This article is about how 3M (“MMM”) makes money. Firstly, we explain the business model of 3M. Then, we share the key business segments of 3M and how the company generates revenue from each of those segments. Then, we share 3M revenues by business segments for the year 2015. Finally, we share the revenues, the profits, and the profit margins of 3M for 2015.
3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. 3M manufactures over 55,000 products that are sold in more than 200 countries. 3M has five operating business segments: Industrial; Safety and Graphics; Health Care; Electronics and Energy; and Consumer. Company’s major products include adhesives, laminates, fire protection products, medical and surgical supplies, dental products, office supplies, optical film, and car care products. Some of the company’s most recognizable brands include Scotch Tape products, Post-It notes, ACE bandages, and Thinsulate insulation products.
Understanding 3M Business Model
3M states that ” Innovation is our business model”. Let us try to understand, what makes 3M business unique and how it is unlike any other industrial manufacturing or technology company.
3M business is centred around technologies developed by Corporate Research Laboratory (CRL). CRL develops differentiated technologies that are aligned with the demand in high growth markets to drive/support 3M’s future businesses. These technologies with the help of business leadership are turned into unique products. This marriage of technology with business has been very successful for 3M. 33% of the company’s sales come from products which had been launched in the prior five years.
3M has identified 46 technology platforms that are broadly classified into following 5 categories.
- Software, Analysis and Control
This technology and business alignment helps 3M achieve- Core business growth, creation of new business and international growth and makes it unique amongst the leading technology and industrial manufacturing companies.
3M Business Segments
3M serves customers through following five business segments:
- Industrial: The Industrial segment products include Tapes, bonded abrasives, adhesives, advanced ceramics, sealants, filtration products, personal hygiene closure systems, acoustic systems, and precision grinding technology and products. In addition, 3M provides paint finishing and detailing products, including a complete system of cleaners, dressings, polishes, waxes and other products.
- Safety and Graphics: This segment’s products include personal protection products, such as certain disposable and reusable respirators, personal protective equipment, head and face protection, body protection, hearing protection and protective eyewear, plus reflective materials that are widely used on apparel, footwear and accessories, enhancing visibility in low-light situations. In traffic safety and security, 3M provides reflective sheeting used on highway signs, vehicle license plates, construction work-zone devices, trucks and other vehicles, and also provides pavement marking systems, in addition to electronic surveillance products, and films that protect against counterfeiting. Traffic safety and security also provides finger, palm, face and iris biometric systems for governments, law enforcement agencies, and commercial enterprises, in addition to remote people-monitoring technologies used for offender-monitoring applications. Major commercial graphics products include films, inks, and related products used to produce graphics for vehicles, signs and interior surfaces. Other products include spill-control sorbents; nonwoven abrasive materials for floor maintenance and commercial cleaning; floor matting; natural and color-coated mineral granules for asphalt shingles; plus fall protection equipment.
- Health Care: In the medical and surgical areas, 3M is a supplier of medical tapes, dressings, wound closure products, orthopedic casting materials, electrodes and stethoscopes. In infection prevention, 3M markets a variety of surgical drapes, masks and preps, as well as sterilization assurance equipment and patient warming solutions designed to prevent hypothermia in surgical settings. Other products include drug delivery systems, such as metered-dose inhalers, transdermal skin patches and related components. Oral care solutions include restoratives, adhesives, finishing and polishing products, crowns, impression materials, preventive sealants, professional tooth whiteners, prophylaxis and orthodontic appliances, as well as digital workflow solutions to transform traditional impression and analog processes. In health information systems, 3M develops and markets computer software for hospital coding and data classification, and provides related consulting services. 3M provides food safety products that make it faster and easier for food processors to test the microbiological quality of food.
- Electronics and Energy: The Electronics and Energy segment serves customers in electronics and energy markets. This segment’s electronics solutions include the display materials and systems business. 3M provides distinct products for five market segments, including products for: 1) LCD computer monitors 2) LCD televisions 3) handheld devices such as cellular phones and tablets 4) notebook PCs and 5) automotive displays. This segment also provides desktop and notebook computer screen filters. Major electronics products also include packaging and interconnection devices; high performance fluids and abrasives used in the manufacture of computer chips, and for cooling electronics and lubricating computer hard disk drives; and high-temperature and display tapes. This segment also includes the touch systems products, including touch screens, touch monitors, and touch sensor components. This segment’s energy solutions include electrical products, including infrastructure protection, telecommunications, and renewable energy.
- Consumer: Consumer business has world’s best-known brands, including Post-it, Scotch, Scotch-Brite, Filtrete, O-Cel-O, Nexcare, and Command. This segment contains innovative products that keep homes cleaner, offices organized and buildings well-maintained.
How 3M Makes Money?
As discussed earlier, 3M sells Industrial; Safety and Graphics; Health Care; Electronics and Energy; and Consumer products. Following diagram shows how the money flows-in from the different customer segments and the key cost elements where the money flows-out to:
3M Revenues by Business Segment FY’15
In FY’15 (fiscal year ended December 31, 2015), 3M generated $30.2 billion of total revenues. Of these total revenues, 3M generated.
- $10.3 billion revenues, 32.7% of the total, from the Industrial business
- $5.5 billion revenues, 17.5% of the total from Safety & Graphics business
- $5.4 billion revenues, 17.2% of the total from Healthcare business
- $5.2 billion revenues, 16.6% of the total from Electronics & energy business
- $4.4 billion revenues, 9.6% of the total from Consumer business
- Loss of $.1 billion revenues, -2.0% of the total from Other revenues that include revenues from corporate investment, derivatives and insurance activities
3M Profits and Profit Margins FY’15
Of the $30.2 billion of 3M total revenues in FY’15, $15.4 billion were the cost of sales. This resulted in $14.9 billion of gross profit and a gross margin of 49.2%. 3M other operating costs were $7.9 billion. These include Selling, general & administrative expenses, research and development (R&D) expenses. This resulted in $6.9 billion of operating profit and an operating margin of 22.9%. After interest and other non-operating income and expenses and income taxes, 3M had a net profit of $4.8 billion and a net margin of 16.0%.