See Part 1 of this series here.
We resume our analysis of Wesco International’s past, present and future state with a look at the electrical distributor’s additional major enterprise strategies.
Wesco’s recent news releases state that the company continues to focus on three key enterprise strategies.
- “Extend our industry-leading scale and value proposition.” (the subject of Part 1 of this series)
- “Further develop our team and our culture of excellence.”
- “Digitalize and transform our B2B business.”
In this piece, I will focus on No. 2 and No. 3. Stay tuned for Part 3. Soon after this series is complete, MDM will publish a comprehensive Wesco analysis report that is complimentary for Premium subscribers and available to purchase in the MDM store.
Developing the Wesco “Team and Culture of Excellence”
Wesco’s three business units — EES, CSS and UBS — are complex, heavily associate-driven businesses. They concentrate on winning large commercial, utility, datacomm, security and government projects.
As of mid-2024, Wesco had about 20,000 associates who generated 2023 annual sales of $22.4 billion — a very healthy $1.119 million in annual sales per employee. For comparison purposes, Fastenal generated about $321,000 per employee (29% of Wesco’s) and Grainger generated about $510,000 (46%).
This metric confirms that Wesco is comparatively focused on larger projects rather than being a distributor of MRO supplies. The construction project business is comprised of large bills of materials with many products/lines that are competitively bid from engineered plans and specifications. Wesco does not release the percentage of its total business that is project-based, but for the channels and customers it serves, it is likely that 50-70% or more of the company’s total business is project-based.
To serve this spec/bid/buy business, it requires highly-trained associates who often examine drawings and product specifications and do “takeoffs” to determine the specific products needed to complete the project. The end customers require experienced and trained distributor associates who can provide technical expertise and problem-solving to make their projects as profitable as possible. For example: A customer buying a consumable product to keep their factory floor clean (that they often buy from a Grainger-type distributor) does not need engineering or technical support. In contrast, a customer installing electrical switchgear that powers a building requires a lot of technical and engineering support from highly-trained associates. Wesco’s business is more dependent on having highly-trained technical associates than a comparable Grainger/Fastenal-type distributor overall.
Wesco’s EES segment — with approximately 6,800 employees — has specialized associates with titles such as quotations, lighting specialist, sales engineers, automation engineers and project manager to name a few. This specialization requires investment in training and development by Wesco to retain and attract the best talent in the business.
The CSS segment with about 4,400 employees and the UBS segment with about 2,900 serve both utility and datacomm customers and require the same specialized and highly-trained associates.
In the channels they serve, it is common for associates to climb the ranks by moving through multiple roles. For example, a person may start their career in the warehouse, get promoted to the counter, then to inside sales, an outside sales/specialized role and then to manager.
This learning-as-you-grow process takes time and creates great value and some risk for Wesco. Highly-trained associates with experience are also highly coveted by the competition.
I find it interesting that Wesco has made “further develop our team and culture of excellence” one of its three strategies and is investing in training and developing the company’s associates.
If you follow Wesco on social media, you see that it is committed to aggressively communicating with its end customers, its associates and potentially top talent at other distributors. If you checked out Wesco on LinkedIn (with more than 167,000 followers) on the day this analysis was written, you’d notice the distributor shared its 2024 “Forbes Most Admired Companies” ranking and the Wesco Cares Scholarship Program alongside the company’s sustainability reports.
I know many readers might be skeptical of social media’s impact on business, but it is obvious that Wesco is communicating relentlessly a message of “we value you as an associate” and that it is willing to invest in associates’ growth internally and to the general market.
Wesco Strategy — “Digitalize and Transform Our B2B business”
At the start of 2024, Wesco International reaffirmed its commitment to digitalizing and transforming its business.
The channel Wesco serves is complex — electrical, datacomm and utility distributors have millions of SKUs in their system that they sell with very complex part numbers. I can share from experience that the company has to manage millions upon millions of part numbers with long nomenclatures that have many variables.
I looked up a common light fixture that I sold many of while in electrical distribution to illustrate the complexity involved with digital transformation. The part number I chose was a 2BLT-M6-40LHE-ADPT-120-EZ1-LP835. Each sub part number can be changed to get a different trim type, lumens, diffuser, voltage, driver and color temperature of the light fixture. These part numbers that run off the page with six or seven variables are common for Wesco in its EES, CSS and UBS business. The company has millions of SKUs in its system unique to each business. For example, when ordering part 2BLT-M6-40LHE-ADPT-120-EZ1-LP835, if you are off by even one number or letter in that sequence, you will not get what you want delivered.
So, how does Wesco tackle this challenge?
“As a market leader, we expect to benefit from our global capabilities, leading scale and expanded portfolio of products, services and supply chain solutions,” the company’s 2023 Annual Report states. “Our substantial investment and commitment to our digital transformation are expected to magnify those benefits as we roll out that program over the next 36 months.”
This past Spring, Wesco shared its vision of this ongoing transformation. The graphic above shows the focus and investments for improving its enterprise systems (front office, mid-office and back office) and digital services (omnichannel, products and platform), which combine to form a workflow that the company calls “data office”.
Having this workflow offering defined is critical for Wesco to differentiate itself from its competitors in the channels Wesco serves.
From the company’s 2023 Annual Report:
“We’re building a new tech stack and digital IT ecosystem that includes best-in-class digital applications, products and services integrated into our proprietary architecture. We have established digital centers of excellence in India and Ireland to support our digital development efforts. Our new front-, middle- and back-office systems use artificial intelligence and machine learning to unlock the power of our big data and improve our business.”
“Our investment in digital technologies and advanced data and analytics is intended to have a multiplying effect on our business and to generate even greater success for our customers and supplier partners.”
In my opinion, Wesco is smartly investing in its business digitally. It is not just building an Amazon-like eCommerce platform while neglecting the bulk of its business. I would say that more than 80% of Wesco’s business today and for the foreseeable future is heavily “full-service” traditional distribution, where the company needs highly-trained associates to write and earn orders.
The Wesco Takeaways
So, what can you learn from Wesco to apply to your distribution business?
If you are a technical distributor selling products for complex commercial projects to contractors or highly-engineering solutions to industrials and end users, you will need to have focused digital investments like in Wesco’s model (front-, mid- and back-office). This “full-service” traditional distribution business needs different digital solutions. Digital is more additive to your current business. If you are selling more parts and pieces (e.g., Grainger, Fastenal, MSC Industrial), a self-service digital model that is closer to an Amazon-type experience is more appropriate and impactful.
The associate development that Wesco has emphasized applies to every distributor and manufacturer in the channel. Everyone is competing for the limited number of experienced and highly-trained associates.
When you have great associates on your team, you want to retain talent and play defense. When you are trying to attract talent, you are playing offense. This internal and external communication is critical to retain and attract talent.
You may be skeptical about using social media, but I would encourage you to face reality, and the reality is that when an associate is looking for a reason to leave you or a candidate is looking to join your team, they will be active on LinkedIn and other social platforms.
As my first distribution mentor Dick Schmid used to wisely say: “In the absence of communication, people make up their own reality.” Wesco is showing that it understands that sentiment and that it will not let people make up their own reality.
The company is relentlessly communicating internally and externally to the market a “Why Wesco?” message.
