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10/13/2010
[Type the company name]
Group 12

Richa Aggarwal 2009193

Praveen Sangwan 2009227
Puneet Madan 2009230 (á
 

Piyush Nandan 2009307
Π
 
 

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;

Œ
  
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 Revenue
Residential 1596



Top 15 Residential A/cs 826



 
iscal year 1998 Revenue
Revenue from Blackstone 2114
% of top 15 residential A/cs 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 % of material cost Material Cost

Commercial 727 4% 24718
Residential 1596 26% 41496
Total 8866 % 288676

Total shop Employees 75

Commercial 61
Residential 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 121898
SG&A 522 9
Material costs 41496

!
  "#$$%&%
 Blackstone share in overall residential revenue
Residential 159 
Blackstone 21314
 share 13.1

otal variable cost 2155979
n case of Blackstone 2415.

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.