential customer. That being said, sales force that
shaped salespeople with well-equipped interpersonal skills are important for its ability to
service the large National distributors by focusing on what the expectation of the end-user
from their distributors and providing the right needs to the channel.

The following issue that ought to be overcome by IBD is the need to restructure their
supply chain management that integrates the supply and operation across all supply chain
members. By doing so, the supply chain management could be strengthen by linking an
incentive program in hopes to reduce supply chain costs for the National distributors as sixtyone percent of the supply chain costs comprised of costs of procurement and cost of
inventory which signified greater room for supply chain savings, as shown in Exhibit 5. In
addition to that, the Transportation and Industrial divisions in 3M were merged together to
effectively improve sales. Hence, supply chain management is focused on the integration of
all supply chain processes that add value for customers that ensures IBD to strive in logistics
fulfillment such as: effective replenishment process, provide responsive technical support to
the end user and to each individual National distributors, offer total solutions, and quicker
decision making process, standardizing stock keeping units (SKUs), and just-in-time delivery

that are necessary to place effective supply chain processes to better service the National
distribution channels while maintaining a competitive position.

Marketing programs are another issue prioritized for change as previously 3M aimed
to create marketing program that catered to Specialized and Niche channels. Marketing
programs now needs to be created with the consideration on the constraints and protocols that
are strictly imposed by the National distributors. Marketing programs now have to showcase
lower price points instead of the conventional premium pricing. With these issues underlined
by 3M, IBD now has to consider the third step in its channel design process aforementioned,
which is to evaluate and assess the firms capabilities to meet customers requirement.
Having identified the issues, they have the economies of scale to provide structural changes
that would provide the appropriate sales model and improvement in logistics and marketing
programs. This would allow IBD to provide the best possible service towards the MRO
channels through the development of an efficient and timely distribution system to achieve
IBDs mandate of increasing 3M Canadas annual growth rate as well as seeking long term
growth and sustainability of the organization, by the virtue of its multinational organisation
success. Once the issues faced by IBD are prioritized, taken into consideration and overcame,
IBD would be able to shift its focus from product leadership to a low total cost strategy and
would have the capability to service the National distribution channel more effectively.

Recommendations

There are various recommendations for IBD to ensure growth sustainability and
generate revenue through its decision to service the National distribution channels to market
in the MRO segment. Firstly, 3M should undertake the initiative to break down the silos
within its ranks among various divisions since 3M had always adopted bureaucratic way of
managing its large organisational structure. As what it is expected, 3M needed to provide
coordination in those divisions with different functional responsibilities through a central
management committee at the top. It is imperative that 3M has to step out of their comfort
zone and take the forefront and loosen up its bureaucratic management to provide quicker
decision-making processes. With a quicker decision-making process, there would be a
definite improvement in fulfilling supply chain requirements in being ever ready to adapt to
product offering changes, customer expectations, and to maintain 3Ms competitive edge in
servicing the emerging National distributors and the evolving MRO customers.
Other than that, IBD could seize their opportunity towards the idea of using some of
its plant capacity to manufacture private labels that could provide an area of opportunity to
fill up the vacant spaces in the MRO market. Such action plan would signify that IBD is
ready for a full-scale commitment towards supplying the emerging MRO segment through
the National distribution channels in the market. Although private label business would not
enhance the 3M brand or its market share since the products would not be labelled under 3M,
growth in sales volumes could be driven by private labels as the National distribution
channels intends to expand its private labelling businesses. Private label business could mean
increasing 3Ms growth that would be consistent with 3Ms ambition to maintain existing
business account and generating repeated transactions as their key indicators of sales
performance. Moreover, private label business for 3M may not be perceived as demoting its
premium brand equity but providing a new brand positioning in catering the MRO market at
an affordable and competitive price that is in consistent with the National distributors needs.

IBD could also exercise the option of outsourcing their sales. IBD could collaborate
with the representatives of independent sales agents and manufacturers for a specific product
line. With them having their own sales force, they would work based on commission from a
percentage of IBDs existing business as well as its additional sales. Outsourcing sales could
potentially reduce sales effort and increase 3Ms sales management efficiency in dealing with
specific product lines and potentially reducing IBDs cost to train product and customer sales
expertise in marketing their product offerings.

Conclusion
In conclusion, this case study looks at 3Ms decision making process of how it could
potentially serve the National distribution channels that markets to the MRO customers
through the evaluation of 3Ms current marketing strategy, sales relationships between MROs
and its shift of focus from product orientated to customer centric model. Also, the analysis
addresses the main challenges that IBD faced in their sales model, logistics and marketing
program that are essential while having assessed 3Ms capabilities and confidence in their
economic advantage to provide efficient and timely operating process and distribution system
towards servicing the new channel. In the end, it is imperative for 3M to undergo these
changes by adopting the appropriate strategy in order to capture the emerging market due to
the dynamic changes in the economic outlook that constantly changes customer demands,
taste, and expectations. Market segments are being globalized and if 3M choses to ignore the
and remain unchanged in the evolving market, the company would lose its footing in its
market position, competitive edge and eventually suffer massive deterioration in its market
shares.