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Sales Force Management Case Study AnalysisHanover-Bates Chemical Corporation

Aown SahiAmna FayyazHooria AdnanSara KhanMBA-II (B)

Date: March 27, 2015Submitted to: Prof. Fareedy

Table of ContentsCASE FACTS2PROBLEMS3CORE ISSUE4EXHIBIT ANALYSIS4RATIO CALCULATIONS7SOLUTIONS8CONCLUSION9

CASE FACTS Hanover-Bates Chemical Corporation produces chemicals for the chemical plating industry. It has plants in Los Angeles, Houston, Chicago, and Newark. The production process involves taking chemicals purchased from other suppliers and mixing them into user-based formulas. The Hanover-Bates has a strong balance sheet and trades on the over-the-counter market. There are seven sales districts within the organization with a total of forty sales representatives. Each receives a salary, fringe benefits, and commissions of 0.5 percent of their dollar sales volume up to their sales quota. Field sales efforts are extremely important and quality control is critical with supplying the plater with the processed chemicals The northeast district sales manager had recently been persuaded to take early retirement and had been replaced by James Sprague. He has directives from the national sales manager to be responsive to the companys sales plans and policies, improve the districts profit performance, and to manage a group of sales representatives who are older, more experienced, and not very happy about his promotion. James Sprague is the newly appointed district sales manager for the northeast. Upon arriving he had dinner with Hank Carver and John Follet, two senior sales representatives, and discussed his plans to review the companys data prepared by the national sales manager and better the areas profits. Carver, the most experience sales representative, took offense to analysis saying that his 34 years of experience obviously does not count for anything, and threatened to leave and go to a competitor. His district has a large number of potential accounts that are not being utilized. The sales by account and gross profit of the northeast region is very similar to the north-central region, which is a very highly regarded region. The sales manager before Sprague had not been very open to changes made in the company and was said to have reluctant compliance. To make matters worse, Sprague is younger and has less experience than many of the people he is managing. Carver was thought to be in line to get the sales manager position, but was passed over because of his old age. The company also has little faith in Sprague and many people are expecting him to fall on his face.PROBLEMS Poor profit performance The Northeast district had very poor profit performance compared to other districts within the firm. They were not making their sales quota and are not utilizing the opportunity of potential future accounts. James Sprague knew that his northeast district (District 3) had some problems that needed to be addressed. Although James Spragues district was ranked third in dollar sales, it ranked last in profit performance out of the seven districts.

Hank Carver threatening to quit Hanover-Bates hired Jim Sprague as their new sales manager, in the Northeast district, who had much less experience than many sales representatives within the firm. Hiring Sprague ensured they will not have to repeat the hiring process within the next three years due to retirement. However, this decision resulted in on-going discussion between both district and corporate headquarter employees and consequently has Hanover-Bates best sales representative (Hank Carver) threatening to quit.

Unattainable QuotasQuotas in the north east district are one of the highest among all districts in the company, Sales reps further are rewarded on the basis of their sales volumes only. This is one of the problems contributing to their poor profit performance. Sales reps have no incentive and no motivation to strive for larger margins since the quotas are unattainable.

Focus on C accountsNorth east districts deals majorly to the type C accounts. Although these accounts are in abundance their returns are the lowest. Which is a reason for their lower profits in comparison to North Central district who focuses more on type B accounts.

High sales expenseDistrict 3 also makes significantly more sales calls to all of its account types than District 7, and yet North-Central has capitalized on a much greater percentage of its potential accounts. This results in a higher sales ratio of 11% in comparison to district 7 of 10%CORE ISSUE"Improper quota assignment due to poor compensation structure"EXHIBIT ANALYSIS

Active AccountsNorth Eastern district has the highest number of active accounts in category C 54% where as North Central has only 49% of C accounts and their focus is more on category B accounts who have higher profit margins as illustrated by the graphs below. Active AccountsABC

N.E District9%36%54%

N.C District10%41%49%

Potential AccountsSame is the case with Potential accounts, North eastern district has capitalized less potential accounts in Category C in comparison to North central district. as illustrated by the graphs below. Potential AccountsABC



Sales by Account Category From here we can see that account type B generates the highest sale among the account types for both districts. This reflects the problem that although major active and potential accounts are type C accounts, highest sales are generated by account type B.Sales by Account CategoryABC



Sales Expense RatioThis ratio reflects that District 3 is incurring higher expenses of 11% as compared to District 7.Its total selling expenses were $552,541 for 2001, the second highest in the company, while District 7s expenses were only $452,187 and a 10% sales expense ratio. The North-Central district also managed to surpass both its sales and gross profit quotas while incurring much lower administrative expenses then the Northeast district

Sales Expense Ratio

N.E District0.11$552,541

N.C District0.10$452,187

RATIO CALCULATIONS

Analysis Ratios by Active AccountsSales/Active AccountABC

N.E District61.97%28.74%9.29%

$25,896$12,007

$3,882

N.C District59.16%30.94%9.90%

$26,821

$14,027

$4,486

From this analysis we can see that Majority sales among active accounts is generated by category A accounts followed by category B and the lowest sales are generated from category C accounts which are catered to largely by north east district. Same is the case with gross profit per accounts and contribution margins. Account type A yields the maximum gross profits and margins of 63.8 63.7% respectively whereas category C generates only 7.9 and 5.6% respectively. As exhibited by the tables given below

Contribution Margin/Active AccountABC

N.E District67.32%27.05%5.63%

79843208668

N.C District61.92%30.23%7.85%

954446601210

Gross Profit/Active AccountABC

N.E District63.88%28.22%7.90%

$10,075$4,450$1,246

N.C District60.39%30.62%8.99%

$11,786 $5,975 1755

Analysis Ratios by Sales callNorth east district does more sales calls for category C accounts 33% in comparison to North central district 26% despite that its sales figure is less not only for type C accounts but all the categories. This shows that per sales call they are generating less revenues in comparison to district 7 which is again reflected in the gross profit per sales and contribution margin ratios.Sales/Sales CallABC

N.E District$1,058$826$574

N.C District$1,094$975$753

Gross Profit / Sales CallABC

N.E District$412$306$184

N.C District$481$415 $294

Contribution Margin/ Sales CallABC

N.E District$326 $221 $99

N.C District$389 $324 $203

SOLUTIONS

Refocus account coverage District 3 should reallocate their efforts by focusing more on account types A and B. Currently, their major focus in on low yielding C accounts. These are small accounts, generating $9,000 or less in sales which have a low margin of 5.6% only as seen previously. They should follow district 7 strategy and include more A and B accounts. This would generate higher potential profit and the sales team would be more focused on making important sales in both A and B accounts, rather than just trying to meet quotas. Revamp Bonus allocationBonuses should be allocated according to personal performance and not sales volume alone in order to keep the sales force aggressive and motivated. For this Hannover Bated needs to implement a point reward system. This plan would reward higher points for the sales of high margin points. Refer to the following table for the allocation of points. Furthermore the sales force must be communicated the changes effectively through proper training programs .ZBX1

CBX1

NBX1

SPX1.25

BUX1.25

CHX (highest Gross Margin)1.75

Bottom up Approach The bottom up approach will help to improve employee morale by showing them that they are a valuable part of the company whose opinions are vital to the decision making process It is important that Sprague tells Carver how valuable he is to the organization. Through this approach, he can retain the support of disgruntled salespersons and work together to increase the profits of the districts and retain Carvers talent and take advantage of his knowledge and experience. The sales team should be able to gain access to their performance records, so that they can help management in determining their sales quotas. This can be done by showing the sales reps how well they did in terms of dollar performance, and how they need to work on profit performance in the future. Using this information in addition to the bottom up approach, Hanover should be able to narrow the gap between the two districts, and eventually, eliminate it. .

CONCLUSION

Hannover Bates need to follow District 7 as a benchmark and increase its profits by properly allocating their sales force efforts. 1

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