Good afternoon. Let's go ahead and get started. Welcome to the 2019 WESCO Investor Day. It's great to see a number of familiar faces here with us this afternoon, but for anyone I haven't met, my name is Will Ruthrauff. I'm the Director of Investor Relations at WESCO. On behalf of the entire WESCO team, I just want to say thank you for your presence here this afternoon. We appreciate the investment of your time, as well as your interest in learning more about the company. Safety is at the forefront of what we do at WESCO every day. It's customary for us to begin meetings with a safety minute. In that light, I just want to point out a couple of things for you.
There are two emergency exits in the room, one in the back of the room, the door that you entered, and one behind the stage, behind that screen. This exit is connected to a stairwell fire exit. The other stairwell is at the far end of the building. A couple of quick items before we begin. First, a reminder to please silence any mobile devices if you haven't done so already. Secondly, during the presentation, we ask that you hold any questions you may have until the end. That will help keep us on schedule, as well as ensure that the entire team is available to address any questions. Lastly, we hope you'll join us for a cocktail reception following the presentation. Should be an excellent opportunity to get to know the WESCO team a bit better.
Turning to the presentation, I ask that you please familiarize yourself with the language found on page two regarding forward-looking statements and non-GAAP measures. We will be discussing WESCO today using forward-looking statements. It's important to remember that they include risks and uncertainties that we're unable to predict. For that reason, actual results may differ materially from expectations. That's all I have. Now I'd like to welcome our next speaker, John Engel, Chairman, President, CEO.
Good afternoon, everyone. A pleasure to be here, welcome to our 2019 Investor Day. Thanks for taking the time to join us. We're very pleased to be here, as I said, very excited to share the next chapter in our WESCO story and our refined strategy for enterprise value creation. I'd like to start out with a few introductions. Several members of our WESCO Board of Directors are in attendance, I'd ask them to stand, please, when I call your name. Jamie Singleton, our Lead Director, Lynn Utter, Bobby Griffin, Eesh Sundaram, our newest addition to the Board. Welcome, Eesh. Thank you to the Directors for joining us as well. Depicted here is the WESCO leadership team. You'll be hearing from Dave, Nelson, Juan, and Hemant this afternoon.
Diane, Chris, and Rob are also in attendance. They're part of my direct reports. I'd ask them to stand in the back. They're in the back row. Diane, Chris, and Rob. Diane is our General Counsel. Christine Wolf is one of our most recent additions to the team. She's our CHRO, Chief Human Resources Officer. Robert Minicucci is our CIO. I've been with WESCO for 15 years now, and CEO for the last 10. This is the strongest leadership team that we've had. I think it's interesting to note that the majority of these leaders are new to WESCO within the last 3+ years. Going forward, we are well-positioned with this team at the leadership helm of WESCO. Moving to the agenda. I'll start out with a state of the WESCO business, and as I said, share the next chapter of our WESCO story.
You're going to hear from our WESCO leaders as they focus on our key themes of our Investor Day: our services portfolio, our value proposition for customers, and the actions we're taking to digitize our business models and our business processes, all of which will leverage WESCO's Big Data. You'll also hear from three additional voices this afternoon. We've included a video in each of Nelson, Juan's, and Hemant's presentation. These voices will be from three different customers who will provide their view of WESCO and the value that we provide to their business. Very excited to share those with you today. That's something that we've not done in the past. When Nelson and Juan present, they'll give an overview of their respective businesses, as well as outline our value proposition and our position in each of our four end markets at the WESCO enterprise level.
They'll present their businesses first and foremost, rise up to the WESCO enterprise level and take you through those end markets' key position value props, that being industrial, construction, utility, and CIG, stands for commercial, institutional, and governmental. We'll have a short break. Hemant will bring us back after the break. We'll address our progress and plans for improving our operations, improving our margin, and managing our ESG agenda. Finally, Dave Schulz will present our financial outlook and revised acquisition strategy and capital deployment framework. We'll open it up for Q&A. As Will mentioned, we'll conclude with cocktails this evening. I hope you'll be able to join us. These are our key messages. Take a moment and give them a read. WESCO is focused on growth and margin improvement, as well as leading the industry consolidation.
We're differentiated by our product and service offerings that leverage our supplier partnerships and our Big Data to provide complete solutions for our customers. We generate strong and consistent free cash flow across all phases of the economic cycle and have the financial strength to drive multiple sources of value creation. WESCO is an industry leader. Record sales last year of $8.2 billion. We partner with 30,000 suppliers in shipping 1 million different products a year. We wrap those in our services, deliver them to customers, provide complete solutions for their operations and supply chain management needs. I think it's important to note that over 70% of our product sales are tied to our services with our customers. One final point, 2019 is a noteworthy year as we're celebrating some very important milestones.
This year is our 25-year anniversary of us as spinning out of Westinghouse as a standalone, becoming a standalone company with a management-backed LBO in 1994. In addition, it's our 20-year anniversary of becoming a publicly traded company. We had our IPO back in 1999. This page outlines our WESCO mission, our vision, and our values. We partner with our top suppliers and industry experts to transform world-class branded products and industry-leading service capabilities into cost-effective, innovative supply chain solutions. We help our customers build, operate, connect, and power their businesses to improve their bottom line and sustain the world we live in. Our WESCO values can best be summed up with the letters W-E-S-C-O. W stands for winning with customers and suppliers. E stands for our extra effort workforce. S stands for safety and sustainability. C stands for collaboration, and O stands for ownership.
You can see our values outlined at the bottom of this page. This page outlines our differentiators. It's our product first. Sensor portfolio by partnering with a leading array of suppliers. It's our relationships with blue-chip customers and suppliers who are in the middle of the value chain. It's our geographic reach, our global footprint, service capabilities that serve our multi-site customers around the world. It's our services, a broad array of over 50 service offerings which form the basis of our supply chain solutions for our customers. I'd refer you to this, the handout that we have available in front of you. This has been updated and represents our latest WESCO Value Creation Solution Selector guide. I think you'll find that very instructive because that provides an excellent summary of the broad array of services and solutions that we bring to bear on our customers.
It's also our employees, a strong and experienced team known for extra effort and a lean, continuous culture. It's our financial position, strong balance sheet, and a history of strong free cash flow across all phases of the economic cycle. To sum it up, it's our services, our big data, and the financial strength that are our key differentiators, and our strong cash flow generation gives us the optionality and the investment ability to fund our growth and future value creation. Our B2B addressable markets remain large and fragmented, and we're focused on serving three demand streams: MRO, OEM, and capital projects, capital projects being new construction as well as retrofit renovation and upgrades. I've always believed that opportunity is directly proportional to the fragmentation of the industry that you operate in and that you serve. That is clearly the case for WESCO's addressable markets.
WESCO's evolved from an electrical-only captive distribution from a Westinghouse founded in 1922, almost 100 years ago, to a diversified B2B supply chain powerhouse. Phase I of our evolution was the LBO spin-out through the IPO. That's our first five years. The last 15 have been phase II, where we diversified our platform capabilities through a whole series of acquisitions, and we developed complete supply chain solutions. We've completed over 45 acquisitions since spinning out of Westinghouse in 1994, and outlined here you can see a few of the more notable ones. OEM in 2005, Communications Supply Corporation in 2006, Broadband Communications in 2010, a major electrical consolidation play and move in 2012, we acquired EECOL Electric in Canada. Then strengthening our lighting services platform through a series of moves, giving us a turnkey retrofit renovation and upgrade capability with the acquisition of Aelux, LumaGen, Needham, and most recently, SLS.
What's our next chapter? That's shown on the right-hand side of this page. Over the next decade, we're very excited to move to this next chapter. First, it includes digitizing our business. Second, continuing to expand our broad and extensive services portfolio and supply chain solution offering. Third, ensuring delivery to the X. What is that? It's delivering to our customers their solutions whenever and wherever they need them. Finally, leading the consolidation of our sector. This page outlines WESCO's performance over our first two decades since becoming a public company, strong results over the last 20 years, 5% sales CAGR, 10% EPS CAGR, strong and growing free cash flow. Our first decade since going public, we generated $1.6 billion in free cash. The second decade, the last 10 years, $2.3 billion. Almost doubling our cash generation capability from decade one to decade two.
Again, a hallmark of our company. That was a quick overview of WESCO and kind of bringing you current. Now let's shift, let's shift looking forward. Here's our outlook over the longer term for our markets and competitive ecosystem, I think they can best be summed up with one phrase. Digital is accelerating, impacting our industry and overall supply chain. I've always believed that industries, like products and like companies, go through S-curves, our industry value chain is at the beginning of the steep part of the S-curve of digital transformation. That's resulting in these key trends that are outlined on this page. Most notably, consolidation, where the bigger getting bigger faster. I know we've talked about that over the years, I've always said it's going to take an interesting set of conditions that cause that to accelerate.
We're clearly seeing that occur in our supplier base, it's incumbent upon distribution to also move with greater speed there. Overall, I'd say there's many in our industry that view digital as a threat. I view it as an opportunity, particularly for an industry leader like WESCO. Make no mistake about it, WESCO intends to be a consolidator of our industry and a digital leader. Given these market outlooks and trends, what does that imply for our business? It's clear that success in the future requires products, services, and data. The left-hand side of this page is the price of admission, the table stakes, so to speak, for a successful distributor historically. Many of these are still required today. It's the right-hand side that outlines the future requirements for success, all of which we're working on.
The key takeaway is WESCO's big data is an asset to be leveraged. Now let's shift to our strategy, I referred to that earlier. What is our refined strategy going forward? It has six strategic planks. Each is composed of a series of initiatives, these are our six planks. Digital growth plays. Commercial excellence initiatives. Operational excellence initiatives. Technologies to support digitizing our business and managing WESCO's big data. Organization talent, culture, strengthening our team and our capabilities to execute change, portfolio and M&A. Accelerate the building of scale with bigger transformational M&A. We're going to bring a number of these to life this afternoon throughout the various presentations. Let's start with digital growth plays. That's our first strategic plank. Here are four of our key initiatives, these are across a series of our business models as you'll see.
Moving from left to right, starting with the first initiative, that's a product category play, which we're initially applying to our lighting category. It's our view that, and we're already seeing some great gains. I won't steal the thunder of Juan. He'll address this later. That can be extended to other categories over time. The second initiative is mobile solutions for contractors. The third is digitizing our global accounts business model and the way we manage those customer relationships. The fourth is digitizing our capital project management process and capabilities. These are four different business models of the business: capital project management, global accounts, solutions for contractors at the branch level, and then taking a major category play. In the case of lighting, it's turnkey retrofit, renovation, and upgrade.
They're all focused on improving our customers' operations and solutions through digitizing our business and leveraging our big data. Nelson and Juan will be touching upon each of these in their presentations later this afternoon. For the second strategic plank, Commercial Excellence. By the way, Commercial Excellence for us is these are the initiatives focused on, and I'll use the term, the front end of our business. Front end being sales, marketing, demand creation, managing the sales force, converting demand to sales, and then sales management and execution. Here are four of our key strategic initiatives. Again, left to right, sales force transformation, digitizing our customer and sales support, that's focused inside our four walls, merchandising and category management for all our major product and service categories, and new strategic, tactical, and pricing models.
These are all focused on driving sales and profit growth by improving the data and the digital tools that we're providing to our sales force, to our branches, and to our function groups. Move to the third strategic plank, Operational Excellence. I told you Commercial Excellence is the front end of the business. Operational Excellence, we think about applying to kind of the middle back end of our business down our supply chain with our suppliers. These are three of our key strategic initiatives as part of this strategic plank: distribution center and branch network, last-mile delivery, and WESCO Intelligent Automation. The way you should think about this is, this expands our lean implementation to include a new tool in our toolbox, RPA, or robotic process automation.
We're well into our second decade of our lean journey, and it's been a key driver of value for us over the years. Robotic process automation just fits very nicely in with that lean toolset. As we think about process mapping a process, streamlining that through process redesign, compressing cycle time, eliminating the muda, and driving more efficiency and effectiveness in all processes, including administrative processes. Now you add this tool to the toolbox, RPA, that allows a degree of automation that further accelerates the efficiency and productivity gain. You can see, these are all focused on sales and profit growth through improved supply chain management and improved distribution processes and capabilities. Hemant will be addressing various of our CE, Commercial Excellence, and OE, Operational Excellence initiatives in his presentation shortly this afternoon. That's the first three strategic planks.
These last three strategic planks, I told you there were six, are outlined here. These are really foundational to our strategy. I talked about technologies to better manage our big data and provide improved business intelligence to our sales force, our branch teams, our operating teams to drive the business. Organization, talent, and culture and portfolio and strategic M&A, as I mentioned. These are all focused, again, on maximizing the potential of our work, our team, and the overall portfolio. I mentioned that a key element of our strategy is digitizing our business models and our business processes. In executing this objective, we know we can't do it alone. We're going to need some help and some external service providers to help us. Specifically, leveraging the deeper tools and capabilities in a tech ecosystem is what we're focused on.
One of these partnerships, as outlined here, was announced via press release last night. Very excited to announce our newly formed relationship with a company called Plug and Play that has deep roots in Silicon Valley as a tech startup incubator. We're launching a new vertical with them, which we call B2B. This is a sales and distribution accelerator. They've got over 15 different verticals that have been formed over the last couple of decades, and these are well-developed. They have a well-developed series of processes, and we'll be working with them on standing up this new vertical. It turns out that there's a significant amount of investment that's in the tech sector, moving in and becoming focused on B2B, the B2B value chain. The B2B value chain is much larger, more diverse, more complex than the B2C retail distribution value chain.
I'm talking B2B wholesale. Again, I think we're just at this interesting point in time. I mentioned the S-curve analogy of being early at the C part of the S-curve. What will this do for WESCO? You'll hear a lot more about this, obviously, in the coming months and quarters and years, but this will position WESCO to engage in the digital development in the tech ecosystem by giving us early access to startups and other high-growth companies focused on technology solutions applications for B2B sales and distribution. We're looking at it to accelerate the digitization of our business. Let me shift gears to ESG, environmental, social, and governance. We have a comprehensive and sound approach to managing our ESG requirements and our overall agenda. First, starting with environmental.
We've made good progress on our environmental and safety goals over the years, and we'll be issuing our next corporate sustainability report later this year. Hemant will expand on this further in his presentation. I think what's really important to note, and it's critical, is that for WESCO, since we're not a manufacturer, our sustainability goals include delivering sustainable products and services to our customers to help them meet their goals. The reality is we can have a much bigger impact in the value chain than we can inside our own four walls because we're not a manufacturer. This is a key differentiator for us, and it's how we will maximize our positive impact on the environment, by super serving our customers and helping them meet their sustainability goals.
For social, we have a comprehensive array of initiatives focused on talent management, development, inclusion and diversity, and employee and community engagement. For governance, finally, our thoughtfully composed board provides outstanding leadership, oversight, and management of its duties. Our board is diverse with a broad and appropriate skills mix, that's evidenced by the fact of our most recent director addition. Yi Xu is sitting in the back row, who was announced earlier. Yi Xu is our most recent director addition and brings a very strong set of digital and supply chain management skills to our board. What's the takeaway? We're committed to good corporate citizenship and continuous improvement inside our four walls and up the value chain with customers. Now let me shift. Let's look forward to WESCO's next decade.
Our financial goals are focused on continuing to drive organic sales growth above the market, delivering double-digit EPS growth, and continuing our strong and consistent free cash flow generation, which funds our investment and our return of capital to shareholders. We're also reinforcing that acquisitions remain a very high priority, as depicted by here in the gray bar, in terms of sales and future profit contribution. We've refined our acquisition strategy to include larger transformational deals as part of a more focused capital allocation strategy. Dave will outline that in more detail in his presentation. With that, again, thanks very much for joining us. We're excited about this next chapter of WESCO. With that, I'd like to now hand it off to Nelson.
Good afternoon, everyone. Great to be here with you again, and thank you for joining us today. I want to talk a little bit about Canada first. A lot going on north of the border. Winter is finally over about a week ago, although I thank the hotel for giving us a Canadian-like climate here in the auditorium today. We once again did not have any teams in the Stanley Cup finals. What we did is we rooted for the team that had the most Canadians on its team, which happened to be St. Louis Blues with 20 Canadians on the team. We were happy to get that win last night. What's even more impressive, though, is that we've become a basketball-mad nation. On the Sunday game, half of the population tuned in to the basketball game, if you can imagine that.
Of course, they didn't win, there's always tonight. We're keeping our fingers crossed that we can actually have the NBA champion north of the border for the first time. I'm going to give you an overview of the businesses that I have direct responsibility for, also talk about a couple of the global platforms that really we're leveraging everywhere to drive growth here in the U.S., north of the border, and in all the countries we operate in around the world. I'll start first with the largest portion of my responsibility, that is Canada. We have an enviable position north of the border. We're the only supplier that has coast-to-coast capabilities. It's a big country. Having that kind of capability is extremely important.
If you are a customer of WESCO's, you can pretty much get what you need same day, worst case, next day. We leverage this with key national and global accounts, we continue to have the largest market share position in Canada, and we continue to expand that business by diversification. I've talked to you about that in the past, and I'm going to update you on some of the progress that we've made there. It's a great leverage point. It's great to be able to go out, talk about our capabilities and say to a customer, "We already are and can be everywhere where you operate." Again, it's a great differentiator, and we're unmatched in that capability. Next, talk about the international footprint.
The way I would describe this is WESCO uses a very thoughtful approach as to where to go, but we're typically going to follow a blue-chip customer. We're going to go where they go because they rely on us to provide the value-added services, expertise, technical assistance that we can do for them here in the U.S., in Canada, and elsewhere. We've gone to a number of countries around the world to do that. We continue to build that customer base and continue to expand our capabilities. Another part of the business that I'm responsible for is our integrated supply business, and we also leverage that around the world with turnkey solutions, and we're doing that here in Canada and all around the world. Let's talk a little bit more about the Canadian landscape. Here you see depicted some dynamics and some current situations.
We've had three provincial elections in the last 12 months. There's going to be a national or a federal election later this fall. So far, the changes that have occurred, we would basically rate as more business-friendly. That's a good thing for us. As both a major company and having a large customer and supplier base, we're encouraged by some of the actions that are being taken, not only by the current government, but also from some of these new provincial governments that have come into place. One of the things that is a great opportunity for us is high capacity utilization. We even talked about this a couple of years ago. Our businesses and industry continues to get tighter and tighter, and it is stimulating new investment. We're seeing that, and we're participating in that with a lot of our solutions.
I'll talk more about that in a bit. Government infrastructure, this is something certainly that the Trudeau government was very committed to, we're seeing this happen all across the country. One of the stated goals in Canada is to increase its overall population over the next decade. To do that, they need to add the capacity, the infrastructure. Think schools, hospitals, roads, buildings, not just high rises, but apartment buildings, single-family homes. Huge opportunity for a company like WESCO. We're well-positioned and are really taking advantage of that. LNG is a big story these days, though, I'll talk more about that in a second. It has a multi-decade promise of investment and opportunity for the long haul. We're very excited about that. We're already participating in some of the early stages of the construction that's going on in British Columbia. Put low unemployment here.
The unemployment rate is as low as it ever has been since they've been keeping records in Canada. As a matter of fact, I believe Canada added more jobs in the last month than the U.S. did, or certainly in the last quarter. It's a pretty strong job market. What that means, of course, is skilled labor is in tight supply. Companies can turn to WESCO and offload some of these things such as product management, supply chain management, procurement, kitting, staging, all these different things that we have that are capable, that we can deliver to a project site, and really take some of that effort and expense away from the customer. It's a great value proposition for us. We actually see demand picking up for those kinds of services. Price of oil and gas, it's an interesting dynamic.
We've seen a rebound from where Canadian crude was last fall. I think all of you know the biggest issue is being able to transmit it, i.e. get it out of the ground, no problem. Getting it to points where it can be shipped overseas or to the U.S. is a bigger challenge. Our expectation is with the government that's in place in Alberta now, and some of the recent court rulings, that we're finally going to see some light at the end of the tunnel for these pipelines. That those should get built over the next several years, and we'll see that resource unlocked to its full extent. That will stimulate more investment. It will stimulate more opportunity. WESCO already has a wonderful market share there. We're in position with strong customers. We're delivering everyday services and value-added. There'll just be more opportunity over the longer haul.
Back to diversification. I've spoken to you about this a couple times in the past. John touched on it as well. Prior to 2010, we had not made any acquisitions in Canada, and you see the business was about $800 million. Today, in 2018 numbers, $2.1 billion. The business has more than doubled. Some of that obviously through acquisition, with the key one being the EECOL acquisition that John referenced. A lot of good, solid organic growth. One of the things that we've been focused on the last three or four years is further diversification of the portfolio, is really taking full advantage of these acquisitions, the broad customer mix and the customer base and the opportunity we have, and we're building out the business. There's still plenty to do and lots of opportunities to do that.
As I've said before, we want to still be the number one player in oil and gas, but we want to make sure that we're there for multiple other markets, whether that's industrial, MRO, OEM, et cetera. We've built out our resources, our capabilities. We've added key people to be able to do that, and we're seeing the results of that investment. A little bit more about our long-term growth opportunities. We could go on here for a while, but these are the big ones. First and foremost is Canada LNG. What's fantastic about that is two years ago, even 18 months ago, we would not have had this on the slide. This is a recent development. It's been talked about for years. It's fought its way through courts.
Ground has been broken, we're off and running in Kitimat, British Columbia, building the first two trains, of which will be a four-train LNG terminal. There's also the potential for further investment from brand-new sources of investment in Kitimat to build yet another terminal. The good news here is that this will have legs for decades, and probably the majority of the spend occurring from the year 2020 onwards, so next year. WESCO's already won millions of dollars orders in some of the pre-construction work, building the man camps, building out the pier, temporary electrical, et cetera. We're well-positioned. We have multiple facilities up there. We have a team on the ground already, and we're there to serve. What's also interesting about this is you can't do a project, and this project is CAD 40 billion.
Largest project in the world, period, in terms of construction. You can't just do that in one country. They're executing this all around the world, the JV that's building this plant. We're positioned everywhere where they are. If you go to China and you look at the construction yards, WESCO has a presence there. We're there everywhere where our customer needs us to be to provide a solution. I talked a little bit about government infrastructure. This is a place where WESCO has always been strong, and we continue to win more than our fair share of opportunities. Multiple multi-billion-dollar hospitals are being built. There's a huge one, the Calgary Cancer Center, a north of $1 billion standalone greenfield investment. A new one larger than that in Oakville, which is in the greater Toronto area.
WESCO's well-positioned and already winning some of the key orders to build those facilities. Why are we doing that? It's because we've got the value-added services, we've got the right people on the ground. The contractors rely on the expertise that we can bring to deliver unique solutions, saving them time and money. Data and broadband communications, another huge opportunity. I've spoke in the past about the desire to get high-speed internet to every far corner of Canada. I was reading just last night an email where we are providing a specialized cable that has a wire mesh on it, and it's actually going to lay on the permafrost as opposed to be buried underground, and it has a wire mesh around it to keep the polar bears from biting through it. That's true. Unique needs, but unique opportunities, and WESCO is already serving that business.
You're going to hear from one of our very important customers in a few minutes as the testimonial, showing how we are a partner. We sit at the table with them, and we've given them scale and capability that they could not create on their own. A huge opportunity for them, a huge opportunity for us, and we're succeeding together in the Canadian marketplace. Talked about healthcare already. LED and lighting, a huge opportunity in Canada. Canada has very strong five-year energy reduction mandates. There's a lot of rebate money available in the various provinces. Excuse me. The beauty of this is when a customer wants to do this, they can just place one call to WESCO.
We can come in and bring in the capability, the technology, subject matter experts, and we can design a solution for them and help them all the way through filing for their rebates and their credits, et cetera. We were very good at this. As a matter of fact, before the acquisition, we were already partnering with SLS in Canada to achieve some of the success. Now they're part of the family, and our expectations there is we're going to continue to show significant growth and leadership in that part of the business. We had to put a slide in here for Canada LNG to just give you an idea of this. It's the largest private sector investment in Canadian history, and it may be the largest investment of its type in our lifetimes. It's just that big. We are already involved in the project.
As I mentioned a few minutes ago, we're winning orders there. It's really everything we can bring. Global capability. We're on the ground in China. We're interacting with purchasing teams in Manila and India. We're all over this. In Japan. It's an unprecedented scale in terms of job, in terms of participation, and we expect to be there for the long haul. As I said earlier, we have had a team on the ground in Kitimat for a long time, long before this project was ever announced. We've moved into bigger facilities. We're there, we're ready to go. Our customers are already relying on us to bring the value that they would expect anywhere else in the country or the world for that matter, to a place like Kitimat, British Columbia. If you look at it on the map, it's way far north.
It's kind of off the beaten path, but it's going to be an important part of our business and an important part of the Canadian landscape for decades to come. I'm going to move now to a broader subject and talk about one of the end markets that John highlighted, Commercial, Institutional, and Government. You'll see it's 15% of WESCO's sales. This is where there's an incredible amount of opportunity, very solid growth rates, a very good track record of success. This is where WESCO truly leverages its capabilities across the board. What's really neat about what we're doing with this is we're digitizing it. John talked a lot about this. We've taken it to the next level. Frankly, when you look at some of these things such as 5G and LED, et cetera, it lends itself. This is new technology.
It's at the forefront of what any company is out there doing, and we are right there lockstep with these customers, delivering these great solutions. Why can we do this? You see this on the right, the differentiators. We've got a complete solution for networking and infrastructure. We can do it anywhere in the world. We've got end-to-end LED lighting capabilities that just got stronger with our recent acquisition of SLS. As I've touched on a few times, we have the scale to go with our customers anywhere in the world. It's unmatched capability. It's remarkable when you look at the expertise we have, the experts that we can put in front of a customer, speak the same language, work together on these kind of opportunities, and we're delivering in the market. We're now going to play a customer testimonial. Rebecca, please roll the tape.
Shazia Sobani, I'm the vice president for iCustomer network implementation. WESCO and your team members, they took a lot of interest in knowing our business, what we do. They always had good recommendations for us. That's what we always look for in a partnership spirit, because we don't want to be on one side, just keep telling our partners, "Hey, go do this, and go do that." The overall package deal that we were getting by going with WESCO, we did not see that value from anybody else.
When we started our relationship, it was predominantly for Western Canada, and your great presence there was very encouraging. We knew that you could deliver the material when we need, where we need, with a very short cycle time. When we first moved our cable business with WESCO, we had set an SLA of two weeks. At an average, your order fulfillment was done in five days. It's fantastic, right? It gives us a lot more flexibility to drive more improvement and efficiency out in the field. At TELUS we have a culture and a mindset of transformation, and we rely a lot on our external partners. We really rely on them for their expertise, and for their ability to drive innovation into others. WESCO has been a strong supporter of our internal women leadership forum, that we call Connection.
They've been supporting our event for the last couple of years. WESCO have helped us reduce our cycle time from design to ready to build. If I talk about the construction and if I talk about pure fiber build, that is a very important time period because you have designs ready to go. You have crews ready to go. You don't want them to be waiting for the material to come. WESCO has really helped us shrink that period between those two milestones, which has helped us cut down on our end-to-end cycle time by two weeks. Two weeks is huge when you talk about construction projects where they're related with customer loading. With the characteristics, the partnership characteristics that we see in WESCO, I feel very comfortable that in near future we will be in a position to discuss more growth opportunities with you.
They're also with us in our annual planning and standing there with us as a partner and helping us get everybody at a single platform. The relationship is not just to doing business transactions. We look at the relationship to be way richer than that.
I want to thank Shazia for doing that for us. They're great customers, they're a tough customer. They've got tough but logical demands. I also want to thank our team in Canada for the great work they're doing to support this very important customer. The last comment I would make about this before I move on is that every $1 we do with them, every transaction we do is all digitally enabled. What's wonderful about that is we've been able to scale that up almost infinitely because we're using a digital platform to interact with the customer. Obviously, there's lots of human beings behind the scenes getting things from point A to point B. It's great to see that we both embraced the digitization of the business, and we're really able to take care of them faster and better by doing that.
Again, thank you to TELUS for that testimonial. I want to move on to the construction end market. Obviously, an extremely important market for WESCO. It's a third of our business. It's an even bigger share of our business in Canada. This is an area where WESCO has unmatched capabilities. I'm going to talk in a minute about how we're even enhancing those capabilities by utilizing digital platforms and online collaboration, et cetera, to really drive more efficiency in the process. Why are we there? You see the trends and opportunities. We talked about this already, the skilled labor shortage. They need people to help them do what they do. There's more demanding. We have an aging infrastructure. We've heard all about that. One of the things, though, that you know if you've spent time in this industry is it's really just beginning to modernize.
The model that they operate on is decades old. It works, it's got some issues from an efficiency standpoint. That's where WESCO can help. We do everything. We can bring job site services on. The Calgary Cancer Center that I just talked about, there's a WESCO on-site presence. We've got vehicles, we've got trailers, et cetera. We can take care of the customer as they need something, immediately take care of their needs. It makes them more efficient. It allows them to stick to the schedule, so on and so forth. We've got great suppliers. Our suppliers work with us very well to make sure they're part of this. We bring all that connectivity together and we have the ability to scale with them.
A perfect example of this would be LNG, once again, where they're relying on us to leverage our capabilities around the world to bring solutions, cut down on cost, and squeeze on lead times. You heard Shazia talk about that we've exceeded their expectations, as a result, we've made them more efficient and saved them money. We're focused on cost and schedule. That's where we should be focused, what this diagram talks about is the fact that we have active material management. We have people on the ground. We've got centers of excellence that leverage this. It brings unmatched capabilities and this assistance and offloading that we provide to these customers to let them focus on what they need to do. John talked a lot about this. We're utilizing data so we can help them with consumption. We can anticipate their needs.
We can also then provide tailor-made solutions to solve some of the challenges they have. Some of the best work that WESCO does is looking at a spec sheet, working with a customer, and figuring out a more efficient way of doing what they need done. We bring value. It creates repeat customers. It creates that stickiness and reliability on us that we want and they need. It's a great partnership. We've shown this slide in the past, but it shows the complexity of one of these job sites. Everything from pre-fabrication, think those yards in China supporting Canada LNG, the switchgear conduit, the things that people don't see that are in the building, then the various capabilities, having a job trailer on site, physical security, lighting. We're involved in every part of the food chain.
We are making these customers more efficient, more effective at what they do. Ultimately, what it should be able to do is allow not only WESCO but our customer to scale up its capacity, meaning they can take on more because we can take on more, and we become a very reliable, consistent, predictable partner as a result. Talk a little bit more about digitization. This is really the next step for us. We've actually been using a version of this software for more than 10 years. We've invested in it. We've fine-tuned it. We've turned it into something now that has taken a paper-laden, paper-intensive process and completely digitized it. Our customers love it. What they love are the things that there's an online collaboration capability in the tool.
Real time, an engineer on a job site can pull up a laptop or an iPad and communicate with the WESCO project management team to understand where we are on something, check on a lead time, et cetera. This used to be a paperwork drill. Our ability to bring this kind of capacity and capability to them, again, has made them more efficient, has allowed them to take on more opportunities, while at the same time, it's made them more cost-efficient. It also helps WESCO because we're able to better manage the project. Think about billing, thinking about change orders, all the things that go on in a complex project like this. We're able to better manage because we have these capabilities. Want to talk about what we're doing for contractors in general. We service contractors of all sizes, small, medium, large, mega-sized contractors.
What we're trying to do here is essentially enhance their entire experience and build out how they can do business with WESCO. This is entirely through the digital transformation that's going on with our customers, with our company, with our supply chain. We do have customers that rely on the in-branch experience. Smaller companies that want to pick up the kit they need for the job today. You can go to one of our facilities at 6:00 A.M., and there's a line forming at the door. It's a great sight to see.
What we've done there, though, is we're using tools, digital tools inside the branch to allow them to find what they need faster, allow us, find technical information to give them a solution faster, and really move them through the facility so they can get out of there and go do what they need to do, get to a job site. That's been something we've worked on over the last six months to a year. We've continued to increase those capabilities. It's really all what happens at the job site that matters. What we're trying to do is bring the best of both worlds and say, our branch is there. We've got what you need, warehouse or stocked on that location, but we can take care of you regardless of how you want to do business with us.
Do you want to place an order over phone? Do you want to send it to us through our portal? Do you want to send us via email? We'll give you a status of the job. We have a automatic texting system. We have all these things that allow us to communicate through the whole cycle, the whole sales cycle with the customer. They want to pick it up, we can do that. We can put it in a lock box. We can put it in a parcel locker. We can ship it same day. We could ship it same afternoon. We're adding capabilities so that when these contractors need something, they're going to call us first because we can get the job done. It's a huge differentiator.
Again, we're trying to bring the best of both worlds, giving them the branch flexibility, the people there with the decades of product knowledge, helping them find solutions, but giving them multiple ability to serve and deliver and take care of them. The next step, we're already doing this, is to then fully digitize this so that we can do an end-to-end resource commitment, allow them to do business with us as many different ways as they want, but still give them the technical expertise. This is the difference between WESCO and the internet. When you call WESCO, you get solutions, you get people that know their products, they can provide real-time information, help a customer make the right choice. Make sure they don't make the wrong choice. We make them more efficient, and they come back to us because we can solve their problems.
It's a great position to be in. We're going to build on that and just continue to give them more capabilities and more ways to do business with us. I'm going to wrap up and finish with Canada. Talked about this a couple of years ago, the opportunities are endless and enormous in Canada, and we continue to diversify and continue to build out our capabilities across the business. I gave you some examples today. There's many others where we're well-positioned to build on that, to grow, and to really build on our leading market share position in the country. We can take what we do around the world. This is very important for customers that do business and want the same reliability and capability regardless of where they do business. Not all of our competitors can do that.
We can do it. We do it well. We have a very focused organization that's out there doing that and figuring out ways to bring value to customers around the world. John talks about this a lot. The whole reason I believe we're here is because we're a value-added services and solution provider. This is what distinguishes us. It's why we're distinct in the market. It's the capability that we bring. It's these long-time, long-standing customer relationships. People come to us because we know what we're talking about, and we can help them do what they do better. Just building on those service and value capabilities is something that's foremost in our thinking. It's how we're organized. It's what we're trying to do in the marketplace.
Our belief is, as we continue to wrap services and bring value add it, customers will continue to do business with us. We see that every day. We've taken big steps now to digitize the business. We're really still at the forefront of this. The reaction from our customers has been very positive. They love the fact that we're trying to find new ways to bring them value. If it's a guy on a site that just wants to text back into a system rather than an individual to get an answer, taking care of people, I need this by a certain day, et cetera. Our project management function, these enormous multi-million, now multi-billion dollar projects, we can bring a digital capability that's unmatched out there.
We can serve a customer like TELUS anywhere in Canada because of the infrastructure that we have. Also our digital capabilities that we can do business with each other while we're sleeping in bed. It's fantastic. It's something that we have to continue to grow and leverage and continue to delight our customers. Last, I want to take another moment to say thank you to all of our employees, all of our team members across the world. Regardless of the geography you're in, thank you for your work and service and providing this value to customers. It's extremely important. It really distinguishes us from our competition globally. Thank you. I'm now going to ask Juan Picón to come up, and I'll turn it over to you, Juan.
Thank you.
All right.
Good job. Good afternoon, everybody. I'm Juan Picón. It is my pleasure to be here with you today. I will be presenting to you an overview of the U.S. business, and I'll talk about some growth opportunities and initiatives that we have. I will also highlight the industrial end market, global accounts, and give you some perspective about our utility market. Before I start, this is the first time that we meet, I'd like to introduce myself. I have the distinct pleasure to be with WESCO since January 2018, and I lead the U.S. business. Prior to WESCO, I was with General Cable and Honeywell, where I spent 19 years in multiple roles of increased responsibility in aerospace, automotive, what they call today the safety and productivity solutions, and home and building technologies. I will be around after the presentation.
It'll be my pleasure to meet with you and interact a bit more during the reception. As you can see in this slide, U.S. business represents 75% of WESCO's total sales by geography. Over $6 billion in revenue participating in our four end markets. We do have a strong position in each of the four markets, which gives us a good diversification of the business in the U.S. On the top right, you can see a map that shows an overall U.S. structure. With roughly 340 branches, six regional distribution centers that will soon become seven with the opening of Chicago, WESCO has a clear competitive advantage in terms of scope and scale in the U.S.
Hemant will give you more details regarding our regional distribution center strategy for the U.S. Something that we have stressed in the past, which I believe is important to remember, is that in the U.S., over 50% of our resources are in customer-facing positions. These employees are currently engaging with customers and selling our value propositions all over the U.S. U.S. electrical distribution market is highly fragmented. 3,500 distributors. The top five, with WESCO as the second-largest, represent roughly one-third of the market. With our great position in the large fragmented market, robust customer propositions, and a strong balance sheet, WESCO has great opportunities for organic and inorganic growth. When we look at the U.S. landscape, the growth opportunities don't come without some important challenges. The tariffs, trade war, have resulted in a record number of supplier price increases.
After a lag, we have been successful at pushing through these increases and expanding our gross margin. Raising prices is never an easy task, but it is a very critical one in order to preserve and grow our margin. In spite of some of the challenges, these are fascinating times in the U.S. As John mentioned, the industry is going through transformation that opens up huge amount of opportunities for WESCO to grow and deliver value to our customers. Infrastructure investment, renewable energy exploration, changes in business models, driving productivity, and cost efficiency are opportunities that play to WESCO's sweet spot to deliver value to our customers. I will be addressing this topic more in detail in the next few slides. Talking about some of our growth opportunities, all have long life cycles ahead. For instance, America's infrastructure is desperately in need of investment.
According to the American Society of Civil Engineers, they estimate that the U.S. needs to spend some $4.5 trillion by 2025 to fix the country's roads, bridges, dams, and other infrastructure. Related to energy, the majority of the transmission and distribution lines that were built in the mid-20th century and have a life expectancy of about 50 years, meaning that they are already outdated. Between 2016 and 2025, there is an investment gap of over $170 billion. This is for infrastructure that supports electricity, like power plants and power lines. As we'll discuss in a minute, this represents a great deal of growth opportunities for our utility and construction business in the U.S. Many U.S. states have Renewable Portfolio Standards that require a certain percentage of electricity from renewable sources, mostly wind and solar power. Renewable Portfolio Standards have already been enacted by 29 states, Washington, D.C., and three territories.
These mandates are intended to promote economic development within the nation's growing market for wind, solar, and other renewable energy sources while we reduce greenhouse gas emissions. With a strong team of renewable energy specialists in all the key markets, WESCO is uniquely positioned to support this important market trend. The same goes with our 5G build-out. New infrastructure requirements will be necessary to launch 5G applications to support mobile, broadband, IoT, and mission-critical applications like autonomous driving. As a result, experts have predicted that network-related capital expenditures will have to increase 60% from 2020 to 2025. WESCO has excellent capabilities and has been making significant investments in broadband, datacom, and security to capture this growth. The widespread shortage of qualified labor is also driving an increase in investment in each vertical.
With Industry 4.0, the connected factory or smart factory, changes are expected to be more expensive than ever before in today's manufacturing. Industry 4.0 continues, underpinned by further digitization, technical advances, big data and data analytics, the Internet of Things, robotics, and artificial intelligence. WESCO has technical specialists helping find the solutions for the challenges in the industrial space. We're very excited about the lighting growth opportunities. According to the U.S. Department of Energy, there is $300 billion of lighting install base with the potential to be converted to solid-state LED applications. The LED adoption rate is approximately 15%, leaving a substantial piece of the lighting market available for retrofit. WESCO is very well positioned to support this conversion. Overall, WESCO sells close to $1 billion of lighting material services in our space.
This is one of our digital growth plays, and going forward, we will continue to leveraging it to capture these LED retrofit market opportunities. We have made several investments in lighting capability over the past several years. The acquisition of Aelux brought to us penetration in turnkey retrofit and renovation for construction, CIG, ESCO, the energy service company, and other end user customers. Needham Electric Supply acquisition enhanced the lighting capabilities with a focus on national retailers. This was further expanded this year with the SLS acquisition, which I would like to present next slide. SLS is our most recent acquisition. We acquired the assets of Sylvania Lighting Solutions the first quarter of this year. This acquisition was all about the talent. We acquired more than 200 lighting professionals distributed across the U.S. that will leverage WESCO scale and national footprint.
We are encouraged by the response we are getting from the market in the early days of ownership. Not only are the operators pleased to be part of a company where lighting is a priority and a core competency, but customers have also been very receptive. The integration is on track, and the early returns are positive. Now I'd like to review industrial end market. At 36% of sales, WESCO's industrial is our largest. We organize this market by verticals like oil and gas, metal and mining, food and beverage, pulp and paper, technology, et cetera. We specialize resources and knowledge around the different challenges and opportunities for each of these verticals. Our largest customers in this market are global Blue Chip companies. We have long-standing product and service-based contracts to support their manufacturing plants and global supply chain.
Our successes in the industrial space are driven by our global accounts and integrated supply businesses models, as well as our OEM capability. Many of these customers are large, multi-site, and geographically diverse, with locations spread all over the world. Our OEM business provides direct material to the product line that are used as component parts for original equipment manufacturers. As Nelson mentioned, WESCO integrated supply provides sourcing, procurement, and logistic solutions to industrial customers looking to optimize their supply chain activities with an outsourced solution. Our pipeline of opportunities is the largest it has ever been, and our bidding activity is at record levels. Customers are actively looking for more solutions and services from WESCO to help them optimize their supply chain processes and drive out cost.
As I present in our next slide, our global accounts and integrated supply capabilities, combined with our point of sales and e-commerce solutions, allow us to capitalize on those trends. As I mentioned before, our global accounts are our largest and most strategic customers. We have around 500 customers across 60 verticals, including many Fortune 1000 companies. WESCO has been recognized as a leader in global accounts for more than two decades within the electrical distribution industry. Our success is driven by our ability to take a broad range of customer needs across multiple customer locations and create single consistent programs across all of their operations. Geographically, most of our business is in North America. However, we have followed our technology, oil and gas, and mining customers around the world to support their capital projects and business expansion.
Our business is focused on all the electrical, industrial, safety, and datacom products that keep customer's facility up and running efficiently. We also support capital projects directly with end user customers. Capital projects typically are lighting, retrofit, and renovation work and electrical distribution system upgrades for existing facilities or new constructions. Additionally, an increasing number of our global account customers transact digitally with our branches. This enables us to continue to expand our offerings with existing customers and develop new business opportunities. Going forward, as John mentioned, this is one of our digital growth plays, and we are investing to digitize the global account customer experience. The size of WESCO's infrastructure, the products and unique services we have to offer allow us to build sticky relationships with our global account customers based on delivery.
When working with potential global account customers, we take a consultative approach. We win because we design programs for them that help them meet their internal goals and objectives. Upon award of an agreement, a dedicated implementation team is dispatched to all of the customer locations to identify the products that are currently used and the services WESCO will have to deploy, as well to ensure a smooth change management process. The implementation team understands the complexity of supporting multiple customer locations across multiple WESCO branches and professionally executes the agreement. Once the contract is implemented, a dedicated account management team works with an experienced customer service team to deliver on our contractual commitments and create long-term relationships with our customers. We manage a checkerboard process across the customer base. The checkerboard provides us visibility of the opportunities by product category and by customer location.
We know through the implementation process the sales that we expect to receive from each customer location. The checkerboard highlights the areas to focus on with each customer. For instance, this page represents a view of our sales before and after the checkerboard process for a large metals and mining customer. We were doing a significant amount of business annually with this customer and successfully expanding into new business opportunities. However, when we pulled together all the customer locations and all the product categories, we could see the amount of opportunities we were missing. Once we began focusing on the individual product categories by location, we were able to help the local branches clearly identify which suppliers and products they needed to leverage to maximize the business opportunities. As a result, we have been able to more than double the annual revenue customer.
Thanks to our approach, WESCO rarely loses a global account customer. We had 100% renewable rate in 2017 and 2018. Once implemented and running, we continue to identify opportunities to maximize the revenue and ensure we capture the awarded scope. The final end market we are going to discuss today is utility. WESCO is a leader in the electrical and space across three major customer segments, investor-owned utility, public power, and utility contractors. These customers are dealing with substantial changes, including Renewable Portfolio Standards for power generation and the need to modernize and harden the existing grid. Reliability for utility customers is paramount. They therefore depend on their supply chain service partners to ensure availability of their network and to recover from storms and natural disasters. Similar to global accounts, we are providing solutions to utility under multi-year contracts.
We differentiate our services by offering innovative and cost-saving solutions within our partnership. Thanks to our robust value proposition, we have grown our sales to this market for seven consecutive years and are poised to continue that trend. The following customer testimonial will provide you with an example of this value proposition. Rebecca, can you go to the video?
NorthWestern Energy is an electric and gas utility. We've had a relationship with WESCO for many, many years, but they've been our strategic alliance supplier for the last 15 years. Obviously, as an electric gas provider, reliability is critical. Being able to provide us materials for operating and maintaining our system is extremely important. Most importantly in the relationship is emergency response. WESCO has a local footprint here in Butte, Montana. They've got a great staff, and they have supported us for many years. WESCO had a very cost-effective proposal. They're very hands-on, and they really try to fit their operation to our needs here in the state of Montana, especially. Their staff is very supportive of our operation. They do things way outside the norm.
We had some snowstorms and some issues, in the past where we've had two feet of snow in Rosebud, Montana, and we had our WESCO person get in his truck and drive materials there on a Saturday because that was the best way to get there, and we needed it. WESCO interacts directly on a daily basis, sometimes several times a day, with our storekeepers and warehouse staff. There isn't a week that doesn't go by where WESCO personnel or one of their folks from the branch shows up at our general office here in Duluth. WESCO does a really good job for us. We learn from them, and we appreciate that they keep bringing us innovative ways to do things and just different ways to serve our customers.
I want to take the opportunity to thank the U.S. team for doing such a great job every day supporting customers across the U.S. In summary, as you could see, WESCO is an industry leader, very well-positioned to take advantage of many long-term growth opportunities in the industrial, energy, and utility end markets. Thanks to our solution-based selling, WESCO has been recognized as a leader in global accounts for more than two decades within the electrical and distribution industry. Finally, we keep increasing our services and solutions portfolio to meet the needs of our customers. This includes our digitization capabilities to interact better, faster, and more efficiently throughout the supply chain. With this, I'd like to thank you again for being here. After the break, Hemant will take it over, and he will be presenting the supply chain and operations, as well as the Q&A.
We will break for 15 minutes. Thank you. See you back here soon.
{Break]
Okay. All right, we're going to get started here in a minute. Everybody can take their seat, grab a coffee or drink. Okay. Good afternoon, everyone. Welcome back. It's good to be back at the Old City to give you an update on what I presented to you a couple of years back. I'll also take the opportunity to highlight a whole host of initiatives we're working on. So far today, you've heard John, Nelson, Juan outline our strategy and the growth opportunity for WESCO. My focus is to enable this profitable growth. You heard me say this before, to build a company, you have to build the people. To grow a company, you have to grow the people.
It gives me great pleasure to inform all of you that we've made excellent progress on our journey by putting digital at the heart of everything that we do, and in large part due to the Extra Effort of our 9,000 employees. The mandate for my function is the same, deliver on the seven Rs of supply chain. Right product, right cost, right price, right place, right quality, right quantity, and at the right time. There are four key areas I will cover today. How we're leveraging our big data to build digital solutions that improve margins, which is key to our commercial excellence strategy that John talked about. Progress we've made on our network strategy and our operational excellence initiatives. 3, safety, which is just not a priority, it's a core value at WESCO. It's an integral part of our DNA.
I have a belief, if we take care of our employees, our employees will take care of our customers, and our customers will take care of our shareholders. Finally, actions we're taking to drive sustainable business practices to improve sustainability of the customers we serve and the communities we operate in. Our goal at WESCO is to be the true north of B2B distribution. This slide is a great visual of the power of One WESCO and the synergies we get leveraging our digital and physical assets across the entire supply chain. We have a world-class supply base of 30,000 suppliers. $6 billion in source spend gives us both scale and leverage. Focus for this team is consolidating spend with our preferred suppliers and cost negotiation. We carry a billion-dollar inventory, depth and breadth that allows us to meet customer demand for product.
The KPIs we focus on for inventory are fill rate and maximizing turn. From a pricing standpoint, we price millions of SKUs every day given our diverse supply base across multiple product categories. The objective for pricing is to maximize margins through segmentation across product categories and end markets. Our operations allow for multi-echelon inventory optimization with an objective of reducing safety stocks by cutting lead times and increasing fill rates for our branches and customers. 10 distribution centers, soon to be 11, as Juan talked about earlier, with an extensive network of branches strategically located to deliver services and solutions to customers. We focus on the sustainability of our operations by continuously evaluating ways to shrink our environmental footprint. The operating mantra is reduce, reuse, recycle, to minimize what eventually goes into landfills.
My team manages significant transportation spend with multiple carriers and thousands of physical assets to meet customer needs from the first mile to the last mile. Metrics we measure there are cost to serve as a percentage of sales and margins, fleet safety, and on-time delivery. WESCO orchestrates this comprehensive supply chain, working with 70,000 customers and 30,000 suppliers, to deliver products, services, and the solutions that add value to all stakeholders. You've heard from both Nelson and Juan about specific examples of how we do that. Leading these physical and digital assets, strong management. We have a good balance of longstanding WESCO employees with decades of distribution experience and new hires for challenging our thinking. Together, building a sustainable business to deliver on the long-term financial commitments that John outlined earlier. John always reminds us scale matters in distribution.
This slide, we use all the time internally, is a constant reminder of our scale. Now we're starting to exercise our supply chain muscle. You heard John talk about the Path to Excellence strategy. I'll highlight some specific actions we're taking for margin improvement. The formula for margin improvement in our business is very simple. 1. Buy as low as we can through cost site negotiation. 2. Sell as high as we can by pricing in our service and solution capabilities. We execute thousands of transactions every single day at WESCO and generate large amounts of data. Last time, I told you about organizational changes that were made to better align our pricing resources with our sales leaders. The next priority for the team was to build digital assets that we can leverage with big data to generate insights for our customer-facing sales teams and our pricing teams.
We've now done that, and as you can see from the chart, our gross margin has been improving over the last several quarters in the face of significant supplier pricing increases. To give perspective, supplier pricing increases were 2.5x 2017 levels in 2018. Through the first few months of this year, we've seen over a 15% increase in the number of supplier pricing increases. We're on pace for another record year of supplier pricing increases. Since May 10th, tariffs on List B goods imported from China have gone from 10%-25%. Immediately following that announcement, we started seeing price increases in the double-digit range. Our current view is that the increase percentages in 2019 will be higher than what we experienced in 2018. Margin improvement, because of the processes and tools we've deployed.
One of the tools was built to manage supplier price increases, something we at WESCO call SPIN. As soon as we receive price increase notifications from our suppliers, reports that calculate the estimated margin impact are generated for our sales teams. Shortly after the announced headline increase, we get detailed information at a SKU level of suppliers. Immediately following that, SPIN applications give our sales associates line-item detail by customer and SKU, showing the margin dollar impact that the cost increase will have if the sell price is not adjusted. Given a higher level of visibility, automation, closed-loop accountability, we're now able to rapidly deploy supplier pricing increases. Thanks to some excellent work done by our IT team, thank you, Rob, we've established a branch command center.
You can think of it like a cockpit that gives business intelligence with powerful visualizations to our sales, sourcing, and pricing teams, directing them to areas that have an opportunity to increase all-in margin. We're also in the early stages of exploring data science to further our journey from descriptive analytics to predictive analytics and, ultimately, prescriptive analytics. In WESCO, our lean culture perpetuates a mindset where we're laser-focused on making today better than yesterday and tomorrow better than today. I'll give you insight into our operational excellence initiatives. Footprint optimization is a never-ending process, we're agile at responding to the needs of our businesses and customers. You heard both Nelson, Juan, and John talk about our ability to serve customers globally. In the last decade, we've consolidated over 120 branches and opened 60 new locations.
Since our last Investor Day, we opened two large One WESCO branches in Orlando and Denver. Bringing multiple businesses under one roof helps both our top line and our bottom line. Sales and operations teams have access to a broader set of suppliers and customers, there are synergies from those daily interactions. In addition, it fosters sharing of best practices and lowers our total cost to serve. As I've engaged with our sales leaders and suppliers on a distribution center network strategy, two things have been very clear. One, that our DCs to expand their SKU assortment and have inventory is more custom to the markets they serve. Two, the deliveries from the DCs to the branches need to come in early morning so local deliveries can be made on time.
In order to achieve those two goals, we have to maximize the number of branches within a 400-mile radius of a distribution center. We use advanced optimization algorithms to build out a DC network. Using shipment data, analytics, and modeling, we now have a network strategy that optimizes our service capabilities, working capital, as well as our cost to serve. Now that this network model is built, we're maintaining a digital twin of our physical network. We'll have the capabilities to do what-if analysis in real time. We went live with our Dallas distribution center in 2017, and next quarter we'll open a distribution center in Chicago. From a metrics standpoint, we're closely monitoring direct-to-customer fulfillment from our distribution centers. That metric is important because it's a proxy for the number of touches before products actually reach our customers.
Serving customers direct from a DC also improves lead time for our customers and improves our cost to serve, which translates to higher profitability. Let me now talk about the last mile. I think I've talked about this before. The last mile of any network typically represents 30% of all transportation costs. In the past, our trucks were routed manually by our warehouse. We introduced a route optimization platform at a branch in Chicago in late 2017, and a group of investors and analysts had an opportunity to see Descartes live in action recently. Based on successful results of the 2017 pilot, we went live with over 50 branches in 2018, and by the end of this quarter, we'll have Descartes live at every location across our operations and fleet. This is also an example of our digital transformation.
From a results standpoint, we're seeing a 10%-20% improvement in the miles per stop as a result of the routing solution. Now we also have real-time visibility to our fleet. Another upshot is an electronic proof of delivery with a photo of the shipment, which our customers appreciate. Next step in our evolution on the last mile is to give customers real-time visibility to their shipments, which is of significant value to customers that are receiving deliveries on construction sites. Our WESCO Transportation team just received the Excellence and Innovation Award from Descartes to recognize both the speed with which we've deployed the solution across our network, and two, more importantly, the innovative approach we took to deploy the routing algorithm. Lastly, on this slide, there are many other digitally enabled opportunities we're working on concurrently. John talked about our Intelligent Automation Center of Excellence.
While we're still in early innings there, we expect to launch our production digital robots in a matter of days. Currently, we're also piloting Pick by Voice at one of our branches. Early results are promising, and we're seeing a 25% improvement in productivity with a 99%+ accuracy rate. Once that pilot is complete, we will evaluate expanding Pick by Voice across our branch network. When we talk about picking, several researchers and engineers have studied picking activity. You can assume how much time it takes across any and all B2B distribution, or for that matter, B2C distribution. It's estimated that 50% of a picker's time is spent traveling from one storage rack to another, and 35% of the time is spent locating and picking product from the correct bin. Bottom line, significant time is spent rubbernecking in front of a rack.
If you've gone grocery shopping, you know what I mean. Pick by Heads Up Display drives a higher level of productivity than any other picker-to-part systems by eliminating the whole phenomenon of rubbernecking. We have a front-row seat to a market leader in augmented reality to develop this application for commercial use. Earlier this year, we tested Pick by Heads Up Display at our distribution center in Canada. As outlined, we're constantly optimizing our operations to improve working capital and operating margin. Let me give you some more insight on our safety initiatives. Every year, we benchmark our safety performance with other B2B distribution companies with more than $1 billion in sales. We have one of the safest operations in B2B distribution and have plans to improve on our performance. We're maintaining our focus by creating awareness, training, and accountability for safety at every level.
Last year, we required warehouse associates to take an online course in safety every quarter. This year, we've expanded that training curriculum to all employees of WESCO, and by the end of the year, every employee will be required to take courses focused on job-specific hazards and behaviors that have caused injuries in our operations. We've implemented post-injury guidelines and care to ensure that every injury is handled quickly and efficiently. Near misses are a leading indicator. This year, we built a near-miss mobile application that lets our employees identify and track near misses during their daily safety walks. Safety is also good business, because many of our customers expect that we have world-class safe performance.
As one of Nelson's leaders likes to say, "We should strive to create an environment where employees feel safer at work than any other place." We're applying the same focus on safety to our commercial fleet. Let me switch from our extra effort employees to our fleet. Our safety scores from a fleet standpoint, and we benchmark that across billion-dollar companies plus, is in the 90th percentile, and we believe there's an opportunity to further improve our performance and strive for zero accidents using artificial intelligence and computer vision. The research has shown that 70% of all collisions are related to distracted driving and aggressive driving. Computer vision and artificial intelligence will allow our operators to easily identify high-risk behaviors and personalize driver insights to prioritize coaching opportunities.
We've recently initiated a proof of pilot concept with two startup companies to test these technologies in our fleet, and will evaluate a rollout based on results for those tests. Switching gears to ESG, in 2017, we released our second CSR report using the Global Reporting Initiative format. The second half of this year, we're going to publish our third report. Based on the feedback received from our first report, or the last report, this edition will include more disclosures of metrics, particularly in the social and ethics section. As a company, we're constantly looking for ways to improve our ESG performance, from lighting retrofits to increasing recycling, to finding other innovative ways to make an impact.
Recent highlights include our veterans hiring program, smart plugs for our facilities, addition of hybrid cars to our fleet, and winning the Sustainable Pittsburgh competition at our distribution center in Warrendale, led by our employees at that facility. When Hurricane Harvey hit the Houston area, our team immediately sprang into action. Once we determined that our employees were safe and secure, we used our logistic capabilities to bring food, products, services, and solutions to our customers, and more importantly, their employees. We recently implemented an inclusion and diversity strategy, and we're also named the Bloomberg Gender-Equality Index. One external measure of progress is our EcoVadis score. If you haven't heard about EcoVadis is a company that several of our large customers use to rate their supply chain.
In 2017 and 2018, we earned a silver rating, indicating we're now in the top 30% of all companies that they measure. In the spirit of making tomorrow better than today, the plan is now to go for gold. We also joined the UN Global Compact, and we're committed to its 10 principles. I've always been a traveler, this area is near and dear to my heart. The responsible use and protection of the environment through conservation and sustainable practices is something we take seriously at WESCO, and we've added investments to deliver results. Another example of us driving sustainability is increasing electronic transactions with both customers and suppliers. We've doubled our EDI usage with our customers. You already heard from Nelson about our digital engagement model with TELUS. Last year, we quadrupled the number of suppliers we do business with digitally.
We've made a lot of progress against our environmental goals since our first report in 2012. Progress is already kicking in. We're now going to commit to a further reduction of our environmental footprint by 2022. Next, I'm going to play a video on how we're working with our customers to enable sustainable cities and help all businesses grow. Rebecca, if you can roll the video.
Elevation Solar is a residential-focused solar company. We actually started with WESCO literally day one. We, at the time, did not have the capital as a startup to go out and buy a bunch of product and have a warehouse. We wanted to find a service provider like WESCO that could provide that product to us, and not just sell the product to us, but actually deliver it for us as well. Eight different markets across the U.S. Over 4,000 different job sites, if you will, with the customers that we serve. We have a unique supply chain strategy. We don't have any warehouses. Everything is just-in-time inventory for us, and we do that through WESCO. The focus on the partnership is huge for us. We joke that one of WESCO's employees has now become one of ours and has a permanent desk in our office.
Having that personal interaction and being able to sit down at my table and actually forecast and plan with WESCO, that's a very important part of our business. About 1.5 year into our business, one of our financing partners essentially ran out of credit and was unable to fund the loans that were funding our construction projects. We had to figure out how to handle that as a startup company. WESCO was so understanding of that situation and so willing to get creative on helping us to bridge that capital gap with terms and with payment abilities. Honestly, that saved the company. We don't have to own warehouses or inventory management systems. They're essentially an arm of the business and a partner of the business in that way. They've helped us be very efficient on our inventory management. As a solar company, we're all about sustainability.
WESCO has been a great partner in our focus on sustainability. I think that sustainability is more than just the environmental aspect of that, but it is also figuring out ways to do it more economically for the end user. Because of WESCO and the efficiencies we gain by partnering with WESCO, we are able to pass that along to our customers. We are very focused on the partnership with WESCO and see it as a long-term investor on our part. A long-term strategy utilizing a distribution house like WESCO to serve our needs, and we plan to be around for a long time.
As you saw from that video, simplifying the supply chains of our customers by reducing their working capital outlook and operational costs is a clear tangible value to them. It builds a stickier relationship and a sustainable long-term business for WESCO. In summary, there are three key messages I will leave you with. As Juan mentioned, Industry 4.0 is here, and applications are being developed. Machine learning, IoT, augmented reality, artificial intelligence, these are no longer buzzwords on Valley. These technologies will bring, I believe, unprecedented levels of change, productivity, and cost efficiency, and WESCO is in the middle of it all. As you saw from the press release, we are plugged into the technical system and actively experimenting with several of these disruptive technologies, leveraging our big data to build self-driving supply chain for the future.
Two, I am confident that the operational excellence initiatives we are working on will deliver efficiencies and result in improved margins and cash generation for investors. Three, maintaining focus on ESG is personal for me, and we will continue to push forward on that front. In closing, what our extra effort employees have accomplished over the last couple of years, and really honestly, even long before that, is truly remarkable and personally rewarding. Winston Churchill said, "Who looks to change to be perfect, change often." As an organization, we are primed to face this next wave of digital change with our momentum vector. Thank you for your attention today. I will now hand over to Dave Schulz, who will give you a financial update. Thank you.
Thank you, Hemant. It is a pleasure being with you here today, and thank you all for your interest in WESCO. You have heard from a number of our key business leaders about how we are leveraging our scale and digitizing our business. I would like to provide you our financial outlook and update you on our deployment of capital going forward. Three key points I want you to leave here with. First, John mentioned our long-term growth algorithm includes above-market revenue growth and operating leverage to deliver a 10%+ EPS growth. Second, WESCO generates significant operating cash flows through all phases of the economic cycle. Third, because of our strong cash flow, we have the flexibility to invest in our business, acquire new capability, and deploy capital to shareholders. Let me start by updating you on our commitments from our last Investor Day in 2017. We outlined three specifics.
First, drive above-market sales growth. Second, expand margins. Third, generate strong free cash flow. You can see the results on the slide here. Coming out of the industrial slowdown in 2015 and 2016, over the last two years, we've averaged 6% sales growth. We've delivered a record $8.2 billion of sales in 2018. Margins have been an industry issue. As you saw from Hemant's presentation, we've made considerable progress over the past year expanding gross margin. We're encouraged by this progress, particularly when we take into account the significant number of supplier price increases that we've experienced over the past 18 months. We're also pleased with some of the benefits we're getting from some of the new digital tools that we're providing to our organization to deliver better margin. On cash, we generated $261 million of free cash flow in 2018.
That's 116% of net income against our long-term target of greater than 90% of net income. You'll recall that in 2017, our free cash flow was only 68% of net income, and that's below our long-term target, but was primarily driven by the shape of our sales growth in 2017, leading to an increase in accounts receivable and other net working capital. Combined over these two years, 2017 and 2018, we delivered free cash flow at 95% of net income. Over the last two years, we've also delivered 12.6% growth in our earnings per share. I'd like to provide you a quick update on the second quarter. During our earnings call in early May, we provided you with our outlook update for sales, operating margin, and our tax rate. We're off to a slower start than we anticipated in the first two months of the quarter.
We are seeing huge strength in our Canadian business, in our utility business, but we are seeing some softness continue in OEM, in core industrial and construction branches in some regions of the U.S. The backlog at the end of May is stable, and it's in line with our historical seasonal trends. Revenue is tracking to the low end of our outlook range of 3%-6% for the second quarter. A reminder, our April sales came in at +6% on a reported basis. May was +1%, and through Tuesday, our June, May to date was +mid-single digits. Our earnings call is scheduled for August 2nd, where we'll provide you more details on the results of our quarter and the update to the full-year outlook. I'd like to spend some time now providing you some insight into two specific areas.
First, our contract future revenue stream and the margin profile of our various businesses. Starting with the revenue. During our earnings call, we often call out specific contract wins. We called out in the first quarter of 2019, a significant win with one of our utility alliances that resulted in a $350 million contract win over multiple years. What we haven't done previously is provide you, what does that mean? What's the context of those contractual wins? I just want to remind you that our global accounts, our WESCO integrated supply, and our utility alliances business, we provide customers with products and supply chain services that are generally in the MRO demand stream. The MRO demand stream makes up about 40% of overall WESCO revenue. We enter into multi-year contracts that provide a significant foundation for future revenue and cash flow.
The chart to the right that you see on the screen provides the by year contracted revenue streams under these purchase agreements. A couple of key points. This data is as of March 31st of this year. This does not assume that any of our current contracts are renewed. This only includes the contracted purchase agreements, does not assume that any of those contracts are renewed. That's why you see the drop-off between 2019 and 2020 in that total purchase revenue under agreement. It's because we do have contracts that are up for renewal during 2019 that we expect we will win and will add to those numbers for 2020 and beyond. As Juan mentioned earlier, we have a high renewal rate for these types of supply agreements.
We believe the value that we're providing our customers through products and services creates a strong relationship, and our expectation is that our customers recognize this value, and it puts us in an excellent position to renew these purchase agreements. I'd also like to provide a little more insight about the margins of the overall company by business. To summarize, there is considerable variability in gross margins between our end markets and shipment type, but overall, they're in line with the overall WESCO average. By geography, we do have higher margins in Canada, which is one of the reasons that we've invested in the Canadian market over the past several years and have established a leading market position. We discuss our margins across three vectors: the end market, geography, shipment type.
On an operating margin basis, each of our four end markets has an average margin relative to the overall WESCO enterprise. This is driven in part by the overall shipment type, which is used to serve some of these end markets. For example, you can see that our industrial end market has an above-average gross margin, but the cost to service that is generally higher than perhaps a direct shipment or a special order type of shipment type. Lastly, our business by geography has a different margin profile. Our large U.S. business has company average gross and operating margin. The Canadian business tends to have higher margins. On the operating margin line, it's in a range of 200 basis points higher than the WESCO average. That's primarily driven because industry is more consolidated, and we have a leading share position in Canada.
Our international business tends to have lower margins. This is highly dependent, however, on the mix of the business and the shipment type. The operating margin is lower than the line average, given the cost to service customers in numerous locations throughout the world. I'd like to switch gears to our investment thesis. We believe that our broad product and services portfolio enables us to continue to outperform the market, generating over the long term 4%+ revenue growth. We focus on margin improvement and generating a 50% pull-through, meaning that 50% of the year-over-year increase in gross profit dollars falls to the bottom line. This requires our continuing management of our operating cost growth below the rate of sales growth. The combination of this revenue growth and pull-through generates a 10%+ earnings per share growth.
Additionally, we expect to generate over $300 million of operating cash flow on average in the out years. This significant cash flow enables us to invest organically in the business, acquire companies with new capabilities, and return significant amounts of capital to our shareholders. Free cash flow generation has been a strength for WESCO. As John mentioned earlier, over the past 10 years, we've averaged about $225 million of free cash flow generation per year, or 114% of net income. You see from the chart, in years with significant organic sales growth, such as 2014 to 2017, we tend to fall below our target greater than 90% free cash flow generation due to the timing of increases in working capital, primarily accounts receivable from the higher sales.
Conversely, a downturn in the business cycle results in a significant reduction in working capital, providing a meaningful source of operating cash flow that can be deployed. Comparing our free cash flow yields over the past five years, we've outperformed the peer group. This peer group here consists of other electrical and industrial distributors. I'd like to switch gears now to capital allocation. Our strong capital enables multiple sources of value creation. On the left-hand side of this chart, you can see from the years 2014 to 2018, we generated about $1.3 billion of operating cash flow. Our first priority was investing in the business, about $120 million over that period, or approximately $25 million per year. We made several acquisitions using approximately $340 million of cash. We bought back $375 million of our shares, and we used $400 million to retire debt.
As we think about future uses of cash, over the next five years, we expect to generate approximately $1.5 billion of operating cash. We will continue to invest in our business, roughly $35 million per year in capital expenditures as we continue to digitize our business. We will continue to prioritize new capabilities via M&A, and we've assumed in this hypothetical example, approximately $50 million per year for tuck-in acquisitions. On share repurchase, we will continue to buy back shares at a minimum to offset dilution of management awards, approximately $30 million per year. This leaves us with a significant amount of cash over this period for further deployment. We will continue to manage our leverage within a reasonable range, 2x to 3.5x EBITDA, and it will also provide additional capital for incremental acquisitions.
Additionally, we will have significant flexibility to return capital to shareholders. We anticipate the company will begin paying a dividend at some point over this period. Let me provide you a little bit more details on the share repurchases. We initiated a $100 million share repurchase in November of 2018, which was completed here in Q1. In May, we initiated an additional $150 million share repurchase. This is an incremental $75 million from what we initially shared with investors back in 2018 when we said that our intent between November of 2018 and the middle of 2019 was to repurchase approximately $150 million of our shares. This is an incremental $75 million from our initial assumption. This decision was driven by the current count of the stock price relative to our intrinsic value.
We've now used $275 million of the current $400 million share repurchase authorization that expires at the end of 2020. I'd also like to provide you an update on how we're thinking about mergers and acquisitions. In the past, we provided with our guidelines for acquisition targets. Our strategy going forward is to focus on three specific areas. First, consolidating. We will prioritize large, transformational acquisitions that provide significant synergies within the electrical distribution space. We believe the industry is going to consolidate, and we intend to be part of it. Second is expand. We will expand our product service capabilities to create competitive advantage and synergies by leveraging these capabilities through our existing businesses. Our recent SLS acquisition and several of our service acquisitions that we completed over the past several years are good examples of these types of deployments of capital.
We believe, again, we are getting revenue and cash flow synergies by these tuck-in acquisitions that provide incremental service capabilities throughout our business network. Lastly, we'll invest. We'll invest or partner with companies that can advance our digital strategy. Our focus will always be on driving value for our shareholders, we are moving away from acquisitions of standard branch-based business models. We're focused on acquisitions that can drive significant synergies with large transformational consolidation that will provide cost synergies and expanding and investing in capabilities that will generate revenue synergies and incremental cash. We have a strong balance sheet with significant flexibility to support our value creation strategies going forward. As I mentioned earlier, our target leverage is 2x to 3.5x trailing 12 months EBITDA, and we finished 2018 at 2.7x EBITDA on a net debt basis.
We are willing to leverage our balance sheet, support our transformational acquisition strategy, as we've done in the past. 2012, we increased leverage above 4x to acquire the EECOL Electric business, and we have consistently reduced our leverage since that time. To summarize, I'd like to just put it all together for you. As John mentioned earlier, we expect over the next 10 years, to deliver 4%+ sales growth and 10%+ EPS growth, excluding the impact of acquisitions. WESCO has historically generated significant cash flow throughout the business cycle. We expect to generate about $1.5 billion of operating cash over the next five years. Lastly, this cash flow generation capability provides numerous options to increase shareholder value. We will continue to invest in our business. We'll seek out the transformational acquisition. We'll add new capabilities, and we'll deploy capital to our shareholders.
With that, I'll turn it over to John for closing remarks.
Well, thanks. First, I want to recognize the presenters. Terrific job. Thank you for that. Thank you to all of you. Thank you for taking the time today. Thank you for your support. Much appreciated. Hopefully, you had a good opportunity here to get a sense of the next chapter of WESCO. We're very excited about that. It's focused on digitizing our business models and processes, continuing to build out our strong services portfolio, wrapping that around our suppliers' products and forming solutions for our customers, obviously ensuring a strong and consistent cash generation remains in place. We have some new things that we've signaled here, right?
Nothing's by accident. I think by sharing our view of the market and the value chain and the current competitive ecosystem and the changes that are occurring at a much more rapid rate, I think you've got a sense of how we think about how the future is going to unfold. Right? We don't get a chance to shape that. We need to respond to it appropriately. I think we've got a terrific platform that's been established. We're increasing the aggressiveness of our posture as we move forward. We're very excited about it as we shift, as I said, into this next chapter. With that, Dave, please bring me back up here. I'm going to open it up for Q&A.
Since this is a webcast, we have some mobile mics. Please wait for the microphone, and if you could just announce yourself so it's captured in the webcast. Deane, we'll start with you. Right over there.
Thank you. Good afternoon. It's Deane Dray from RBC. I just want to echo your comments that a lot of very interesting wrinkles in the evolution of WESCO is on display here this afternoon. The one that just jumped out at me was Dave providing some, not numbers, but color around margins by business. You haven't done that before. We've kind of had to drag it out of investor relation guys to get some of that color. That's really, really helpful. If there's one slide that is brand new, that whole job complexity slide that Nelson got to use, that's a great picture of all the different services.
Thank you.
For me to start, you teased multiple times, John, in your opening remarks about some new wrinkles in your acquisition strategy, and I think I've got some of it, but if you could expand. You mentioned consolidating at least 2x or 3x , you said you're not acquiring standard branch-based business models primarily. Can you just expand on that point? Because if you are going to consolidate, then you are going to take on new branches-
Sure.
Where does that fit?
Let me be more precise. We're not just looking at doing small roll-up tuck-ins of standard branch-based distribution businesses in local markets. I think we've already shown and experienced the benefit of really what scale can deliver. I've talked at length over the years about the consolidation of the Canadian market, and that was true pre us starting the acquisitions in 2010. Remember, WESCO did a single acquisition in Canada till 2010, and then it culminated with a large EECOL acquisition. You could think about the EECOL acquisition as somewhat transformational in that we've established a leading share position, and then we've been able to work on that business in conjunction with WESCO Canada.
Over the years, we've diversified that business to a much greater extent, as Nel showed. Now we're well-positioned, I think, with the backdrop of a strong global Canadian marketplace to leverage that scale going forward, Deane. We've always talked about the margins being higher there, again, it's because of the greater scale that we have and the greater share and ability to operate that. If we think about the U.S., the U.S. is starting to consolidate at a more rapid rate. It's been relatively slow over the years. I've always said, and I've talked about this at length, it's going to require some external catalyst. If you look at our supplier base, they are ramping up their rate of consolidation. The largest and most recent move is ABB buying GE Industrial Solutions. Right?
If you look at the last 5 to 10 years, the suppliers are kind of scaling up and combining at a more rapid rate. What I'm signaling here is something that we've talked about in the past, but I think with the backdrop of the market trends chart that I showed and where I think we are in terms of the S-curve of the industry, it's incumbent upon distribution to scale up quicker. It's got to happen. We have done a good job over the years participating and leading, and I'm being very clear that we intend to continue to lead in terms of consolidation, coupled with, in the meantime, digitizing our business. Does that help?
It really does. The follow-up question is exactly where you left off, and is digitizing your businesses, because in our coverage of the electrical product manufacturers, your suppliers, they're all pointing to all of their initiatives to digitize their products. Maybe if you could share with us, out of those million products, million SKUs, how many of those have already been digitized, and where does that stand, and what does that mean for you in terms of efficiency in selling and design systems and getting specced in and so forth? Thank you.
Thank you for that question. That's an outstanding question. When you asked it, I was reflecting on maybe an area that we've worked on very aggressively over the last three years that we did not include explicitly in today's Investor Day, which is our master data management. Upon Rob Minicozzi, who I introduced earlier, joining the company a little over three years ago, upon him joining as our new CIO three years ago, one of the things that was really critical for us, Deane, was to look at the construct of our three master data files, customer master data file, supplier, and product. That was priority one, Rob, for you, right, when you joined 3+ years ago. We've spent the last several years re-architecting those three master files.
We want to make sure that we are very clear about the attribute data that we want to capture that forms the basis of our big data warehouse that we then can use to effectively manage our business more effectively and create value for customers. That was a very heavy lift over the last three years. As part of that, it's where your question started, the suppliers, as they work their activities to digitize their products, that's a feeder into that. We're leveraging that. That is something that is very different today, if I give you a historical perspective, than even five or six years ago, if I reflect on it. I've been with the company 15 now.
The quality and robustness of the data that our supplier manufacturing are providing for their products is really increasing at a rapid rate, and that's great, because we've always wanted and needed that. Hopefully that helps. That feeds the supplier master file, but what's really critical for us is our product data, which includes services, and then our customer data. That does not show up on the balance sheet, but that customer data is an incredibly valuable asset because we have that captured for many, many years. That point of sale data is really valuable because we can determine from that what products were sold with what and over what time frame, and that becomes the front end of a demand creation engine for new product introductions, upgrades, and such. A little maybe lifting the covers on that a little bit, if that helps.
I think Sam was next, Rob, before you.
Hi, thank you. Sam Darkatsh, Raymond James. I've got a couple questions. They're fairly elementary, so I apologize. Getting back to the appetite for large-scale transformative M&A, how do you reconcile that with the acceleration near term of share repo? One would think that, hey, you never know when a large business would come up for sale. Why not de-leverage so you don't have to issue a whole lot of equity if and when that happens?
Sam, that's a simple answer. Where our stock price was trading and is trading, we thought we were the best investment, right? We obviously went after that and leveraged the buyback, point 1. Point 2, we have very strong balance sheet with sufficient balance sheet capacity and any of the big combination, hypothetically speaking here, when you put those together, there'll be substantial synergies. Remember, we've got a terrific set of financing vehicles in place with a securitization for our AR accounts receivable and our revolver for the inventory, and those have accordion features. We've been through this before. We understand. Making a big deal happen, I don't have any concerns about the financing.
Okay. My second question, also basic, but the investments you're making, digitizing your business, making efficiencies in the supply chain, last mile, these are all cost savings related investments. Your pricing model, as we know, is mostly cost-plus as opposed to list discount. Help me understand how you plan to retain these cost savings from your investments as opposed to your customers getting them and then therefore you're not going to be able to expand margin.
Yeah. Let's be clear. Most of the savings on what Hemant addressed in his OE and CE initiatives result in significant productivity improvements. Our number one cost is people. Our number two is transportation of what's controllable, but that separates out our cost of default, which I'll come back to. As we execute those CE and OE initiatives and get productivity, sales force transformation, which is improving the margin generated per sales rep example, right? The examples that Hemant gave. That feeds into our pull-through model. As we grow, we don't have to add capacity at the same rate that our top line's growing. We've been very successful with that over the years, my 15 years with the company. That's the model. We're in our second journey, second decade of lean. We're working these initiatives. We now introduced RPA.
That's going to allow us essentially to process a lot more business with the same number of people effectively, right? We get that leverage in our SG&A. That SG&A leverage is very critical. In terms of the initiatives that Hemant addressed around the cost of goods sold, right? Buying lower, pricing higher. We have a range of pricing models and a range of different business models. You're right in that fundamentally, we're not a catalog business with price discount, right? Obviously, there's a wealth of opportunities that's inherent in that data as we look at it. We've built a whole series of new tools. We've got much better insight into where the pricing opportunities are. It's all of inside our four walls, quite frankly. These digital tools and applications are helping give us greater insight in where we can squeeze out some more margin.
Single basis points matter. With these new digital tools, we're grinding away, and that's kind of just basically how we run the business.
Final question, and it's quick. I apologize. You mentioned the 30,000 suppliers. A few years ago, it was 25,000. A few years before that, it was 17,000. The number of suppliers has been rising. The percentage of your purchases from your top 10 have basically always been around that 32%-33% or so. Where are we in the supplier rationalization efforts, and how can we see it externally since it's not easily apparent? Thanks.
I would say that of all the initiatives that we have underway, we've made just minimal progress there. That's still an opportunity, I would say. We've focused on other aspects of the business. You're not going to see that easily because in terms of an overall impact to the whole enterprise, it's been minimal to date. Put that in the category of an opportunity to go forward.
Yeah, as we've grown the amount of products and services that we can provide to our customers, we have increased the number of suppliers. There are some very direct correlations between some of the extensions we've done across our product lines that have added to that. As John said, we still have an opportunity here.
I think we're also, Sam, coming back to the response to Deane Dray's question now that we've kind of rebuilt our MDM master files. We've got a much better data set to be more strategic and thoughtful about how we target that consolidation too. Not an excuse, just I'm always going to show you exactly where we are. That's been an opportunity, we weren't as positioned as we could have been to go after that aggressively, I think we're in a bit different position now. Rob?
Hey, thanks. It's Rob Barry from Buckingham. Actually wanted to circle back to the M&A, just curious how you define large. What does that mean for WESCO, and how does the pipeline look? How active is it? When you talk about synergies, what would be just the flavor for some of the synergies that you expect in one of these large?
Yeah. Large is on the order of how we went after EECOL in Canada. That was large to cap. It's large, Rob, right? There's a series of large players, there's a series of very large players, there's a mid-sized to large players, then there's a whole thousands of small, local, and regional distributors. We're clearly sending a message of what we're looking at there, while also looking at key capabilities to add, like we did with an Aelux, Lumagen, and an SLS. Okay. When you put two big entities together, there are significant synergy benefits across all the cost categories just to start with. It's going to depend on what that combination is. Again, there's a lot of difference across all the mid-size to larger players. That's all hypothetical at this point.
I think one of the ways that we've talked about our acquisitions in the past is a lot of our acquisitions met a specific focus area. A lot of it was we expanded into the geography or we expanded with a product line, generally, those acquisitions did not provide synergy. What we're focused on now are acquisitions that are large transformational to have that synergy opportunity to really drive shareholder value creation.
I'm going to bring you back to, which is why we position it this way, that market trend page and what I see happening in the competitive ecosystem and the value chain. Again, I have the benefit of a 15-year view now, and it's speeding up at a rapid rate. I'll go back to, which I didn't mention. It really started with the customer end of our value chain that is driving hard the consolidation because they are really increasing. These are the discussions we're having. You heard it somewhat from even the customer testimonials that were here today and specifically tell us, right? They'd like to have a smaller number of larger partners. That's driving a consolidation pressure down the value chain, and clearly suppliers are moving at a more rapid rate.
It's incumbent, it's a must-do for distribution. I think the conditions are set, it's a must-do for distribution to scale up quicker.
Got it. Second, I did just want to follow up on the comment about the quarter tracking to the low end of the range. Just maybe a little bit more color there on what's coming in softer than you expected. I just wanted to clarify that you weren't reiterating the annual outlook today, and if there was a reason why you didn't want to do that.
Sure. Let me address the quarter first. We called this out on the slide. We haven't seen a recovery in OEM that we were experiencing in Q1. We called that out during our earnings call. There are certain pockets of the U.S. where we're not seeing the sales recovery that we had anticipated. Again, we're pleased with the bounce back that we saw June to month to date. Again, looking at the results of the first two quarters, it's below our anticipated result. That would put us at the low end of that 3%-6% sales outlook that we provided earlier in May. We have not addressed our annual outlook at this point. Again, these results are still relatively fresh for us, and we will address the full year outlook during our earnings call on August 2nd.
Great.
Thanks, Rob.
Thank you. Mike McGlone, Wells Fargo. I just want to ask a quick question on the acquisition strategy. As you're acquiring these more service-based solutions businesses, does this increase your scope with EPCs or is there a line you need to tow that you become sort of competition for them?
This is excellent question. Well, we've not seen that as of yet. In fact, Nelson's example of the LNG project is one of the most complex projects I think, as we share with our team, that they'll probably face in their careers. You look at what our relationship is and partnership is with the EPC, they actually really see great value in those services that we're able to bring in terms of overall construction project management. I've seen zero tension or zero issues with that to date. Again, if you look at the types of services we'll provide, you think about what the competence of the EPC is, it's the engineer procure construct. What's being engineered, procured, and constructed, we're focused on the big-ticket items. When you look at these large, complex projects, of which again, Deane was citing the one page in Nelson's deck.
You look at all of the other materials that really are not being driven by that EPC responsibility, right? They're feeding that off to the supply chain, the electrical bolts, the wire, and the wire cutting to feed the job site on time for all the different locations, et cetera. Cable management. You start looking at all those various packages, they're not doing an engineer portion of that job. We essentially, as a supply chain solutions provider, is doing that. Does that help?
Secondly, if I can just go into one of the verticals you mentioned, data centers, 5G. Can you give us a brief overview where you operate best? I know hyperscale has slowed down a little bit. They go more to direct. Where do you fit in and what's the cross-sell opportunity within there for lighting, cooling, cabling, et cetera?
We support data centers of all types and varieties. Enterprise-class data centers that are captive to a particular end user customer enterpriseHyperscale, colos. We've called out over the years, and even in recent quarters, how we've done with certain large, I'll call it end-user customers, where they have their own captive data center. We have a broad capability across data centers. It started with, I'd say, the deepest strength came out of our CSC acquisition that we've built on, and we did that acquisition in 2006. We don't do, as many in the room know, we don't do the networking gear. We'll do the fiber optic connectivity, structured cabling, the racks, the cooling system, everything that will tie that, the server rack and equipment into the infrastructure, which includes IP security.
That's our full set of solutions, and we're partnered with a CommScope , Panduit, Corning for fiber and such. That's a $1+ billion piece of our business, not just for data centers, but data comm all in. We also have broadband communications. We have that fiber capability, fiber connectivity inside plant, as I'm describing data center, and outside plant. TELUS is a good example of outside plant. In terms of pull-through, that's something we continue to work on. To date, it hasn't naturally lent itself to an easy combination sale because of who makes the decisions on the fiber piece and the data comm piece of the data center versus what the other packages are. We have the full range of solutions, and the electrical spend is actually 3x the data spend in a data center on average.
We win that separately, but we are working a series of strategies to try to bundle that and get that leverage together. We're well-positioned portfolio-wise to do it, but the way the customers, the power structure and the customers and the way they've ordered and transacted to date hasn't lent itself easily to that. It's an opportunity we're working, and again, given our position there, we'll be able to make some headway there.
Thank you. This is Martin Sankey from Neuberger Berman. During Dave's presentation, he mentioned that a dividend would be a real possibility coming from WESCO in sometime in the next five years. With the chairman of the board and I believe about half the rest of the board present, could we hear some of the thinking that goes in around that, in the sense that last month the board decided that the additional $75 million would be returned to the shareholders, the share repurchase could have gone, or at least some of it gone to the creation of a dividend? What's the board thinking? What might trigger a dividend? Would it be fair to think that a cash dividend is not likely until after the current stock repurchase authorization has been fulfilled?
Martin, thanks for that question. I don't want to foreshadow specific timing. I think what we wanted to be clear on is, the best way I could answer that is to go back to a comment I made in my opening section. We're entering our third decade of WESCO since we've been a publicly traded company, right? Decade one, we generated $1.2 billion of cash, free cash flow in aggregate. Decade two, $2.3 billion, almost double that. I think we're at the point where we have such a strong, stable, consistent cash generation. Our cash generation ability on an annual basis now continues to grow. We're very focused on maintaining and building off of that. The message we're sending in the dividend's not an if, it's only a when.
I know you're asking some of the when questions, we're saying, look, it's not if, it's only when. It's a question of when. We're still going to have those discussions to make that determination, but we do want to signal that it is in our future. Again, Decade one, good cash generation. Decade two, doubled up on the cash generation, and we expect as Dave gave an outlook, even stronger cash generation going forward. That's the signaling today. We'll continue to have those discussions. To your point, we do have a current authorization open and we intend to execute that. Again, in terms of Sam's question on why we've been moving down the buyback route, it is again, given where we think the stock price is versus what we think our real intrinsic value is, given what we did give you a deeper insight into today, right?
Which is where the company is and our strategies going forward to create enterprise value.
Okay. I would just make a comment that adult companies do pay dividends.
Yeah.
And-
Understand.
I use the word adult instead of mature.
Good comment
I'm just trying to get an idea of some of the thinking. I have a second question, which is on an entirely different subject entirely. There's been much mentioning of employee engagement, inclusion. There's a school of thought that says that one of the biggest measures of employee engagement and motivators of employee enthusiasm is equity ownership, broad-based equity ownership, to be precise. How do you think about that? How much do your employees own outside of the executive band? What are you doing to improve or not improve employee ownership? Where is it now? Where would you like it to be?
You want to start with that, Dave, then I'll chime in.
I believe we're right around 3% of our shares outstanding are owned by directors and management of the company. Again, that is just what we know about in terms of what's managed through our record keeper. I know that there are employees that have ownership outside, they purchase stock on their own through their own broker. We don't have a good line of sight to that. I think the real question is, as we think about driving down that ownership of the company, as part of our incentive compensation, through various levels of the company, we do provide a long-term equity-based compensation. For example, my organization, we go down several levels, and individuals are receiving stock awards as part of their annual compensation program. Does that answer your question?
Maybe tag on, because I think you started, Martin, with employee engagement.
Yeah.
Let me stay there for a moment because I think it's really important, your question. It's a great question. Chris Murphy joins us now as our HR leader. She's been on board less than a year, we're very aggressively working on employee engagement programs. We do a survey every other year, we've got very good feedback on what's important to them. Those are the items that we're aggressively working. I think, with Chris now on board and her leadership, I think we're positioned now to go think about that very thoughtfully.
For example, there are any number of companies that might do a 401(k) match in stock, as a alignment and motivator.
Right. Yeah.
That was offered to our employees in the past. Part of the current thinking on fiduciary responsibilities related to 401(k), most companies are no longer offering a matching company stock as part of the 401(k). As John mentioned, it's something that we'll work with Chris, and we'll understand better how we can address this issue of equity ownership by our employees.
I would parenthetically add that there's changes in law along the way that are being enacted regarding 401(k)s.
Right.
Absolutely.
Absolutely. Thanks, Martin. Easy handoff.
Dennis Delafield, Tocqueville. I'd just point out that for every $50 million you might spend in a dividend, whether it's next year or somewhere towards $5 million, you save 1 million shares of stock that you might put out in a big acquisition.
True.
I would think that the shares you put out in acquisition might be much more important.
Yeah. True. Thank you. Very good feedback.
Chris Bakken, Longboat. John, you touched on the Plug and Play alliance earlier. I'm just kind of curious, is that more of a headline thing? Is there something tangible there? Are we kind of onboarding projects and technologies at this point? Just any additional color around that alliance would be interesting.
Yeah. It is a headline because we just announced it. Okay. We have engaged with them and if any of you don't have a sense of what they've done over the years, and they have other competitors, RocketSpace and a few others, are just very well entrenched in the tech ecosystem and do a terrific job of servicing companies that are working on solutions and applications that are very specific to business requirements and needs. Our strategy here is, again, given that digital is accelerating and driving, we think, changes the whole B2B value chain, we are engaging. This didn't start a month ago, but it did start within the last year. Put some timeframe around that.
Engaging in that tech ecosystem, and we have very specific areas of B2B sales and distribution that we're looking to the tech community for in terms of how they're beginning to address these problems. There's a significant amount of investment uptake in the tech community around B2B, around construction tech, areas that are very critical to us. It's actually exploding, so we need to be plugged into that real time, and the best way to plug into that real time is to leverage an infrastructure and ecosystem that's been working. At a prior life, as some of you know, pre-WESCO, I lived and ran a business based out of Silicon Valley for four or five years pre-WESCO, so lived out there. We're plugging into that ecosystem now. Again, B2B was not being worked. It's being worked now, and it's exploding.
I think we got some excellent opportunities to plug into that. With this setting up this new vertical, because again, Plug and Play is a series of other verticals. We'll have a whole series of other companies that engage with us that are broad distribution-based, and this is B2B distribution-based, much broader than. We're not talking about the $300 billion addressable market. We're talking about the $2.5 trillion addressable market, which is the annual market for B2B distribution in the U.S. based on MDM data. With distribution companies across the broader B2B vertical that we're engaging here, do they want to be part of this, get access to this process? This process will be very focused. We'll have our big event here in the second half of the year. It'll be in the fourth quarter.
Given the requirements we're looking for, this is where we leverage Plug and Play's process. They go out there, do the sourcing, the screening. It's a funnel process. Start with thousands of target companies, winnow it down to 500, then it's down to 200 to 250. Re-engage, winnow it down. We go into a deep set of reviews with a very focused number of companies. The way this works is, this is a challenge, I think, for a lot of large corporations around the world and in corporate America. The ability to innovate within your own infrastructure. The beauty about WESCO is we provide a tremendous, I'll call it, incubator for proof-of-concept pilots that can be run.
You think about a particular startup that's working on a specific problem that we see great value in, that we haven't figured out how to solve, we could run a little proof-of-concept pilot. They have to spend those dollars, right? They're trying to find that application. We get the free R&D, we source it out, and we kind of run it. That's how we're going to work it. Hemant's example of the cart is a great example of a company that we tapped into that has a digital capability, plugged it in. The way we did that is how we're thinking about doing this with the other companies we're exposed to. We started Hemant with one branch proof of concept. He said that was very late 2017. We saw some interesting benefits. We then rolled it out to 50 branches in 2018.
Now we'll have a whole network in 2019. Yes, it does bear a meaningful savings in terms of miles per delivery, but the electronic proof of delivery and really the improved customer satisfaction and support, because we're able to now tell them more precisely when they're going to get their delivery at exactly at the right spot on the job site, which is very critical, and then prove that it occurred. It sounds like a simple thing, but that's not a table stakes capability that exists in the industry today. Again, just a great example. That's one small example, but you can imagine literally numerous examples. As we also plug into that tech ecosystem, I think we'll get exposed to a lot of other interesting developments and companies. It's the beginning.
Yeah, definitely exciting to hear kind of how that progresses. Thanks for the color. I guess the thing I was kind of curious on. Hemant touched on the SPIN approach to pricing, I guess. How long has that been in place? Is it active across all segments? Does it still leave kind of room for salesperson discretion? Any kind of color on pricing and kind of how that's been rolled out as well.
Hemant, why don't you take that one?
We've been working on it for the last couple of years. Like I said in the presentation, we knew that was an area of focus and opportunity. It's available across all of our end markets and all product categories. We look at it in theory from a supplier price increase standpoint. Irrespective of what sector the price increase comes in, whether it's an electrical supplier or data communications, it's honestly agnostic. The application's built to be able to do that basically across all end markets and all product categories that we do business with. That's the answer. A simple short answer, but yeah.
Hi, Pat Baumann, JPMorgan. Just trying to tie together the comment on Canada margin being 200 basis points higher than the U.S. and that being driven by scale, I think. Can you just remind us where market share margins in Canada were prior to the EECOL deal that you did, and where market share is now in Canada? Then remind us in the U.S. what your current share is, and if there's anything structural besides scale to getting those results in the U.S. closer to Canada. Like is there a level of scale required, or is there something structural that would kind of keep-
The best way to answer that would be the top 10 electrical distributors in Canada have three-quarters of the market. The top 10 concentrate in the three-quarters of the market. The top five distributors in the U.S. have about 35% of the market. As Juan, mentioned in his presentation, there's over 3,500 distributors in the U.S. Again, it's a much more fragmented distribution value chain in the U.S. with a long tail. Canada is more consolidated, substantially more consolidated, and now we have a clear number one position post-EECOL. Again, we were growing organically faster than market and have been for quite some time. Again, that's that benefit. You jump across the pond to Europe, and those markets are even a bit more consolidated than Canada. Depending on which country you look at, again, much more mature markets, longer standing.
It's the way the value chain ends up working. The relationship between the suppliers and distributors when it's more consolidated, it's a much more collaborative, integrative partnership because it has to be, quite frankly. It's distribution economics. I know it's textbook, but it's absolutely true. Just a side note, I'll digress. I joined the company 15 years ago. That's one of the first things I looked at with a bunch of analysts and tried to get a sense of what's our local market scale and presence versus what the operating margins are. The market was more locally driven then. Again, back to my trends page, that's shifting a bit, but there's a high correlation coefficient between market share and margin in distribution.
Taking that to say that it would be tough, you'd have to do a lot of consolidation in the U.S. to drive that kind of a dynamic.
Yeah. Again, that's where digital comes in now, because when you think about digital as an accelerant, but also what that can do in terms of giving you scale quicker in different ways. Put that together, why we're working digital very hard.
Interesting. Thank you.
Yep. Happy to.
Hi, Arthur Baptist with Golden Gate Capital. I just had two, one on kind of operating leverage and then one on tariff. I guess the first on operating leverage, I guess just based on the Q1 and kind of Q2 trends, to the extent that sales are at the low end of the 2019 range or lower, do you have levers on the expense side to still achieve that $510-$570 EPS target this year?
We'll be updating the full year outlook when we do our earnings call. The short answer is yes.
Yes.
We do have levers that we can pull. Again, we have plans that we intend to execute, investments that we plan to continue to execute here in 2019 to grow long-term shareholder value creation. In the near term, there are levers that we can pull. We've done it in the past. Everything would be on the table. We'll provide you the full outlook on August 2nd.
I guess just to push on that, if we do hit kind of a choppier macro longer term, could you give a couple examples? One thing I've noticed is the headcount stayed kind of relatively flat over the last three years. You've done a nice job kind of leveraging that headcount base. What are some of the areas you could cut?
Sure. Some of the initiatives that we even talked about today, we are investing in because they are generating operating margin advantages and productivity for us. We will continue to execute those specific initiatives to drive margin improvement. In the past, you have mentioned we closed branches and we consolidated the headcount to certain locations to reduce overall FTEs on the books. That's something that we haven't discussed as a leadership team yet, there are various other levers that we will continue to pull.
I've been through multiple cycles since I've been with the company, including probably, and I hope this is the case, the toughest cycle I'll ever have to deal with, which was the great global recession. If you just take a look at what we've done in the past, we've shown that we absolutely move with speed and precision when required. The great global recession a decade ago, we took out over 1,000 people and took out $100 million of inventory in less than four quarters. Not something we like to do or have to, we do what we have to do. We're going to maintain, I'll be very clear, we're going to maintain the operating cost structure of the company as a percentage of sales.
That low cost, SG&A as a percentage of sales being low cost versus our competitors, I think ultimately is a key foundational strength of the company. Honestly, you can trace it back to the LBO roots, right? The initial LBO in 1994, leverage recap in 1998. I think that's been built into and ingrained in the culture of the company. I didn't create that when I joined in 2004. That was there. I was thrilled it was there, and I've protected and defended that. We will always keep that. That's where lean plugs in nicely, right? Continuing to drive, continuous improvement, create that capacity that you then can use to grow or obviously create that capacity that you can then decapacitize if you need to. Obviously, that's not the preferred utilization of that. Discretionary expenses too.
We think we ratchet those down. There's variable compensation that we pull very hard levers on.
Then just the one on tariffs. There were a few mentions in the presentation on it today.
Yeah.
If you could just, anything you could do to quantify kind of maybe your percent of cost of goods sold that could be impacted by tariffs? Then I guess, just as you think about the number of supplier increases you called out, I'm a little surprised it's not maybe flowing more through the revenue line in Q1 and Q2 to date, just given the number of supplier increases. Are you not able to pass through that level of pricing or could you just talk about that?
Let me address first our direct impact tariff. The things that we as a company would bring in from a country with a high tariff, that's low single-digit percent. Things that we are sourcing directly from, say, China. A very low percentage of our total cost of goods sold. Clearly, though, a lot of the products that we are purchasing from our suppliers do have some component of a tariff associated with it. That is driving some of the increase that we've seen in supplier price increase notices throughout the first half of the year, Hemant mentioned that we're 50%+ higher than we were at this point in 2018. Again, we saw pricing moderate to some degree in the first quarter.
Our goal is to not only pass through those price increases to our customers, but to actually increase our margin rate as well. Clearly, over the past four quarters, we've been doing a much better job of that. We would anticipate that we will continue to focus on that going forward.
Remember, I know this is math, right? We have a 7% price increase on the cost side. If we only took price up, our price up 7%, our margins compress. Right. When we are faced with this barrage of price increases from suppliers on the input side of the cost equation, we've got to take those price increases plus a bump to even hold margins. Obviously, our goal is to expand margins. There's always a time lag. I think that's pretty important to understand, again, based upon what product, what part of the business that they feed into.
Hi, Martin Sankey from Neuberger again. In thinking about your presentation, there's a substantial proportion of revenues that don't flow through your warehouses, but are drop-shipped directly from your supplier partners. Clearly, customer satisfaction is partly dependent upon that. What are you doing to work with your suppliers in order to get a better customer experience? What savings might you achieve by doing that?
Yeah. Very good question, Martin. It's something that was really surprising to me, if I take you back to when I first joined the company. I was pretty surprised at just structurally what percentage of the sales, and it's not unique to WESCO, it's how core electrical distribution works, what percentage of the sales is direct ship. Those respective components that form that system solution are not being pulled out of a distributor's warehouse. Because by and large, that solution is getting specified and designed for the customer's application. That's something that we deal with every day. We work hand-in-hand with our suppliers well ahead of the fulfillment portion of the cycle.
For that direct ship, we're working with them when, to take an example in core electrical, switchgear is getting specified and determined for that customer's application in the case of new construction. Or an automotive company is going to expand their production lines and Rockwell Allen-Bradley is the automation and control solution, if we're the authorized distributor, we're working with that automotive end user customer directly to get what configuration needs to be specced in as they stand up that new production line. That's very critical to how we do business today, working with that supplier well in advance of the fulfillment, it starts very early on in the cycle when the application needs and requirements are defined and when we're determining the solution.
We work with the supplier through that process to ensure that if it's new gear that's getting built or, in the case of Rockwell, that we have those particular, the PLC and the software load that we need, et cetera, to meet that application, we make sure that we have that lined up and staged on when it's needed for the project schedule. Making that more seamless for the customer is critical. When we talked about the four digital growth plays we talked about, that construction project management, that application is really building off of a software package that we have that helps manage complex construction projects. Building that digital platform out is a way to help ensure more efficient execution of projects. When we look at the direct ship, a lot of time it is for the core equipment for new construction.
Are you finding that your IT platforms are ahead of or behind those of your suppliers in terms of being able to do the coordination that's necessary for a seamless customer experience?
I would say there's a wide array. It's hard to paint our supplier base with one paintbrush. Even the bigger, larger supplier partners we're partnered with are not single global instance ERP instances. There's a complexity in that. It's something that we manage through. Rob and his team, CIO and investor, is directly engaged with the IT groups of our supplier partners with ongoing meeting sessions. It gets to your first question, Martin on how can we tie ourselves together better for our part of the value chain to create a more integrated seamless experience so we can better serve customers. Okay. We went a little bit over on Q&A there, excellent Q&A. Cocktails are being served. Thank you so much again for your time and your attention and your support.
Again, I think you sense our excitement about the next chapter of WESCO. Hopefully, you share in our excitement. We'll see you for cocktails.
Thanks, everybody.