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LAHORE SCHOOL OF ECONOMICS SALES FORCE MANAGEMENT Supersonic Stereo, Inc. Submitted to: Prof. F. A. Fareedy Fareedy Haadiy Haadiya a Qaiser Qaiser (TA) Submitted by: Sobia obia Soh Soha ail Usman sman Bajwa Zahr Zahra ah Sodhi MBA-II Sec A Introduction Supersonic Stereo Inc is a company that manufactures USA¶s leading stereo equipment and since its formation it has seen rapid expansion. However, the company is now facing a problem in the Atlanta district and there is now a difference of opinion regarding the way that the company has been dealing with the sales force. Now the issue arose within company when Charles Lyons, a sales representative asked to raise his salary, and the executive of the company Stella Jordan said that the company is not expecting much from its sales people, and proposed two solutions either to raise the quotas or to implement management by objectives in the company. Basler on the other, is now going to take the decision based on the profitability of each sales representative, and is only going to increase the salary if he thinks that the sales rep is bringing in profits to the company. To further analyze the case, let¶s just look at the break down of the sales organization structure that is based on the geographic basis: Pete Lockhart (National Sales Manager) Bob Basler District Sales Manager (Atlanta region) Stella Jordan (Executive) Lyons Sand Gallo Parks (Sales Rep) (Sales Rep) (Sales Rep) (Sales Rep) The two options that were given by Jordan were a) to raise the quota of the sales representative and b) to have management by objectives. MBO requires the managers to set specific measurable goals with each employee and then periodically discuss the latter¶s progress towards the goal. You need to have comprehensive and formal organization wide goal-setting and appraisal program. The six steps that you need to have in the MBO program are: 1) Set organizational goals 2) Set departmental goals 3) Discuss departmental goals 4) Define expected goals 5) Performance reviews 6) Provide feedback  The analysis of quotas however cannot be made over here because the data on the quotas is not available, so a comprehensive analysis of both the options given to us cannot be made. The problems however cannot be solved by MBO, because it needs to have a complete makeover of  the company, and that is not possible because the problems are only in the Atlanta region, and MBA has to originate from inside the company which would ultimately not want to revamp the whole company for one region. Problems identification and justification 1) The sales and profits for the last five years did not meet the objectives that had been set. The table below shows the sales growth from 1994-1998. We can see, at best Supersonic (Atlanta district) has been able to achieve a sales growth of a meager 6.74% for the year  1995-1996, apart from that they have been struggling to achieve a high sales growth. Coming to the profits, the figure turns out to be negative in the year 1998 signifying the fact that Atlanta division is having problems for achieving a high sales growth and profits. Years 1994 1995 1996 1997 1998 Years 1994 1995 1996 Sales($) 2,641081 2,445120 2,610029 2,514113 2,638340 Net profit($) 13,873 14,050 15,381 Growth (%) - 7.14 6.74 -3.67 4.94 Growth (%) 1.27 9.47 1997 1998 16,511 14,383 Core 7.34 -12.88 problem 2) Jordon and Basler had conflicting views. Jordon wanted to reduce salaries or cutback  commission, not only this but he also suggested raising quotas and using a management by objective approach in order to increase the overall performance of the company. Whereas Basler considered his sales rep as heart to selling efforts. So he basically wanted to provide proper compensation to sales reps Salaries and commissions that accounted for  29.04% and 6.14% of total expenses respectively. Basler needs to check out whether it would be right to increase the salaries of the sales rep, and for that he needs to analyze the data. Year(1998) Salaries Commissions Amount ($) 177000 37431 Expenses ($) $ 609,472 $ 609,472 % of total expenses 29.04 6.14 Here is a summary of the profit and loss account that has been calculated and the details for the calculations have been given in the additional insert of the case. Profit and Loss Account (Summary) Charlie($) Sand($) Gallo($) Parks($) Sales 705,335 584,170 681,450 667,385 CGS (537,631) (444,802) (521,390) (510,662) Gross Margin 167,704 139,368 160,060 156,723 Salaries (99,000) (24,500) (27,500) (26,000) Commision (10062.24) (8362.08) (9603.6) (9403.38) Advertising (35,266.75) (29,208.5) (34,072.5) (33,369.25) Packaging (11,534) (9,708) (11,350) (11,050) Warehousing (20,184.5) (16,989) (19,862.5) (19337.5) Travel Expenses (21,463.40) (10,731.70) (13.256.80) (13,888.08) (50,763.14) 18,953.72 23,430.85 22,759.79 Expenses: Other Misc Exp Net Profit (loss) Here the data shows that the company¶s sales reps are incurring a lot of expenses and the only sales rep whose net profit is going in negative is Charlie, this is because of the major chunk that he is devoting to the advertising expenditure. Problems with Charlie Lyons Charlie is the only rep who is getting a lot of salary for the three accounts that he maintains, and on the basis of his sales volume, he is demanding increase in the salary. What Baslar should do is that after the calculation of net profit per person, he should show Charlie that even though he is getting sales volume, but the expenses that he is incurring on advertising and other misc expenses need to be reduced in order  for Charlie to be profitable to the company and to be in position to demand more salary Profitability Ratios Profitability Ratios per Sales Rep Total Charlie Sand Gallo Parks GP Margin 0.2364 0.2364 0.2377 0.2385 0.2348 Operating Profit -0.00545 -0.0719 0.03244 0.0343 0.0341 NP Margin -0.00545 -0.0719 0.03244 0.0343 0.0341 Total Per year 1994 1995 1996 1997 1998 NP Margin -0.00525 -0.00574 -0.00589 -0.00654 -0.00545 Margin Looking at the profitability ratios, we can see that the company has been facing net profit margins in negative over the years because of the fact that their expenses have been high. And if you notice, in the per sales rep NP margin, the total NP margin is negative, however the individual NP margin is positive for all, except Charlie. The effect of Charlie¶s NP margin is so much that it is pushing the positive NP margins of Sand, Gallo and Parks into a negative figure. Conclusion Based on the ratios that have been calculated, Basler should not raise the salary for Charlie, rather he should bring this fact into Charlie¶s notice that his advertising and overall expenditure is causing net loss for the company and all the effort and sales that he is bringing to the company are being nullified if  ultimately it is not proving to be profitable for the company.