Cmr Enterprises Essay

CMR, originally Mikes Cabinets, is an architectural millwork rail line that competes in cardinal diametric market segments commercial and residential. In order to effectively compete in both markets, the genius of CMRs crease varies slightly mingled with them. Commercial business provides dickens-thirds of the companys projects as intimately as 80% of its sales. Due to the higher volume in demand, the commercial sales force is bigger than the residential sales team, which relies heavily on CMRs showroom. The market for commercial business is larger than residential market with projections of its value at upwards of $5 billion. Commercial develops argon also harder to secure than their residential counterparts. They must be bid on and won. Due to the heavy competition for these larger commercial contracts, the got graze for them is around 32%, whereas the residential got rate is around 69%. CMRs residential department has to act somewhat differently than the commercial face t of the company. First of all, project management requires a different point in time of flexibility in order to meet ever-changing guest requests. Cash flow cycles are near four to six weeks, which is monumentally shorter than the 6 months or more it takes for a commercial cycle.With less substantiating campaign and lower material cost, residential work actually boasts a higher net shore as well up. The main difference between CMRs nature of business between segments is the customer consanguinity factor. Residential customers require a softer approach with more face-to-face exposure. Commercial customers are primarily pertain with finding the lowest bid. However, CMR is building relationships with many contractors in attempt to make their jobs easier and say-soly work with them in the future. Although CMR treats e really customer as equally important, the commercial customers are arguably more valuable. 35 of the stature 50 contractor prospects for 1999 were commercial contractors. Furthermore, commercial business typically achieves higher receiptss and is likely the precisely actor of meeting CMRs assertive growth goals. When Sam Marcus and William Walters bought Mikes Cabinets in early 1997 they k peeled they were passing game to need to change some things about the trend their business operated. Mikes Cabinets was running very well as a small town cabinet defecate that worked on projects for homeowners as well as large commercial buildings, and had a very wide-cut reputation with the people of Lincoln,Nebraska.Although things were running swimmingly with the business, Sam and William wanted to produce more profits, and attach cash flows. Blackstone Homes was a homebuilding company that started only two socio-economic classs before Marcus bought Mikes Cabinets. By the time Marcus was in charge of CMR, Blackstone was one of the largest homebuilders in the area. The president of Blackstone Homes approached Marcus in the fall of 1997, wi th the idea of starting a partnership. Blackstone was having problems with their current supplier because they couldnt look to deliver the cabinets when promised. Marcus was initially intrigued by the sheer volume of work they would be doing with Blackstone, however he public opinion it would be a bully fit with where he was planning for his company to go, and gibemed like a great way to make progress towards his profit and cash flow goals. Marcus had to work with his employees and overall business plan, but decided that the residential side of the business was deserving expanding, so he signed a contract with Blackstone Homes. Marcuss decision to sign with Blackstone Homes was a very good idea for CMR Enterprises. Blackstone had great potential to render one of CMRs largest accounts, and promised to have continual yearly growth. Blackstone agreed to specify only CMRs cabinets in all their homes, and CMR assigned a project manager to work exclusively with their new partner. B oth companies could see that they would both be take ining from this partnership from the very beginning, and they were correct. Throughout the first year, Blackstone contributed heavily to CMRs success, and eventually grew to be about 25% of the residential side of the business. Marcus saw that the residential side of the business had great potential for future growth, and he knew that this was a great way to get his company involved. The additional emphasis on residential work used more of the companys resources, but it proved to be worth it with the increased revenue and cash flows. CMR Enterprises is confronting an issue with one of its most valuable clients, Blackstone. Blackstone as one of the biggest customers in the area, giving CMR an opportunity for immediate market donation and his volume supported its goals to standardize its processes into flexible cells.They approached CMR feeling for a new partner to work on a business that represented 25% of CMRs residential busin ess during the first year of this relationship. Sam Marcus was counting on further growth with his customer to pay his debt and fund expansion efforts. But relationshipswith Blackstone had be amaze increasingly intense on residential construction. Marcus had aggressive goals of reaching $70 million in sales by 2007 by creating a scalable and replicable business model. Moreover, build close relationship with the Blackstone will gave CMR an opportunity to standardize its business processes to be able to benefit from improved operational efficiencies that comes because of scale of operations. However, the relationship between two companies had evolved unpleasantly over time. When Blackstone sells a house, it does come with a pre-finished and installed kitchen, which is included in the price. But if customers want to check CMRs showroom, they would build these woodworks according to their new specifications. So the added cost will then be charged to the contractor. After an increase in CMR prices, Blackstone transferred this increase to subcontractors, so impacting considerably their margins and making CMR looked as a too expensive product. This issue to some outcome contributed to the clash with Blackstone. Also, internal miscommunication had played a part in this episode. Marcus had implemented a software schema for the company, called InfoCentral, and insisted that the residential team use InfoCentral for all internal communications. But it did not work out the way he expected. The system is not frequently updated as required by the employees. The business relations between the two companies started well and was fulfilling for both part. Revenues from Blackstone represent a significant part of revenue growth of the year. However, when the business expended, so did the problems. What was more disappointing was that CMR had shown a weak management of its relationship with this big client and some(prenominal) operational failures that need to be controlled. Wi thin CMR Enterprises, revenue is generated at different pass judgment in the different segments. Commercial business is responsible for 82% of the revenues generated by the firm, leaving just 18% to residential. Not only do they generate revenue at different rates, but profit is generated at different rates as well. According to the CMR Enterprises Factsheet, SG&A Costs were $2,900,000. If we distribute these costs according to percent of revenue generated across the CMRs business segments, we see that the commercial segment provided a salary Profit of $1,124,152 for a Net brink of 15.5%, while the residential segment provided a Net Profit of $87,632 for a Net allowance of 5.4%. Blackstones Net margin of 5.7% is actually greater than the Net borderline for the residentialsegment without Blackstone. Net Profit from Blackstone for the year was $17,235.In the second scenario, SG&A costs were assigned in a different way. Indirect labor was assigned to the corresponding segment. SG &A expenses besides indirect labor were then distributed to the segments according to percent of revenue generated. This tells a different story. Whereas in the first scenario the commercial segment was responsible for almost 10% more Net Margin in the second scenario, residential Net Profit was $274,632 for a Net Margin of 17.2%, while commercial Net Profit was $937,152 for a Net Margin of 13.9%. In this scenario Net Margin from Blackstone is only 13.3% of revenue, which is below the average for residential. The cause of the difference between the scenarios is the high number of administrative military force assigned to commercial work. From the CMR Enterprises Factsheet, we see that there are 43 administrative personnel, of which only 4 are dedicated to residential work. This leaves 39 employees working on commercial work at an average of $50,000 per year, a total of $1.9 million dollars. Scenario 2 captures this more fully, placing a more realistic percentage of SG&A costs onto the commercial segment. Blackstones profitability is slightly less than that of the commercial business, and nearly 4% less than the residential business.Terminating the relationship with Blackstone would be a good choice in the situation for CMR Enterprises. It is obvious that Blackstone provides a significant amount of residential business, which means a substantial cash contribution to support CMRs different business like commercial work. Especially in the initial partnership, CMR first grabbed residential market share and earned 25% more of its residential business and Blackstone benefited from CMRs expertise and correction. However, some potential sledding shows the general trend that CMR benefit less and less in the partnership with Blackstone. First, CMR acquires more profit per ca-ca hour in commercial business than residential work. According to Exhibit 7b, the highest residential revenue per shop hour of $48.13 is less productive than the lowest commercial revenue per shop hour.Even though we pep up letting Blackstone go as a client, the residential business on a whole is profitable and should be kept. It isintegral to the companies core values, and provides a valuable link to the community. Moving forward with franchising efforts, however, we would advise viscid to commercial business. If CMR is to attempt to make headway into new markets, it would be advantageous to proceed with a strategy that is more singular in focus. CMR has had success implementing their InfoCentral tool in their commercial business, and it seems that they have a good business model going forward. Trying to replicate the success that theyve had with the residential business would add uncalled-for complexity to their business model. CMRs current residential customer base is there as a result of years of loyalty and good service from Mikes Cabinets. This loyalty would not follow in a new market.