Q 1. What should CMR do about the
Blackstone account?
Blackstone and CMR started when Blackstone needs a trustworthy service provider
Later CMR feels that the cost of serving Blackstone was very high due to lot of changes
and unpaid costs. Also the customers were coming back to its stores to get the
customizations done.
Problems are :
CMR assumed that Blackstone account will help it in having scalability in its business
CMR has taken huge debt and invested lot of money in the business and the commercial success
was very important to it. So they increase the prices which does not go well with Blackstone.
Lack of experience from its project coordinator.
Blackstone was not coordinating well with CMR on the IT software front.
Options
 Blackstone Homes is largest account for CMR with $400,000 an year.
 If CMR has to become scalable and replicable business model in this industry along with
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clearing off its huge debts and investments , the company has to stick with Blackstone
Homes.
It should have conversation with Blackstone regarding its current situation and the
problems faced on account of the relation management, Blackstone yelling at CMR and
the unpaid costs.
CMR should discuss the new pricing with Blackstone to take them into confidence as
changing the prices without informing your major account was an inappropriate step.
They should discuss the usage of InfoCentral and its importance to CMR.
CMR should also discuss that the last minute changes done by Blackstone increase the
costs for CMR and hence they should have a dialogue to discuss bringing down the process
costs for both of them which can result in higher margins for both.
But even the cordial rounds of discussions, if Blackstone shows no changes, then CMR
should terminate its relations with Blackstone and look for other opportunities.
Ques. 2. How much profit is being generated by CMR’s
commercial relative to its residential business? By the
Blackstone account?
commercial
residential
Revenue
Burdened shop rate($/hr))
SG&A (As per case)
commercial material cost
SG&A
shop cost
total cost
profit
residential material cost
SG&A
shop cost
total cost
profit
Total revenue(1998) Revenue per Shop hour Total Shop hours
7270000
89.75
81003
1596000
44.69
24554
16
2900000
2471800
2377961
1296045
6145805
1124195
414960
522039
392862
1329861
266139
15%
17%
Blackstone
Budgeted
Revenue (1998)
Revenue per shop hour
Actual
210314
51.78
40.63
4061.68
5176.32
material cost
54681.64
54681.64
SG&A
68792.08
68792.08
shop cost
64986.94
82821.17
Profit
21853.33
4019.11
10%
1.91%
Shop hours
Profit margin
Q 3. Was CMR’s decision to initiate a
relationship with Blackstone a good one?
 CMR only focussed on getting the large account and the huge volumes of sales order
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that came along with it. All it wanted was to get the its business model replicable and
scalable.
CMR saw that the market was getting consolidated and the competition was increasing.
So getting into a relation for the sake of it didn’t make sense.
CMR did not take into account if there was a strategic fit or synergies between the
companies.
It ignores the Blackstone's reputation of being hard on its Subs which should have been
carefully analysed and the project manager should have sketched out a strategy based on
it.
CMR didn’t put up any of its terms and all that it did was to please the big account. The
company should have hold onto its policies rather than just giving in to Blackstone’s
whim at every stage.
Q-4 What is the nature of CMR’s business?
How does it differ across the two market
segments?
(A) NATURE OF BUSINESSES
Commercial
Residential
Solicited bids
to General
contractor
Showroom
Open Market
projects
Blackstone
Homes
Project cycle
of 6months or
more
Project cycle
of 4-6 weeks
Subcontracting Characteristics
Developing a
bid
• Estimating time, material & labour hours required
• Buyout price & Lead time on buy items
Dedicated sales
team
• Winning open market bids
• Create opportunities for negotiated bids
Role of project
manager
• Fromal hand-off from sales
• Co-ordinate with contractor to avoid mismatch
between planning and site specifics
• Developing shop drawings and construction drawings
• Building relationships with contractors
Residential work
Personal dealings for pricing
Quicker estimation and more revision
Personal touch based on interaction with
customer onsite
Dependent on referrals rather than marketing
Q 5 How did the CMR-Blackstone relationship
evolve over time? Highlight important events
and actions that influenced this evolution
Blackstone Homes
 Residential Customer – One of the largest homebuilders in the area
 3 sets of houses – starter homes ( $120,000) , family homes ( $120,000- $150,000) , luxury
homes ( $150,000- $200,000)
 Strategy : To permit homeowners to make selections only from its partner subcontractors
Benefits to CMR :
 A great strategic fit
 A great opportunity for a scalable , replicable business model
 Increase in market share
 Blackstone ready to pay premium for quality products
 Partnership : Blackstone agreed to specify only CMR’s cabinets in its homes and CMR to
assign the project manager who had worked on previous projects to work exclusively with
Blackstone
Q5 Continue…
YEAR 1
 Blackstone became a major client : Contributed to 25% of the residential business
 Concerns : A lot of CMR cabinets were placed on the side. Blackstone had made a
change a piece at the last moment but no information was updated in the project
management system
YEAR 2
 Discussion of the two presidents n pricing.
 Blackstone President asked Marcus to reduce prices on account of increased operational
efficiency which Marcus felt they hadn’t achieved
DECISIONS FROM MEETING
 Cost Reduction : CMR to reduce customer interactions
 Blackstone to keep the CMR project manager updated when it sold a home
 CMR agreed to reduce prices for model home cabinets.
Problems
 Blackstone
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homeowners still worked directly with other
subcontractors
Homeowners who could afford upgrades presented an opportunity for
CMR to increase profits
Project co-ordination problems
Marcus concerned about asymmetry of information and recommended
use of Info Central for all future orders
Margins less : 38% of sales in residential as opposed to 48% for
commercial
CMR raised prices by 7% and corrected prices for some individual
items that were mispriced
Change orders not reflected properly in system
Q.6Why did CMR persist in the Blackstone
relationship? How would you remedy such
a situation?
CMR persisting in the Blackstone Relationship:
 Steady cash flows provided by account
 One of the biggest customers in the area
 Plans to build large number of homes
 Had a strong growth from $32,295 in FY97 to $303,237 in FY98
 Black stone can play critical role in reaching CMR target sales on
$70 million by 2007
Handling Blackstone account
• Relooking at agreement between Blackstone and CMR and understanding
scope for price increase.
STEP 1
• Marcus should negotiate with Blackstone about price increase and invoice of
$10,374
STEP 2
• Marcus should ask Blackstone to pass on price increase(Based on outcome of
negotiation) to customers
STEP 3
• CMR and Blackstone should work together as partners in minimizing costs and
streamlining costs
STEP 4
In addition to these Marcus has to make following changes to his business:
Customizing Info central for Residential Business
Information about residential housing should be collected
Limiting last minute changes in the orders
Working in coordination with other subcontractors so that minimizing modifications to the
standard design
THANK YOU