UNIT –I

Personal selling and Sales Management Introduction & Role of Sales Management, Personal Selling
objectives and activities in the selling process, determining sales related marketing policies;
Formulating Personal selling strategy.Organizing the Sales Department Organising the sales force,
roles and structure of the sales force, building sales competencies, leading the sales force, Sales
Department Relations: Transactional relationship, consultative relationship, enterprise relationship,
and effects of different types of sales relationship.

Chapter-1
PERSONAL SELLING
Introduction
In the competitive market place, it is important that the
product is communicated across to the customers.
Traditionally, advertising is the tool for communication.
However, as the competition has increased, the process of
communication has also become more and more complex.
The marketers of today cannot rely in only advertising infact,
the marketing communication mix comprise of 5 modes of
communication as explained herein :
1. Advertising :
Any paid from of non-personal presentation and promotion of
ideas, goods, or services by an identified sponsor.
2. Sales promotion :
A variety of short-term incentives to encourage trial or
purchase of a product or service.
3. Public relations and publicity :
A variety of programmes designed to promote or protect a
company’s image or its individual products.
4. Personal selling :
Face to face interaction with one or more prospective
purchasers for the purpose of making presentations, and
answering questions, and procuring orders.
5. Direct marketing :
Use of mail, telephone, fax, e-mail or internet to communicate
directly with or solicit & direct response from specific
customers and prospects. Personal selling is the most
effective tools, especially at the later stages of buying
process. It is very useful in building buyer preference,
convictions and action. Personal selling has three distinctive
qualities :–
(i) Personal confrontations :
Personal selling involves an immediate and interactive
relationship between two or more persons each party is able
to observe the other’s reactions at close hand.
(ii) Cultivation :
Personal selling permits all kinds of relationships to spring
up, raging from a matter of fact selling relationships to a deep
personal friendship. Sales representatives usually have
customer’s best interests at heart.
(iii) Response
Personal selling makes the buyer feel under some obligation
for having listened to the sales talk.

Objectives of Personal Selling

Personal selling contributes in achieving the long-term

objectives for the organization.
The following are some of the objectives of personal selling
−

 To do the complete selling job when there are no other

components in promotional mix
 To provide service to the existing customers and try to
maintain contacts with the present customers
 Identify and find new prospective customers
 Promote the products to increase sales
 Provide the information to the customers regarding the
change in product line
 Provide assistance to the customers to help in decision-
making
 Provide technical advice to customers for complex
products
  Gather the data in relation to market and provide it to
company’s management
The reason behind setting personal selling objectives is to
make decision on sales policies and personal selling
strategies, which helps in promoting the product. The
objectives are set for long-term, as it becomes the important
element for qualitative personal selling objectives.
The objectives can also be quantitative if they are short-term
and it could be adjusted from one promotional period to
another. The quantitative personal selling objective is related
to sales volume objective. Hence, the sales volume objective
should also be explained.
The following are a few sales objectives −

 Capture and maintain a specific market share

 Increase sales volumes that help the organization to gain
maximum profit
 Reduce or keep the expenses provided for personal
selling within limits
 Obtain the percentage of customers as per the set targets

Principles of Personal Selling :

Personal selling is more of an art. Often effective sales
persons have an instinct. Yet, it is realised that proper training
can enhance the skills of good salesmen. Three major aspects
of personal selling are :
i) Professionalism
ii) Negotiations
iii) Relationship marketing
(i) Professionalism :
The sales managers realise the importance of training of the
sales force and spend huge sums of money each year for the
same. The aim at sharpening the skills of a salesman to make
him more and more effective. All sales training approaches
try to convert a sales person from a passive order taker into an
order setter. An order taker is passive and is dominated by the
situation. An order getter moulds the situation in his favour
and takes charge in order to achieve his objectives. The
modern professional approach to salesmanship is customer
oriented. The act of selling is projected as aimed at solving
the problems of the customers. Such an approach is satisfying
the customers more there by making sales activity more and
more effective.
(ii) Negotiation
Negotiation skills are one of the most important skills of a
salesman. The two parties need to reach agreement on price
and other terms of sales. A good salesman wins the order
without making deep .concessions that will hurt his
profitability. Also, he must not unduly extract the customer
because such approach will be detrimental in long run. This
process of exchange by way of negotiation is more of an art
learnt by salesman over time. The professional approach to
negotiation identifies the zone of agreement between the
seller’s surplus and buyer’s surplus. Negotiation involves
communication that is focussed and planned. A good
salesman understands his customer well and then formulates a
negotiation strategy.
(iii) Relationship marketing :
As the salesman becomes close to the customers, the
transactional nature of the selling approach gives way to the
relationship approach. The transactional approach is deal to
deal approach centered on short-term gains. The relationship
approach is long term and establishes a relationship between
the buyer and the seller. Both understand each other and
support each other.Sales managers have realised that it is far
easier to get sales from an old customer as compared to
getting the same from a new customer. So, it is important to
retain the existing customers. Personal selling is the most
effective method of building relationships. No other means
can establish relationships as effectively as personal selling
does.
Activities in Selling Process
OR
Major steps in effective selling :
While it is established that no single approach to selling
works, in all situations, still a generalisation can be drawn and
the major steps in effective selling can be identified as under :
1. Prospecting and qualifying Pre approach
2. Pre approach
3. Approach
4. Presentation & Demonstration
5. Overcoming objections
6. Closing
7. Follow up and maintenance
Steps in effective selling
1. Prospecting and qualifying
The first step is selling is to identify and qualify prospects.
Traditionally, the task of identifying the prospect rests with
the salesman. Nowadays, with the advances in information
technology and software like CRM, companies can establish
direct relationships with the customers. Thus, the task of
identifying prospect .is shared and it makes the job of
salespersons more focussed. The prospective customers are
contacted and then sorted according to the level of interest
and financial capability. The salesman can personally visit
those customers where the chances of success are more. Four
main
steps in prospecting are :
i) Formulating prospect definitions :
This means defining the prospects according their financial
capacity and the interest to purchase. This helps in
segmenting the prospects into the categories where chances of
selling are more. This makes the selling activity more
targeted.
ii) Searching potential accounts :
After segmentation, the prospects are analyzed with respect to
probability of selling. This may involve an exploratory visit to
the prospects or contacting them over phone, or Internet. This
further narrows the focus area of the sales reps
iii) Qualifying prospects and determining probable
requirements :
After having identified most probable prospects, their
requirements are studied so that salesman can actually design
a negotiation strategy that fulfils the prospect’s needs. This
increases the probability of the success of a sales call.
iv) Relating company products to each prospect’s
requirements :
The final step is to integrate both the customers and sales rep
so that higher success is achieved with fewer efforts.
2. Pre approach :
Pre approach is the activity of sales persons to learn as much
as possible about the prospect. This helps in identifying the
factors that play an important role in buying decisions making
process. Once a sales person is familiar with the factors that
are important from the point of view of a customer, he can
design his approach strategy accordingly. The chances of
success increase with the details of information. Sales persons
go to the extent of knowing the time, place, cultural habits
and language of their customers. This helps them to step into
the customer’s shoe. This activity helps in saving resources
and increases the chances of success.
3. Approach :
The manner in which a sales person approaches the prospect
has a lot of effect on the chances of success of a sales call. As
it is said, first impression is the last impression, the sales
person should know how to greet the buyer to get the
relationship off to a good start. The dressing, manner and
etiquette, language, politeness and persuasiveness have a lot
of effect on the success of a sales call. The right approach
comes from the degree of proximity with the customer.
Proximity in terms of knowing the customers is very
important and nowadays more and more companies are doing
the same.
4. Presentation & demonstration :
After approaching a customer, the sales person narrates the
story of his product. The underlying scheme of presentation is
often based on AIDA model i.e. gaining attention, generating
interest, arcossing desire and obtaining action. Different
styles of sales presentation are used, as described herein.
i) Canned approach :
This the oldest approach wherein a sales, person memorizes,
the sales talk covering the main points. It is based on
stimulus-response thinking i.e. the buyer is passive and can be
moved to purchase by the use of the right stimulus words,
pictures, terms and actions.
ii) Formulated approach :
It is also based as stimulus-response thinking but first
identifies the buyer’s needs and buying style and then uses a
formulated approach to this type of buyer.
iii) Need Satisfaction approach :
It starts with a search for the customer’s real needs by
encouraging the customer to do most of the talking. The sales
person takes on the role of a knowledgeable business
consultant hoping to help the customer save money or make
money.
The sales presentations can be improved with demonstration
aids such as booklets, flip charts, slider, movies, audio and
video cassettes, product samples and computer based
simulations. Computer aided presentations are also very
useful means. Usually, presentation is followed by leave
behinds such as brochures, leaflets, samples etc.
5. Overcoming objections :
There arise objections to all the presentations because of
psychological resistance. It is very important to resolve them.
Infact, objections are the starting point of communication that
might transform to negotiation and finally action. So, they
must be encouraged as they can have a positive effect on the
sales call if they are resolved.
6. Closing :
The manner of closing a sales call is as important as
approach. Closing leaves behind an impression, which has a
long term, carryover effect. Unconfident sales persons fail to
ask for order rendering the entire sales call fruitless. So, the
process of winding up of a sales call must incorporate
persuasive phrases and actions that not only effect purchase
but also help in carrying a long term effect in the mind of the
customer.
7. Follow up and maintenance :
.In order to ensure repeat business, follow up and
maintenance are very important. After closing a sales call, the
sales person should not break contact with the customer.
Sustained contact helps in getting business next time. It also
helps enhancing customer satisfaction and reducing cognitive
dissonance. It also provides the feed back to the company for
improving the quality of products and service in future.

Skills of a Sales Executive

Sales management is an art where the sales executive or the

salesperson helps the organization or individual to achieve its
objective or buy a product with their skills.
The following are some skills that a sales executive needs to
possess −

Conceptual Skills

Conceptual skill includes the formulation of ideas. Managers

understand abstract relationships, improve ideas, and solve
issues creatively. The sales executive should be well versed
with the concept of the product he/she is selling.

People Skills

People skills involve the ability to interact effectively with

people in a friendly way, especially in business. The term
‘people skills’ involves both psychological skills and social
skills, but they are less inclusive than life skills.
Every person has a different mindset, so a sales executive
should know how to present the product depending on the
customer’s mindset.

Technical Skills

Technical skills are the abilities captured through learning

and practice. They are often job or task specific. In simple
words, a specific skill set or proficiency is required to
perform a specific job or task. As a part of conceptual skills,
a sales executive should also have a good grasp on the
technical skills of the product.

Decision Skills

Decision skills are the most important because to tackle the

questions from consumers, sales executive should always
have the knowledge of competitors’ products and take a wise
decision.

Monitoring Performance

Sales executives should monitor the performance of the

employees and report to higher management to improve the
performance and fill the loop holes.
Thus, conceptual skills deal with ideas, technical skills deal
with things, people skills concern individuals, technical skills
are concerned with product-specific skills, and decision skills
relate to decision-making.

Chapter-2
Sales Management
Sales management refers to the directions of salesforce with all
management functions and activities of the organization. It involves
the distribution of goods and services. It is the strategy and the
easiest way to generate revenue and profitability of an
organization. It translates the marketing plan in marketing
performance.
 Sales management manages all the marketing activities, such as
advertising, promotion, marketing research, personal selling,
physical distribution, pricing etc.It is the muscle and also sub-
system of marketing management. Thus, it is administrative,
operating as well as a strategic function. The primary objective of a
sales manager is to maximize the profit of an organization.

Objectives of Sales Management

A sales manager has mainly three objectives: Increase sales

volume, Continuous growth, and Contribution to profit.
 INCREASE SALES VOLUME:
The fundamental and essential objective of a sales manager is
to increase the sales volume through different marketing strategies.
 CONTINUOUS GROWTH:
A company cannot survive without continuous growth because
there are salaries to be paid, different costs have to be incurred and
shareholders to be answered. So, time to time innovation in product
and adopting new technologies to sale the product is necessary for
continuous growth.
 CONTRIBUTION TO PROFIT:
Sales bring turnover for the organization. Increase in sales
means the increase in profits. Top management sets the different
pricing strategies to achieve maximum profit for the organization.

Role of Sales Management:-

1. Preparing the Sales Plan
2. Recruiting the right people to execute the sales plan
3. Training the people selected to build competency in achieving
the targets set and fulfilling the organization’s objectives.
4. Defining the sales territories
5. Specifying the sales quota to be achieved for each territory
6. Defining the remuneration and reward system for the sales force
7. Providing welfare and healthcare facilities to the sales force
8. Devising a sales force development program
9. Analyzing past performance with the current performance and
making predictions on demand
10. Coordinating with the marketing department and the consumers
 11. Pricing policy and price fixing
12. Advertising and sales promotion
13. Planning and control of sales operations and control of sales
costs
14. Selection and management of channels of distribution
15. Branding, packing and labeling
16. After sales service, if necessary
17. Integration and coordination of all functions
These are discussed below:-
. 1. Preparing the Sales Plan:-
It is an effective process that involves strategy, sales forecasting,
corresponding demand management, setting profit-based sales targets,
the written and execution steps of a sales plan. A sales plan contains a
strategic document that figures out your business targets and several
resources.
2. Recruiting the right people to execute the sales plan:-
Before you even pick up a single sales candidate’s CV, it is essential to
plan what you actually want to see in your new salesperson or people.
Building up a profile in the form of a “person specification” of the ideal
candidate will help firm up your aspirations when it comes to who you want
to attract to work with you and represent you externally.
3. Training the people selected to build competency in achieving the
targets set and fulfilling the organization’s objectives:-
Training and development describes the formal, ongoing efforts that are
made within organizations to improve the performance and self-fulfillment
of their employees through a variety of educational methods and
programs. Only trained salesperson can achieve targets.
4. Defining the sales territories:-
A sales territory is the customer group or geographical area for which an
individual salesperson or a sales team holds responsibility. Territories
can be defined on the basis of geography, sales potential, history, or a
combination of factors. Sales manager should inform his team about
territory.
5. Specifying the sales quota to be achieved for each territory:-
Not only do sales quotas play an important role in sales forecasting and
monitoring rep activity, they also set expectations and motivate sales reps
to hit a given level of activity. Managers can also use sales quotas to
learn more about their team's productivity, success rate, and
optimal sales processes.
6. Defining the remuneration and reward system for the sales force:-
To motivate the sales force various rewards are announced for achieving
targets.
7. Providing welfare and healthcare facilities to the sales force:-
To provide all the health related facilities like health check up after regular
intervals and welfare facilities to salespersons.
8. Devising a sales force development program:-
Sales management also devise sales Force Development program that
is an integrated approach to organically and systematically growing sales,
by improving the people, systems and strategies that
impact sales performance.

9. Analyzing past performance with the current performance and

making predictions on demand:-
Sales management uses predictive analytics uses historical data to
predict future events. Typically, historical data is used to build a
mathematical model that captures important trends. That predictive model
is then used on current data to predict what will happen next.
10. Coordinating with the marketing department and the consumers:
Sales management coordinates with the marketing department to get
information on marketing related search and with consumers to take
feedback regarding the product.
11. Pricing policy and price fixing:-
Sales management teams are close to the customers and gather their
feedback to understand the commercial nuances of the market. Without
input from the sales team, pricing teams are somewhat removed from the
market and customers. In addition, sales managers are at the forefront of
the customer transaction, most pricing teams are not.
12. Advertising and sales promotion:-
Promotion keeps the product in the minds of the customer and helps
stimulate demand for the product. Promotion involves
ongoing advertising and publicity. The ongoing activities
of advertising, sales and public relations are often considered aspects
of sales management.

13. Planning and control of sales operations and control of sales

costs:-
Sales management also manage sales & operations planning. It is a
monthly integrated business management process that empowers
leadership to focus on key supply chain drivers,
including sales, marketing, demand management, production, inventory
management, and new product introduction.
14. Selection and management of channels of distribution:-
The process of overseeing the movement of goods from supplier or
manufacturer to point of sale is decided by sales management team. It is
an overarching term that refers to numerous activities and processes such
as packaging, inventory, warehousing, supply chain, and logistics.
15. Branding, packing and labeling:-
Packaging is the science, art and technology of enclosing or protecting
products for distribution, storage, sale, and use. The brand name
indirectly assures certain quality by identifying the manufacturer behind
the product. So sales management also ensures right packing
16. After sales service, if necessary:-
After sales service refers to all the things you do for the care and feeding
of your valued customers after they buy your product. This type of
customer aftercare is important for any business and sales management
also look after this.
17. Integration and coordination of all functions:-
All the functions discussed above need to be coordinated and integrated in
one direction of achieving organizational goals.

Importance of Sales Management

Sales management is very crucial for any organization to achieve its
targets. In order to increase customer demand for a particular product, we
need management of sales.
The following points need to be considered for sales management in an
organization −
 The first and foremost importance of sales management is that it
facilitates the sale of a product at a price, which realizes profits and
helps in generating revenue to the company.
  It helps to achieve organizational goals and objectives by focusing
on the aim and planning a strategy regarding achievement of the
goal within a timeframe.
 Sales team monitors the customer preference, government policy,
competitor situation, etc., to make the required changes
accordingly and manage sales.
 By monitoring the customer preference, the salesperson develops a
positive relationship with the customer, which helps to retain the
customer for a long period of time.
 Both the buyers and sellers have the same type of relationship,
which is based on exchange of goods, services and money. This
helps in attaining customer satisfaction.
Sales Management may differ from one organization to the other, but
overall, we can conclude that sales management is very important for an
organization for achieving its short- and long-term goals.

Role of sales manager :-

OR
Changing role of modern sales manager
The modern sales manager directs and advises sales people by
working with them as team leader and gives them authority to take
decision according to their requirement.
Nowadays instead of controlling, demanding from the sales force for
volume oriented sales the modern sales manager act as a team leader
rather than a boss or higher level. Below are the changes in roles of sales
mangers:-
 Working as a team leader and guiding team members
 Dealing with multiple sales/ marketing channels
 Building and maintaining buyer seller relationship
 Part of the strategic management team
 Member of the corporate team
 Monitor, collecting and disseminating information about changes in
macro and micro environment

Determining Sales related Marketing Policies

Salespeople must have knowledge of sales related marketing policies
because
1. It helps in increasing sales
2. It creates confidence in salesperson
3. The presentation given by salesperson becomes more acceptable
to prospect as the prospect believes in the expertise of the
salesperson
4. It helps in building buyer’s confidence

There are various types of marketing policies which are applied in

sales.

Types of sales related Policies:-

1. Product related Policies
2. Distribution related Policies
3. Pricing related Policies
1. Product Related Policies:-
Product related policies are related to the product of the company
which involves decisions regarding the product. There should be
match between the objectives of the product and policies related to
the product.
e.g objective of company regarding the product can be of
providing high quality product to customer and product policies
should be made to fulfill this objective.
Various Products related policies are:-
a) Product Line Policy
b) Product Design Policy
c) Product Quality and service Policy
a) Product Line Policy:- Adding new product offerings or removing
old one according to the customer needs and wants. Employees
and customers should be encouraged to propose new ideas and
sales department should work towards satisfying the needs of the
customers
b) Product Design Policy:- Product design policies are related to
change in design of the products on frequent basis so as to catch
and attain the attention of the customer.
c) Product Quality and service Policy:- It should be formal and
documented. Quality and service related things are documented
and company uses this as promotional campaign. Like guarantees,
warranties, refunds & replacement policies
2. Distribution Related Policies:-
 The distribution policy is the marketing tool that links production
with consumer. The definition of this policy will allow determining
the way we are going to make the product arrive at the final
consumer, which will depend on the distribution chain link we are at
(producer, intermediary or retailer)
The decisions we will have to make are the following:
 Choose the distribution system or strategy
 Choose the distribution channels
Policies on marketing channels depend upon
i) Sales volume
ii) Net profit potential and estimates
i) The first thing to assess the sales volume potential is to check that
whether there are enough buyers to absorb the desired quantity of
the product. Sales volume potential can be done by SWOT
analysis.
ii) Net profit potential is considered by having a check on selling cost.
e.g if a channel is effective but cost involved are very high then it
can affect the profitability of the company on the other hand if
channel is not effective but cost is low, it is also not a good situation
because product is not reaching customers at right time
3. Pricing Policy
These policies are related to determining how much and in what
ways a company should charge from its customers.
Sales Executive Role in Pricing Policies
Sales executive role is undeniable in implementation of pricing
policies.
It is the salesperson who communicates price to the customers
and convince them to pay for the price for that particular product.
1.Policies on pricing relative to competitors
Situation 1-In Price based competition
Prices are according to competitors price
Situation 2- If competition is not price based
Match the competitor price or above or below competitor price.
2. Policies on pricing relative to costs
The relationship between the cost of a product and its impact on
pricing is undeniable.
 It is important for the companies to cover the long run costs of
manufacturing the products in order to be profitable. Under it
comes:-
 Full cost pricing
 Promotion pricing
 Contribution pricing
Full Cost Pricing:- In case of full cost pricing prices are determined
in such a way that total costs are covered.
Promotion Pricing:- Prices can be utilized as strategic tool for
promotion, offering products at lower prices to promote sales has
been a well utilized marketing tool for capturing markets.
Contribution Pricing:- It is a pricing strategy which maximizes the
profit coming from a product. In Contribution Pricing, the price of the
product is kept on the basis of its contribution to cover the fixed
costs it incurs even if to a minimal level. Here the assumption lies in
the difference between the product’s price and the number of items
sold and the variable costs involved. 

3. Policies on uniformity of pricing to different buyers

When it comes to charging from different buyers the company
has the option of choosing
one price policy or variable price policy

4. Policies on List Pricing

List pricing means selling on the basis of price printed on the
package.
It aims at striking parity between prices and to control
intermediaries resale prices.

5. Policies on Discounts

a) Trade Discounts
b) Quantity Discounts
a) Trade Discounts:-
Trade discounts are discounts offered to wholesalers and
retailers. The amount of discounts depends upon the importance of
that particular wholesaler and retailer.
b) Quantity Discounts:-
Quantity discounts are offered when products are purchased in
bulks. It helps in increasing sales.
6. Geographical Pricing
 In Geographical pricing higher freight charges are charged from
customer who is far way. Sales executive responsibility is to
convince customer for paying freight charges.
Alternatives of geographical pricing:-
Free on Board(F.O.B):- Customer pays the freight , buyer add
freight to factory price
Delivered pricing:- Marketer pays freight charges but includes
them in price quotations
Freight Absorption:- It is situation of compromise between F.O.B
and delivered pricing.

7. Leadership Price Leader Policy:

Price leaders are the ones who are followed by other players in
the market for implementing prices. Price leaders determine the
pricing pattern because they are the biggest players in the market.
Price followers follow the price initiated by the price leaders.

8. Product Line price Policy

It means pricing the related products that falls under one product
line. The products in same product line also compete with each
other to capture the market share even they are of same
company.
Based upon that products are priced as low, middle and top
depending upon the target market

Chapter-3
Sales Organization

Sales organization is a department in company within logistics that

designs the company as per the sales requirements. Sales organization is
held responsible for the sales and distribution of goods and services.
The selling unit is represented as a legal unit. The salesperson plays a
crucial role in the sales company because he/she is answerable for many
activities in the company. Some of those activities can be listed below.
 Setting selling and profit objectives − The salesperson is
involved in setting the objectives of selling the product and
generating the profit.
 Marketing policies − The salesperson has to set the marketing
policies and plan accordingly.
  Designing personal selling strategies − They also have to set up
their own strategy to generate sales and to target and retain the
customers.
They co-ordinate with other departments as well, for example, advertising,
sales promotion and distribution, to chalk out a sales programme, which
helps in generating sales. It also helps to find any loop holes and fix the
issues.

Characteristics of a Sales Organization

Let us now understand the characteristics of a sales organization −
 A sales organization subsists of a group of people who handle
different activities like distribution, advertising selling etc.
 It works to achieve the sales objectives, like increasing sales
volume and maximizing profit and market share of the company.
 It specifies the responsibilities and duties of the salesperson and
also co-ordinates their activities with other departments.
 It helps to develop a relationship with the other personnel in the
organization by setting up a sales programme.
 General Sales Manager is the head of the sales organization.
Thus, sales organizations help the company in achieving targets and
building coordination with sales personnel. Now we shall see the
importance of sales organization.

Significance of Sales Organization

Let us now understand the significance of sales organization.

To plan purchase

The sales of the company depend on the sales anticipation. The sales will
increase only when the consumer purchases the goods or services.
Therefore, the company has to plan the sales according to the consumer
need and want, meaning where they want the product, what they want
etc. The planning and development is done accordingly to satisfy the
need of consumer.

To create pattern of demands for products

The demand of the product is created to lead to sell in the market. When
a product is manufactured in the factory, it is not sold automatically.
Salespersons push the product to consumers. But even they cannot force
the consumer to buy the product. The sale depends on the consumer’s
need and perception. This need is created by the selling skills, promotions
through advertisements, etc., which in turn help in creating demand in
market.

To handle the orders received

This is an important step where the salesperson has to answer the calls
and queries of the customers, receive orders and make the product ready
as per the demand of consumers.
Finally, the products are packed and dispatched as per the expectation of
consumer; all these are imperative and effective tasks.

To collect the dues

Sales cannot always be done for cash. Bulk sales are made on credit. It’s
very difficult for an organization to perform only on the basis of cash
sales; in this competitive market, credit sales play a crucial role.
After the credit sales have been done, the organization has to collect
dues. It is a very challenging task as the salesperson has to retain the
business and still get the task done.

To handle the task of personnel management

Every organization wants best sales personnel to enhance the sales. This
depends on training. The organization has to select, train, motivate,
monitor and control its sales personnel. Here the company has to make
an investment in sales personal.
In summary, we can conclude that there is an immense impact of sales
organization on a company.

Types of Sales Organization

OR
Organizing the sales department
An organization is designed in a manner where we can identify the work
or activity performed by an individual or group. The roles and
responsibilities are defined, which helps in building relationships to enable
people to work effectively and efficiently. This helps in achieving the goals
of the organization. The following are the four types of sales organizations
−

Functional Type
Functional type of organization is divided and classified on the basis of
the functions performed. The following illustration shows a functional type
organization.

This depicts the functional type organization. We will now discuss the
advantages and disadvantages of this type.

Advantages of functional type

The following are the advantages of a functional type of organization −

 Specialization − In the figure, we can see the division has been
made according to the functions. By this, we can expect each
function is specialized in its activity.
 Flexibility − The number of departments can be added or removed
as per the requirements.
 Decision making − Decisions can be made quickly as the person
would be an expert in his department and will be aware of the
impact of his decision.
 Co-ordination − The co-ordination between functions can be done
easily

Disadvantages of functional type

Let us now understand the disadvantages associated with functional type

of organization −
 Due Attention − Each department is only specialized in their own
activity; hence there is no attention focused on the product.
 Delay − There is delay in making decisions because of co-
ordination between all the departments.
 Co-ordination − From the figure, we can see that all departments
report to the General Manager. Therefore, .in peak times, it may
 become difficult for the General Manager to maintain co-ordination
between the departments.
 Conflicts − There is always conflict between departments due to
being specialized only in one core area and lack of cross training.
In general, functional type of organization is suitable where the
organization structure is small having limited products.

Product Type
This type of division is made according to the products. The organization
divides the departments based on the products.
The following illustration shows the layout of the product type.

Advantages of Product Type

 Due Attention − Due to the division according to the product, each

product gets required attention.
 Specialization − The salesperson is specialized in specific
products; hence he/she has an advantage in handling the
department.
 Responsibility − The responsibility can be easily assigned to a
salesperson because all the salespersons are specialized in their
product/ department and are well acquainted with the product,
which helps them to handle customers smoothly.

Disadvantages of Product Type

 Co-ordination − There would be problem of co-ordination between

two product departments.
 Selling Cost − The selling cost of product may increase due to the
division according to the products.
  Operational Cost − Operational cost may also increase due to
each product being treated differently.
 Freedom − There is no cap on the freedom enjoyed by employees
because the salesperson is specialized only on his/her
product/department and will not be able to handle other
product/department.

Suitability of Product Type

Product type is suitable in the following cases −

 Where the organization has many products and it can divide the
departments according to the products.
 For organizations selling highly priced products.
 When the products of an organization are more technical oriented,
the organization can divide the departments according to the
products as the salesperson will be efficient and effective to
discuss the product with the customer in an effective way.

Consumer Specialization Type

According to consumer specialization, the departments are divided on the
basis of the costumers to whom the products are offered. Most of the
time, market appearance plays an important role in knowing the consumer
needs and to divide the departments accordingly.
The following illustration shows the layout of the consumer specialization
type.

Advantages of Consumer Specialization Type

 Consumer − Here the division is according to consumers, so each

consumer gets due attention.
  Consumer satisfaction − Consumer satisfaction is the first priority;
as maximum services are provided to the consumer.
 Planning and policies − The sales planning is done in a proper
way and policies are designed keeping each category in focus to
achieve the goal.
 Brand − The organization is able to fulfil consumer needs and
wants and create its own brand to gain market share.

Disadvantages of the Consumer Specialization Type

 Expenses − The expenses for the company to build and plan

according to consumer and develop the market are huge.
 Sales activities − It becomes difficult for the sales manager to co-
ordinate the sales activities of salesperson.
 Investments − In this case of specialization, the investments are
high and sometimes repeated, which in turn, is loss to the
company.

Suitability of the Consumer Specialization Type

Consumer type is suitable in the following cases −

 When there is a large number of consumers who are looking out for
special services.
The costumer is ready to pay for the services offered. Here, the target is
mostly premier customers.

Area Type

In this type of organization, departments are divided according to the

attributes of areas. They can also be divided geographically. The following
illustration shows the layout of the area type organization.
Advantages of Area Type

 Products − Customers can be served with the latest products and

customized products.
 Transport cost − Transport cost can be reduced because the
division has been made according to areas.
 Customer service − Company can provide better customer
services as the division is made according to area. Thus, the
company can understand the customer psychology and perception
better.
 Sales performance − The sales performance can be compared
according to zones and steps can be taken to improve.

Disadvantages of Area Type

 Costly − It is costly as compared to other types and increases

expenses of the company.
 Markets − It becomes difficult for co-ordination for the General
Manager for different markets.
 Conflicts − There may be conflicts regarding resource allocation
between zones.

Suitability of Area Type

The area type of organization is suitable in the following cases −

 When the area or the territory for market is very large.

 Where the market is different based on zone.
 Where the product is differentiated depending on zone.
 Where the sales volumes are high and generate more revenues.
Formulating personal selling strategy
 Call Rates

If the intensity of competitive rivalry is high in the industry,

salespersons involved in personal selling should be calling on their
customers more frequently. If the rate of technological changes in
the industry is high, the customer is more likely to change
equipment frequently and may require the services of the sales
team more often to evaluate options. Also when the buyer is
expanding his facilities or is venturing into a new business,
salespersons should be calling on the buyer more often.

 Percentage of Calls on Existing and Potential Accounts

A salesperson has to divide his time between existing and potential

customers in a way that maximizes sales or profits of the company.
Some salespeople fix some formula for themselves so that they do
not spend excess time with either type of the customers i.e. he will
spend 40 % of his time with existing customers and the rest with
prospective customers. But this may not be a good strategy all the
time.

Division of time between the existing and potential accounts should

depend upon the type of industry and the state of business in the
industry. If the industry has big buyers and the salesperson’s
company has a sufficient number of those big accounts, focus
should be on retaining those accounts. But if the salesperson’s
company has only a few of these accounts, the salesperson should
divide his time between serving existing accounts and acquiring new
ones.

The idea behind personal selling is that the salesperson should be

aware of the need to divide his time judiciously between existing
and potential customers depending upon the type of industry and
the state of business in the industry. But he should be flexible
because a formula will become irrelevant when the state of business
changes.
 Discount Policy

Sales people are prone to announcing discounts at every hurdle in

the personal selling process. It is important to provide flexibility in
prices that salespersons can offer to customers because many
deals can be clinched by offering small discounts. Many a time
discounts have to be given to demonstrate to customers that they
are important. But there should be guidelines prescribing the
amount of discounts that can be offered to customers under
exceptional circumstances.

When discounts become pervasive, customers start expecting

discounts as a routine part of their buying process and the list price
loses its sanctity. The company should reduce its list price under
such circumstances to restore its sanctity. The company will be in a
better position to know the realized price. Salespeople should be
able to sell on the merits of the product and on the strength of the
relationship that they have with the customers. Discounts should be
provided in exceptional circumstances only.

 Percentage of Resources Targeted at New and Existing Products

New products will require a push from salespeople and it should be

ingrained in salespeople that at the time of launch of a new product
they have to travel those extra miles and give those extra hours to
make the launch successful. If the launch is very important for the
future of the company, salespeople can afford to spend less time in
selling the old products for some time.

But eventually the customers’ response towards the product will

decide the amount of attention that the new product will get. If the
new product is liked by customers, salespersons will pay more
attention to it but if customer response is lukewarm their attention
will shift back to their old products.

 Percentage of Resources Targeted at Different Types of Customers

 Some companies are competent to serve big accounts, i.e. they can
afford to charge lower prices and give lot of services to their
customers. These companies dedicate multifunctional sales teams
to such accounts. Retaining the existing customers is the major
responsibility of the sales force. Some other companies prefer to
serve small accounts which pay full price and do not expect much
service from their suppliers. These companies expect their
salespeople to spend more time in looking for prospective
customers than in serving existing customers.

 Improving Customer and Market Feedback from Sales Force

Some companies compete by launching innovative products.

Salespeople of such companies have to be adapt at sensing
customer response to the new launches of the company. Detailed
and early feedback is important for improving the product. They also
have to be alert to latent and emerging needs of customers that they
can feed to their development team.

But even in companies which are only moderately focused on

bringing new solutions to customers needs, collecting feedback and
information from customers is important, if the new product has to
be suitable for the customers. In mature industries, where
customers’ needs and enabling technologies are not changing
perceptibly, the sales force can almost exclusively concentrate on
selling what its company makes.

 Improving Customer Relationships

Developing and maintaining relationships with customers is

expensive and a company need not incur this expenditure on every
customer it does business with. There are customers who will
always buy from the supplier who offers the lowest price. Some of
them buy too little. And more importantly there are industries in
which relationships with customers are not important at all.

A company competing on the basis of technological sophistication of

its products will buy from a supplier who has the latest technology.
The supplier would be better off putting money in R&D than
investing in relationship with the customer. A company has to
deliberate if it needs to develop and maintain customer relationships
in its industry, and if it has to, it should identify the accounts that
deserve the investment in developing and maintaining relationship
with them.

In general, the importance of key account selling is increasing.

Diversion strategy can be used to win new accounts. A company
can distract a rival into focusing its resources on defending one
account and thereby neglecting another, which can be won.

Building competencies of sales force

1. Product Knowledge
A sales rep who doesn’t perfectly understand the product they’re
selling is a completely ineffective rep. Product training should be
one of the very first things you teach new reps – they should be able
to explain in detail how each product works, what business value it
offers, and the reasons it appeals to your company’s ideal
customers.

2. Strategic Prospecting Skills

This means searching for referrals through existing connections to
new prospects that fit the target buyer or ideal customer profile. It’s
also important for reps to go back to Closed-Lost opportunities with
whom they already had previous conversations and try to revive
them. Another strategic prospecting activity is to ask for referrals
from existing customers, and even talk your investors (VCs) for
referrals to their portfolio companies.

3. Rapport Building on the Call

ISR’s(Internal Sales Representatives) have a disadvantage over
outside sales in that they’re not meeting with prospects face-to-face.
This means they have to work harder to build a connection with
busy and sometimes hostile strangers over the phone. Some sales
reps already have a natural ability to create an instant rapport with a
prospect, and only have to finesse it. Other reps can learn to
research prospects in advance and find common ground to
 empathize with the person on the other end of the line. Whether
you’re chatting about sports, attending the same college, or just the
weather, rapport should not be underestimated.

4. Buyer-Seller Agreement
In order to set mutual expectations and to make your prospects
more comfortable, sales reps should learn how to create a Buyer-
Seller Agreement, to set the tone for all calls and meetings. These
are verbal agreements at the beginning of the sales process that
outline expectations for both sides. For example, a sales rep can
ask a prospect, “Is it OK to ask a few questions about your business
and then I will show you a demo of our product to see if there is a
potential fit for both of us?” It allows the prospect to feel comfortable
and understand what is coming next, so no one feels ambushed by
the next step. It also allows the sales rep to open up a two-way
street in the selling process so that both parties get to a win-win
conclusion.

5. Active Listening

Most sales reps feel comfortable talking to prospects, but listening is

another story. SRs need to become proficient in active listening, or
listening with a strict focus and asking intelligent follow-up
questions. People can usually tell if you’re really listening to them,
rather than just thinking about what you’ll say next – and most
people appreciate a good listener. Great listening skills can help
reps empathize with prospects to learn more about their business
and pain points. With that knowledge, they can then sell more
effectively and offer a better solution.

6. Communication
In sales, how you say things to a prospect matters more than what
you say. Only 7% of communication relies on the content of what
you say, whereas 38% of communication is about other attributes of
communication such as tonality, etc. As you may have heard before,
it’s not what you say but how you say it. Reps should try to subtly
mirror a prospect’s tone of voice and style of talking – if a prospect
is more formal and polite, speak similarly; if they’re more informal
and joke around, do the same. This helps prospects feel familiar
with you, and relate to you more easily to create rapport. Reps also
need to speak clearly, not too quietly, and not in a monotone

7. Qualification Questioning
SRs need to start off every sales conversation by asking questions
during the Discovery phase to analyze a prospect’s business needs
(i.e. Needs Analysis). It’s important to not just throw random
features and benefits at the prospect hoping something will stick.
Instead, you need to delve deep to discover your prospect’s
business pain and how your product can help them solve it by
asking qualifying questions. These questions help you determine
what you should share about the benefits and value in your product
based on what is going to be most important for them. Beyond the
Discovery stage of the selling process, over time, SRs will need to
qualify prospects for Budget, Authority, Need, Timeline, Competition
and Buying Process in order to get all the key criteria that will help
them get to the purchase.

8. Time Management

The most effective SRs are able to make the most of their time, with
more dials and more connects than other reps. The key to being
highly productive is using good time management skills. You need
to train each rep to sort through leads to find the most promising
ones, and not waste too much time on a deal that isn’t going
anywhere. You can use analytics to identify the industry, business
size, and other characteristics of ideal leads, and share the
information with your team. It’s vital to make the most of the hours in
the day to bring in more deals per rep.

9. Objection Prevention
Great sales reps practice the art of proactive “Objection Prevention”
and not merely “Objection Handling” and can thus reduce some of
the most basic objections by way of how they approach a sale. Train
your reps to be strategic and think ahead by studying what typical
objections come up in most cases. For example, there is no reason
to get to a point when a prospect can say, “I don’t have a need for
this” or “Call me again in a few months”.

10. Objection Handling

Even the best reps can’t prevent every objection, so it’s important to
help your team prepare for objection handling when they do hear
one. Reps have to be on their toes so that the sales process doesn’t
end abruptly and they lose the opportunity at the deal.

11. Demo skills

 For many B2B products, the demo is critical to starting a sales
process. Sales reps need to not only understand the product, but
must be able to show off it’s capabilities to a prospect effectively
through a demo. Demos are challenging in that reps need to first
discover what benefits will be most important to solving a prospect’s
pain, and highlight the business value of those features during the
demo.

12. Gaining Commitment

Great SRs can get a prospect to commit to a deal fairly quickly. The
key is making sure the right people with the right approval power are
bought in to the process as the sale progresses. Reps must
continually ask questions, assess the prospect’s needs and
reinforce what the prospect is interested in buying. Reps should ask
“Is this helpful? Is this how you envision it?” and more. By forcing
the a prospect with buying power to acknowledge again and again
that you’re offering them real value, it helps push them to commit to
a deal.

13. Closing Techniques

Now that the SR has convinced the prospect that their company
needs the product, it’s time to close. Managers have to train reps to
push prospects, ask for the order and get it signed fast

14. Post-Sale Relationship Management

Many of us forget to thank customers and to continue building and
maintaining the relationship after the sale. Firstly, it’s important to be
appreciative for the business regardless of whether the customer
will buy from you again. This is just common sense and common
courtesy. And those sales reps who are genuinely appreciative are
the ones who typically grow professionally and become masters of
their craft.

Leading the Sales Force

“Leadership is the ability to convince people to follow a path
they have never taken to a place they have never been – and,
upon finding it to be successful, to do it over and over again.”

Nature of leadership:
Nature of leadership “It is a process by which one person
influences others to accomplish a mission, task or objective”
Attributes that help develop leadership qualities : Beliefs,
values, character, knowledge, skills, ethics, ability to take
people along with

True leaders decides where they are going and charts out a
path of getting there Effective leadership is a prerequisite for
the success of an organization. Leaders skillfully creates a
feeling of healthy dissatisfaction about the prevailing
situation and presents a vision of improved status – motivates
sales people to work towards it and creates right environment
for them.

How does leaders differ from managers?:

How does leaders differ from managers? Leaders: Energizes
& motivates team
Have a mission & purpose
Innovative & risk taking
Make things happen
Makes followers to perform at their best
What managers do:-
Managers merely makes sure of system only, not result
oriented

Set of characteristics which should in manager

1. Personal characteristics of Manager
2. Needs & Motives
3. Basis of Power
4. Past Experience
1. Personal characteristics of the manager:
Personal characteristics of the manager Some of the traits
given below can make a sales manager as an effective leader:-
Clarity
Consistency
Urgency
Assertiveness
Ego drive
Ego strength
Risk taking ability
Innovativeness
Empathy
Eye for talent

Clarity:
Clarity:- It means clear communication of organizational
expectations to the team. Giving clarity of objectives
Specification of accounts of strategic importance

Consistency:
Consistency:- It means consistency in expectations to bring
out the best in the sales force. Consistency can be reflected in
its compensation model, sales meetings or communication
process

Urgency :
Urgency is about perceiving the urgency of a situation as well
communicate to team. Urgency is the trait which can
differentiate competent manager from laid back manager.
Customer queries and problems to be given more importance
Finally, manager should be judicious in deciding which
matter required to be treated with urgency.

Assertiveness:
Assertiveness :- Manager should be able to assert his
authority so that the sales teams obeys his orders .Leader
needs to be tough when the situation calls for it.

Ego drive:
Ego drive:- It is level of satisfaction one derives by
persuading others to take a particular action. For a sales
manager, ability to convince his sales representatives to
perform in the way required to reach the desired goal. If sales
person does well manager’s ego drive is satisfied.
Ego strength:
Ego strength :- It is related to optimism & confidence to face
rejection within himself and needs to ensure that all his sales
persons too possess the same. Positive thinking must
prevailed.

Risk taking ability:

Risk taking ability:- A manager who is always averse to risk
cannot become a good leader. Manager who takes risk may
win the deal along with client’s good will. Calculated risk
always pays off in the long run.

Innovativeness:
Innovativeness:- Manager should come up with innovative
solutions for problems E.g. a sales person who brought in new
mega client may want to serve him in all territories which
would antagonize other sales persons.

Empathy:
Empathy:- Empathy is ability to sense the feelings of others.
Leader should understand the concerns and apprehensions of
the sales persons, take personal interest in their problems, find
ways to address the same. For being empathetic, he should
never compromise on organizational objectives.

Eye for talent:

Eye for talent:- It is important while hiring people, to identify
right person for the right job. Unsuitable candidates hampers
organizational growth and even may result in losses too.

2. Needs & motives:

Needs & motives:-These too influence the development of
leadership qualities. E.g. a person confined to social needs
may not become a good leader, where as one who has self-
esteem needs may prove to be a good leader.
3. Bases of power:
Bases of power:- Sales manager can influence the sales
people by exerting the following powers:- Expert power,
Referent power, Legitimate power, Reward power, Coercive
power

a) Expert power:
Expert power:- Originates from the expertise of the person in
a position of authority. This cannot be delegated. It originates
from knowledge & Information held, presentation, selling
skills of the sales manager which brings respect from sales
people.

b) Referent power:
Referent power:- It originates from the attraction that one
person has to another Basis can be friendship, desire to
identify with a successful person or feelings of shared
identity. Sales manager can have this due to his super
salesman image.

c) Legitimate power:
Legitimate power:- It arises when the position held by one
gives the right to command obedience from others. The very
relation between sales manager and sales person gives this
power to manager. It is based on societal and institutional
acceptance of the relationship.

d) Reward power:
Reward power:- It comes to one due to his authority to confer
rewards on the other. E.g. sales manager has the power to
evaluate the performance and reward accordingly.

e) Coercive power:
Coercive power:- It originates due to an individual’s
perception that another person has the right to confer a reward
or punishment on him. It has a negative connotation
4. Past experience:
Past experience:- This prepares sales manager to deal with
similar situations & similar individuals in a specific manner.
E.g. a sales manager may have used authoritarian approach
successfully to tackle a problematic person in the past, tend to
use the same to deal with another person with similar traits.

Leadership styles of sales managers:

Leadership styles of sales managers:- In general, leadership
styles have been studies on the basis of following 3 factors :-
Who is involved in decision making
Manner in which sales goals are achieved
How the sales persons are compensated, rewarded, or
punished

1. Traditional leadership styles:-

a)Autocratic style
b)Bureaucratic style
c)Consultative style
d)Democratic style
e)Laissez-faire leadership

2. Modern leadership styles :-

a) Transactional leadership
b) Transformational leadership
c) Situational leadership model

Leadership styles of sales managers

Autocratic style:
He gives orders and expects his subordinates to obey them.
He instructs every aspect of the job to the subordinate. It is
suitable for new and inexperienced sales persons.

Bureaucratic style:
Here the sales manager abides by the rules, policies, and
procedures of the organization and expects the sales people
also to do the same. Strictly enforces the above even if he is
not the creator of the same.

Consultative style:
Consults subordinates before making decision but, he makes
the final decision after reviewing all the other view points.
E.g. Involving employees in designing a new compensation
system. It is suitable when the sales force is harmonious in
nature and people are experienced.

Democratic style:
Similar to that of consultative style with a difference that
final decision is taken based on majority vote. It is suitable
when the sales force is small in size, concentrated in one area
and sufficient time is there for making a decision. Suitable for
experienced sales force only.

Laissez-faire leadership:
Here sales manager sets goals but gives total freedom to sales
managers to manage their accounts. Least supervision,
direction & control. It is suitable when independent
representatives are working under the manager.

2. Modern leadership styles:

Most organizations today are characterized by modern styles
of leadership. They are Transactional leadership,
Transformational and Situational leadership model

a) Transactional leadership:
It is most common style being followed today. Here the
interaction of sales manager and sales person is more of a
exchange process with an implied agreement.

b) Transformational leadership:
Transaction leader identifies the current needs of sales
persons and tries to satisfy them where as transformational
leaders identifies the latent needs of the sales persons
transforms in to current needs and motivates sales people to
satisfy those needs.

Characteristics of transformational leaders:

Charisma
Inspirational motivation
Intellectual stimulation
Anticipates future needs
Individualized consideration

Charisma:
Charisma Comprises magnetic personality. Other traits like
risk taking ability, assertiveness, high level of confidence,
persistence, determination and Courage. This influences the
sales persons in his team to share his sense of vision and
mission.

Inspirational motivation:
Conveys the sales persons of his high expectations and
motivates to improve themselves to take new challenges. He
uses symbols, language and images to project the future and
tries for continuous improvement.

Intellectual stimulation:
Encourages followers to think creatively. It cautions sales
people not to blindly accept assumptions but to question their
validity. Devises innovative prospecting and selling methods
for sales persons. Contributes toward maintaining
organizational stability E.g. Hershey chocolates follows
proactive approach of recruiting where they see unsolicited
applications as an opportunity to source people with initiative
and inner drive.

Anticipates future needs:

He takes precautionary steps to prevent later problems.
Thomas Watson of IBM is known for his ability to encourage
constructive thinking among employees. “Think” pervaded
every where in the organization.

Individualized consideration:
Gives more importance to individual needs than
administrative matters and policies. Gives personal attention
& devices learning and development opportunities to each
one of them. Practices management-by-walking-around which
enables him to understand the needs of the sales people.

Transformational leadership:
Sales people working for these managers feel more satisfied.
Committed, less stressed than who work for transactional
leaders

c) Situational leadership model:

One of the popularly accepted models from all the
contingency theories which can be named as under Path goal
theory, Normative theory and Contingency leadership theory.
Few companies which follow this model are Caterpillar, IBM,
Xerox, Mobil Oil, and Bank of America.

Skills essential for a leader:

Skills essential for a leader:-
To be effective as a leader, a manager should possess certain
soft skills.
 Delegation skills
 Communication skills
 Team-building skills
 Administrative skills
 Interpersonal skills

Delegation skills:
Delegation skills:- To be an effective leader, sales manager
has to learn to delegate responsibility to his sub ordinates.
What to delegate, whom to delegate depends on the level of
trust he has on subordinates. It helps in enhancing the morale
& commitment of the subordinates.

Communication skills:
Communication skills should be able to clearly communicate
to the sales force about the market trends and organizational
expectations. For giving effective feedback effective listening
skills are an equally important component. Communication
should be an on going process.

Team-building skills:
Team-building skills are much important when sales persons
are engaged in team selling.

Administrative skills:
This is to ensure the effectiveness and efficiency of sales
force irrespective of whether they are concentrated or
dispersed geographically. Disciplinary skills to enforce
discipline among subordinates

Interpersonal skills:
These are required to interact with a wide variety of people
inside & outside of the organization (peers, top management,
subordinates and stake holders). Good interpersonal skills
help in projecting a positive image of the company and sales
force.

SALES DEPARTMENT RELATIONS

Transactional Relationship:-A Transactional sale is a

simple, short-term sale in which the customer already knows
what he needs, so little to no product knowledge is required
on the sales side. Typically, these are product rather than
service-based. Buying criteria usually hinges on price or ease
of acquisition.
In a transactional sale, value lies within the product and price
becomes the primary selection criteria. Any salesperson who
hears price as an objection is selling transactionally.

 Consultative Relationship:-Consultative selling is a more

complex, long-term process involving collaboration of both
buyer and seller, in which the latter must first develop an
understanding of the customer’s business, industry, and
needs, and then craft a solution to help the customer achieve
their objectives. This is usually service or solution-based. 
The focus of consultative selling is on value. It has less to do
with what the customer is buying and more to do with why.
That is, how does your product or service impact the
customer’s productivity, profitability, operating costs and
downtime. This type of sale, the consultative sale, places
more responsibility on the salesperson than simply discussing
the product and its price. It requires the salesperson to know
more about the customer, the goals they have for their
business, changes they want to make within their company
and the results they hope to achieve. It requires the
salesperson to make connections between the product and the
value it creates. It requires the salesperson to make a
compelling case for how he or she can create real value and
do so more effectively and efficiently than the competition.
Consultative selling is particularly powerful when the
customer does not know what their goals are or how to
achieve them. In this case, the salesperson is more of a coach
who guides customers toward establishing goals and
objectives and helps them create action plans that deliver
results.

Enterprise Relationship:-
An enterprise sales cycle is much longer. It can be a journey
of eight months to a year, in which you will be consulting
with multiple decision-makers within a large corporation.

Enterprise sales almost are like a video game. Once you pass
one level, you move onto the next.

While such a long lead time is expensive for a small business,

these are very high-value accounts. There is considerable
upside for all of the resources you’re expending.

And that upside is long-term: enterprise buyers churn at a

much lower rate than transactional buyers. That’s because the
buyer invests significantly more time and resources into the
buying process in an enterprise sale versus a regular sale.
They’re not going to drop you after 2 months following an 8-
month sales cycle.

Features of Enterprise relationship:-

Enterprise buyers are extremely risk-averse

Once you’re ready to move into enterprise sales, the first

thing you need to know is that enterprise buyers are much
more risk-averse than what you’ll be used to.

In fact, enterprise buyers are so risk-averse that sometimes

the company will even bring in third parties to perform
security testing and other evaluations needed as part of their
requirements.

The enterprise sales process requires a relationship-

oriented salesperson

Long lead times and risk-averse buyers require a particular

type of salesperson. A rep who is great at moving deals
forward quickly to hit weekly targets might be great at
transactional sales, but not have the patience nor the executive
presence necessary for a longer sales cycle.

Enterprise sales is about building the kind of trust you need

for a more involved business relationship. And this trust takes
time to create. It’s less about closing quickly and more about
consulting with your prospect across all the different
departments in their business involved in the sales process.

The qualification process for enterprise sales

“The qualification process is the most important part of

enterprise sales”. If prospects are not qualified at the outset
then you can end up investing months into an expensive
process before learning that the prospect isn’t a good fit or
isn’t ready to buy. Unlike transactional sales, the question
isn’t whether an enterprise would be a good customer and can
afford your product. It’s whether they need you right now.

To qualify your prospect in an enterprise sales context, your

job is to find out what area in the company has the greatest
need for your product. For example, if we are selling to a
bank, we might talk to retail banking, advisory, lending,
insurance, and any other lines of business. In each individual
conversation, get your reps to figure out whether there is a
specific need for your product for a current project to be
considered for.

Moving into enterprise sales is risky, but the potential rewards

are huge.

Sales Department Relations:-

Introduction
 Reputation of an organization rests on the effective
functioning of the sales department. Sales Department leads
the company’s efforts in the supply increasing quantities of
products to the customers. Success of an organization
depends on the relationships and associations established by
the sales department with the customers and the other public.
• A sales department leads the company’s efforts in
providing an ever-increasing quantity of products/ services to
the customers. This activity can be performed with profit only
if the sales department functions effectively in coordination
with other departments which help it to make things happen.
Types of Coordinating Methods
Though the top management is overall responsible for
coordinating the activities of the company for maximum
progress, the sales person must understand how other
departments influence his progress and how the other
departments are influenced by the sales department. The
sales person generally coordinates with other department in
two ways: viz
(a) The Formal Coordinating Method
(b) The Informal Coordinating Method

(a) Formal Coordinating Method:

Group related activities, plans, policies, meetings help
in achieving formal coordination. Such meetings are generally
presided by the Chief Marketing Officer or a senior executive
of the company and the heads of departments performing
various marketing and sales functions attend such meetings.
Companies can have such meetings at the branch level in the
form of staff meetings in which all the departmental heads of
the branch participate in the meeting to cover all aspects of
product distribution including advertising and operations. In a
bank branch, a specific day of the month is also held as
Customer day in which all the departmental heads are
available for a formal discussion with the invited customers.
The company tries to impress upon the various initiatives it
has taken to offer a wide range of products and services to the
customers. The customers also get a formal channel to
express its views and opinions.
(b) Informal Coordinating Method:
Informal coordination methods are more effective than
the formal coordinating methods. It is not always possible to
have formal coordinating methods while following the flow
of the process. The sales person may solve the problem
informally and seek its formal approval later, depending upon
the urgency of the issue. Unexpected problems which should
be resolved with minimum delay are generally solved by the
informal coordinating method. Sales persons require regular
communication with their departmental heads for closing a
deal based on the profile of the customer. If there is even a
small delay the sales conversion will get affected.

Effects of different types of Sales Relationship:-

a) Coordination of sales persons with Personnel
department:
• Personnel department is into training, selection,
recruitment and motivating of employees. Sales persons and
personnel department have to work together in formulating
policies in establishing policies for recruiting, training,
compensating and motivating the sales force. Most sales
persons are not adequately equipped to service sales
personnel’s personal problems like leaves, sickness,
entertainment, refreshments, conveyance, pensions, safety,
health checks etc. Personnel policies are decided through
formal coordination while the routine matters are informed
through informal coordination.

b) Coordination of sales persons with finance

department:
• The sales department helps the Finance department to
arrive at a realistic sales budget by doing a thorough market
and customer research. Based on the sales budget a formal
coordination of top management happens on deciding the
pricing and sales promotions. The Finance department helps
the Sales department in providing credit checks on
prospective customers and thus identifies new account
acquisitions. The salesperson also helps in making collections
and securing credit information.
• Coordination of Sales department and Finance
department happens informally during mutual effort to
overcome nature conflicts of interests in credit policy. The
sales persons generally want to offer liberal terms to the
prospective and existing customers while the Finance
department generally do not think in the same way as sales
persons. Close coordination is necessary for the benefits of
both Sales and Finance departments.
c) Sales and marketing information:
The marketing information system assists the Sales
department to gather data on customer’s sales, trends, patterns
for analyzing the sales problems and identifying solutions.
This research is done either through external marketing
agencies or by an in-house market research team itself. The
market research department makes substantial use of
computers to generate reports that will highlight the required
attention quickly and efficiently. The exception reports such
as sales persons failing to achieve quotas, sales activities
exceeding budgeted expenses, territories in which the
competitive position is being lost, customers with declining
purchases and product lines having slow movement help the
sales department to implement quick curative actions.
Generally both the marketing information head and the sales
department head generally report to the same head for a
formal coordination. However the sales persons have a closest
informal coordination with the market research staff as every
day they need even the smallest information change about the
company, customers and competitors.

d) Sales and Production:

In the financial services industry the financial service cannot
be produced and stocked. It is produced instantly on the basis
of a face to face or a non-face to face interaction with the
customer. In planning the marketing mix decision is very
important from a formal coordination point of view. The top
management has to decide the infrastructure in the form of
systems, processes and people along with the branch
infrastructure or an automated infrastructure like the ATM ,
internet banking , mobile banking and so on. On the sales
side, the peak and non-peak time may require the Sales
department to provide extra shifts, reshuffling of service
counters, strategy to handle rush during the first week, last
week or during the acceptance of regulatory taxes.

e) Sales and Advertising:

The Sales and Advertising department has an important
role to play for designing the right marketing information and
choosing the right vehicle for taking this information to the
target market to stimulate a demand of its prospective
customers. The activities of the sales persons are planned and
directed in a formal coordination method to increase the
advertising impact. Proper use of the company’s market
research, research and development and marketing strategy is
essential for designing any advertisement that can help the
sales person in securing the dealer’s support and conserve the
sales force time. Formal coordination is best achieved by a
joint meeting of Sales department and Advertising department
who generally report to the Chief Marketing Officer.
UNIT- II

UNIT-Force
Sales II Management Functions of Personnel Manager,
Recruiting, Selecting & Training Sales Personnel Market
Sales Force Management Functions of Personnel Manager, Recruiting,
Information, Sales Process, Product Information, Policies
Selecting & Training Sales Personnel Market Information, Sales Process,
and Procedures, Motivating Sales
andPersonnel: Motivational
Product Information, Policies Procedures, Motivating Sales Personnel:
tools, Motivation, job satisfaction and performance
Motivational tools, Motivation, job satisfaction and performance
Compensating
CompensatingSalesSalesPersonnel:
Personnel:BaseBaseand
andIncentive
Incentive Compensation. Directing
Compensation.
and controllingDirecting andSales
sales efforts controlling sales
Analysis andefforts Sales
creating a budget, Sales
Territories:
Analysis andNature
creatingofasales territories,
budget, the benefits
Sales Territories: of sales
Nature of territory
alignment,
sales Salesthe
territories, control and of
benefits cost analysis.
sales territory alignment,
Sales control and cost analysis.
Unit-2
Ch-1
RECRUITMENT AND SELECTION
OF
SALES-FORCE

Staffing is the most important management activity in an

organisation. If your planning is to work, you have got to select the
right people to implement it. A football term’s success depends greatly
on the type of players recruited. A political party’s success depends
on its ability to select the candidate who will attract the most voters.
Simiarly, a sales manger’s success depends in great measure on the
sales people whom the manger selects.

In attempting to recruit and select a new sales representative, the

sales manager finds himself in an unaccustomed role. Instead of being a
seller he or she, for once, takes on the role of buyer. It is crucial that this
transition is carried out effectively because the future success of sales
force depends upon the infusion of high – caliber personnel. There are a
number of facts which emphasise the importance of effective sales-force
selection.

• There is wide variability in the sales effectiveness of sales people.

Many managers agree that top sales people earn much more than
average sales person for the company.

• Sales people are very costly. If the company decides to employ

extra sale personnel, the cost will be very high.

• Other important determinants of success, like training and

motivation, are heavily dependent on the intrinsic qualities of the
recruit. Although
 sales effectiveness can be improved by training, it is limited by
innate ability.

Major tasks in recruitment and selection

Sales force selection includes three major tasks :

• Determining the type of people wanted, by preparing a written job

description.
• Recruitment of an adequate number of applicants.

• Selection of the most suitable persons from among the applicants.

The first step of a stiffing process is to establish the proper hiring
specifications. To establish these specifications, management must first
know what the particular sales job entails. This calls for a detailed job
analysis and a written description. This written description will later be
invaluable in training, compensation, and supervision.

Determining the qualities and qualifications needed to fill the job is the
most difficult part of the staffing process. We still really don’t know
all the characteristics that make a good sales person. We can’t measure as
to what degree each quality should be present. Nor do we know as to
what extent abundance of one quality can offset lack of another. The
search for the qualities that make a good sales person continues. Most
companies want salesman to be enthusiastic, having good communication
skills and strong
desire to win, pleasing personality, and he must be an extrovert and self
confident person. Most customers say they want the sales representative to
be honest, reliable, knowledgeable, and helpful. So the companies should
look for these traits while selecting the sales people. Another approach is
to look for traits common to the most successful salespeople in the
company. According to research studies, star performers exhibit the
following traits : risk taking, powerful sense of mission, problem solving
care for the customer, careful call planners, habitual wooer, energetic, self-
confident; and a chronic hunger for money.

A planned system for recruiting a sufficient number of applicants

is the next step in selection. A good recruiting system :

– Operates continuously, not only when sales force vacancies occur.

– Is systematic in reaching all appropriate sources of applicants.
– Provides a flow of more qualified applicants than is needed.

To identify recruits, large organisations often use placement

services on college campuses or professional employment agencies.
Smaller firms that need fewer new sales people may place classified
advertisements in trade publications and, daily newspapers. Many firms
solicit recommendations from company employees, customers, or
suppliers.

Sales managers use a variety of techniques to determine which

applicants possess the desired qualifications, including application forms,
interviews, references, psychological tests, aptitude tests, and physical
examinations. No sales person should be hired without at least one
personal interview. It is usually desirable to have several interviews
conducted by different people
in different physical settings. Pooling the opinions of a number of people
increases the likelihood of discovering any undersirable characteristics and
reduces the effects of one interviewer’s possible bias.

ORGANISATION FOR RECRUITMENT AND SELECTION

The organisation for recruitment and selection of sales personnel

varies from company to c9mpany. Company size, executives.’ personalities,
and departmental structure all influence the organisation used. Where the
sales manager has a personnel staff assistant, recruitment and selection
usually is handled entirely within the sales department. Companies with
small sales force sometimes assign the responsibility for recruitment and
selection of sales personnel to the company personnel manager, but this is
unusual.It is more common for the personnel department to handle certain,
but not all, aspects of recruiting and preliminary screening and for the
sales department to handle other aspects of recruiting and screening and
to make the hiring decisions.

Placement of responsibility for recruitment and selection of sales

personnel in companies with regional or district sales offices also varies.
These functions tend to be centralised at the home office when the firm
requires high caliber sales personnel, such as those needed to do
technical selling. However, decentralised recruitment and selection
results in reduced interviewing costs and time, and facilitate the hiring of
local applicants for sales work.

RECRUITMENT AND SELECTION - CONCEPTUAL

FRAMEWORK

Recruitment is the process of encouraging people to apply for jobs

in the organisation and selection is choosing the best possible for the
 organisation. Recruitment creates a pool
of potential incumbents and selection
picks the best and rejects the rest. Here
are a few definitions of recruitment
and selection.

According toEdwin B. Flippo, “Recruitment is the process of

searching for prospective employees and stimulating and encouraging
them to apply for jobs in an organisation.”

In the words ofDale S. Beach, “Recruitment is the development and

maintenance of adequate manpower resources. It involves the creation of
available manpower upon whom the organisation can draw when it needs
additional employees.”

According toDale Yoder, “Selection is the process in which

candidates for employment are divided into two classes – those who are
to be offered employement and those who are not.”

In the words of Koontz and O’ Donnell, “Managerial selection is

logically, choosing from among the candidate, the one, that best meets the
position requirement.”

According toDale S. Beach, “Selection refers to the negative practice

of eliminating from all the candidates considered for possible employment,
those who appear unpromising. It involves making a decision as to which
of a number of candidates are to be given the opportunity to work.”

The above mentioned statements of experts clarifies that the

recruitment is a process of searching for the prospective candidates and
encouraging them to apply for jobs in the organisation while selection is
choosing the best candidates from the recruitment list.
SOURCES FOR RECRUITMENT

The sources for recruitment and selection may be divided into two
categories :
(i) Sources within the company or internal sources.
(ii) Sources outside the company or external sources.

(a) Internal Sources– The existing employees working in the same or

other departments of the company form the internal source of recruitment.
Some of the employees may be upgraded, transferred, and/or promoted to
take up sales jobs. There are some advantages and disadvantages of using
this source which are as under :

ADVANTAGES

(i) This technique improves the morale of employees because the fear
that an outsider may be given the chance to join the organisation
vanishes.

(ii) Less risk is involved in using this method as the employer already
knows the candidate.

(iii) Job security and loyalty employees also increases by using this
method.
(iv) Less training effort is required as the employee doesn’t require
information about the company and its policies.

DISADVANTAGES

(i) It discourages new blood and fresh ideas.

(ii) Likes and dislikes of management may generate frustrations
among
those employees who are not given a fair chance.
(b) External sources– This category calls for hiring the candidates
from outside the company. The following sources comprise of external
sources :

(i) Campus placements- Various organisations visit professional

colleges,
institutions, and universities for the recruitment of suitable
candidates. Engineering colleges and Management departments are
most suitable for technical and managerial staff.

(ii) Employment agencies- Private agencies and placement consultants

are sometime given contract to recruit sales staff for the
organisation. These agencies maintain the database of prospective
candidates and supply the list of suitable candidates to the
organisation from these databases.

(iii) Advertisements in Media -Companies may place advertisements in

newspapers, television, magazines, and trade journals for sales jobs.
Newspapers are mostly used for walk-in interviews for sales jobs.

(iv) Computerised data base- Many young persons regularly send their
resume’ to good organisations. Companies may create a database of
these aspiring candidates that may be utilised at the time of
vacancies. Some sales managers favour immediate hiring of
applicants who take the initiative in seeking sales jobs, the
reasoning being that this indicates selling aggressiveness. Some
companies reject all such direct applications because they believe
the proportion of qualified applicants from this source is low. The
most logical policy is to treat volunteer applications the same as the
solicited applications. Applicants not meeting minimum
requirements as set forth in job specifications
 should be eliminated and those meeting the requirements should be
processed together with other applicants. The aim should be to
recruit the better qualified applicants regardless of source from
which they come. The main problem with direct unsolicited
applications is that they do not provide a steady flow of
applicants and their volume fluctuates with changing business
conditions.

(v) Employees’recommendations - The employees of the organisation

may also recommend the names of friends and relatives as suitable
candidates. Retired employees often suggest names of prospective
candidates based on their experiences. Salespersons of the company
may also recommend the names of their friends, salesperson
working for retailers, dealers, and/or competitors. All these
recommended names might be used to fill the vacancies of the
organisation.

(vi) Salespeople calling on the company - Company managers, specially

purchase managers, are directly in touch with sales personnel of
other companies. These managers are in a position to evaluate their
on-the job performances. The managers may thus pass on the
names of those high caliber sales persons of other company who are
willing to switch over.

(vii) Executive club- Many senior managers are members of various

types
of formal and community clubs. They meet young people in these
clubs in parties and on other occasions. If a manager comes across
good candidates, he may encourage them to apply for sales positions
in his company.
(viii) Placement brochures -Many educational institutions send placement
brochures to different organisations. These brochures contain
information about the students who would like to take up suitable
jobs in the organisations. These brochures thus serve as a
source of recruitment.

(ix) Trade unions- Trade unions may also recommend the names of its
members of their relatives and friends.

(x) Dot coms -In this era of information technology, various dot com
companies have websites that display information about prospective
candidates. These portals may also be used as a recruitment
source.
(xi)
and alumni association also recommend the names of suitable
persons for sales jobs in various organisations.

The major advantage of recruitment through external sources is

that the organisation can get a person with required skills and
experience. The major disadvantge is that sister concerns may demand the
appropriate person from the parent organisation.

PRE-REQUISITE OF A SUCCESSFUL RECRUITMENT EFFORT

The following are the pre-requisites of a successful recruitment

effort :

(i) It should be in conformity with the general personnel policies.

(ii) It should be flexible.

(iii) It should match the qualities of employees Gob specification) with

the requirements of work (job description) for which they are
being employed.
PRE-REQUISITE OF A SUCCESSFUL SELECTION EFFORT

The following are the pre-requisites of a successful selection effort

:

(i) There should be sufficient number (quantitatively as well as

qualitatively) of applicants from which the selection can be made.

(ii) Organisation must have some standards against which the

candidates may be compared.

(iii) Job description and job specification must be known in advance.

(iv) One should have authority to hire.

THE SELECTION PROCESS

The objective of selection is to secure an appropriate candidate for

vacant position. The procedure adopted forgetting such candidate is
termed as selection process. It involves a number of steps which act as
filter screen that helps in getting rid off undersirable candidates. The
steps of selection process are as follows :

(i) Job analysis

(ii) Recruitment sources

(iii) Application blank

(iv) Preliminary screening
(v) Written test
(vi) Interview and/or group discussion
(vii) Reference checking
(viii) Medical examination

(ix Selection and placement

(x) Induction

(a) Job Analysis -The job must be studied and analysed with a view
to ascertain the knowledge, experience, skills and attitudes required to
perform it effectively. Unless a proper study is made in detail of the job
to be done, the manager concerned will not be in a position to select an
appropriate person to fill that job. Selection process actually, calls for
measuring the individual’s capabilities against the job requirements.

A proper job analysis helps in the understanding of most

significant aspects of the job. It describes the authority and
responsibilities attached to a job. It also helps one understand the skills
and capabilities needed to discharge the job effectively. The resultants of
job analysis are actually the job descriptions and specifications. The
following specifications, however, may be used while selecting
candidates for sales job :

(i) Physical make-up : It includes details like height, health, age

Weight, speech, appearance etc.

(ii) Education and experience : It involves the type of education and

work experience required which would be useful in performing
the job.
(iii) General intelligence : Level of general intelligence must also be
specified which is different from the knowledge and skills the
candidate posses by virtue of his education.

(iv) Special aptitude : Special aptitudes like mathematical proficiency,

use of words and vocabulary, mental alertness etc. that are
required to perform a job must also be listed.

(v) The disposition required : This includes the degree of acceptability

of the candidates to the others, his extent of dependability, self
reliance, other qualities such as dominance, relaxed, suspicious etc.
which may be desired.
(vi) Other relevant specifications : This list answers a variety of
questions including whether a bachelor or married person
required? Whether willingness to travel is necessary? The list also
includes the level of motivation, security, prestige, belongingness
etc. which the job will satisfy.

(b) Recruitment sources - The next step in the selection process is

tapping various recruitment sources to create a pool of potential
employees. The recruitment sources include both internal and
external sources. An organisation tries to use as many recruitment
sources as possible but within the monetary constraints.

Recommendation of employees, advertisements in

newspapers and magazines, and databases of the organisation and
other private companies and consultants are mostly used for sales
jobs. The main purpose here is to attract as many candidates as
possible.
(c)
Application blank -The organisation either invites the application
and resume’ from the desiring candidate or may send its own
application blank/form to be filled by the candidates who approach
it. This form contains personal information like name, address, age,
marital status etc as well as information on the education,
experience, and hobbies of the candidates.
(d)
Preliminary screening - Preliminary screening serves the job of
eliminating the totally unsuitable candidates. It’s main purpose is to
save the time of both the interviewer and applicant by eliminating
the unqualified candidates.

Applicants are notified about the qualification, experience

and other important requirements in advertisement itself
Candidates who
 don’t fulfill these requirements are not called to appear in the
selection process.

Written test -The use of written tests, as part of selection process,

(e)
is gaining popularity specially when hundreds of candidates are
applying for sales jobs. Many companies conduct written tests to
check the knowledge, analytical abilities, aptitude, language usage,
mathematical and reasoning abilities, psychology, and personality
etc. of the candidates. Written tests may also be designed to test the
knowledge about selling techniques, customer relationship
building, and negotiating abilities etc.

Group Discussion -This technique is used to test the communication

(f)
skills and ability to influence others. Here, the candidates are given
a topic or case to discuss among themselves. Experts observe and
hear the discussion carefully and short list the suitable candidates.

Interview - The interview is the most widely used selection tool.

(g)
Companies usually form a panel of experts that includes the sales
manager, personnel manager, psychologist, academicians, and
senior administrators etc. This panel interviews all the short-listed
candidates and make the final choice. Experts can judge the
communication skills, personality, confidence, leadership
abilities, intelligence, keenness, initiative, appearance, and attitude
of the, candidates with the help of interview. Experts may also
clarify the doubts or insufficient information given in the resume
of the candidates.
(h)
References and credit checks -This process has become very
important now-a- days. Companies write to the persons who know
the candidate and ask for their opinions regarding the conduct,
general behaviour,
 and the character of the candidates. Some companies write to the
Principal/Head of the Department last attended by the candidate. In
the case of experienced candidates, the company may write to the
previous employer for his comments about the candidates.
Companies have also started the credit checks to know the
financial history of the candidate. Credit reports give important
signals to the managers about’ the financial soundness or weakness
of the candidate. If the candidate has a history of payment
defaults, and large debts he may not be considered for the job.

Medical examination -Many companies send the selected candidates

(i)
for a medical examination to check whether the candidate has any
chronic disease and/or disability which may hamper his performance
on the job.

Every candidate should be physically fit enough to discharge

his or her duties. Companies either conduct the medical examination
at their own hospitals or may hire the services of private doctors.

Selection and placement - After a candidate passes the medical

(j)
examination, he is offered the appointment in the organisation. A
formal letter of appointment is issued to the candidate. This letter
contains information regarding joining period, pay-scale, nature of
job, and conditions of employment. If the candidate chooses to join
within the given time period he is absorbed on the offered post.

Induction -At the time of joining at a particular post the new

(k)
incumbent need to be familiarised with the organisation culture and
those as well as his superiors, keeps and sub-ordinates. This gives him
an understanding of the conditions within which, and human brings
with who he has to
 work. This familiarisation is very important as it instantly prepares
the incumbent to feel himself a part of the organisation.

SELECTED QUESTIONS

(i) What do you understand by recruitment and selection ? Discuss

the sources of recruitment.

(ii) Discuss the steps involved in the selection process. Do you think
the reference checks are important even for salesman ?

(iii) Describe the procedure for selection of right type of salesman.

(iv) What qualities will you look for in the candidate who has applied
for
a sales job ? Also discuss the selection process you will use.

Ch-2
Salesforce Training

INTRODUCTION

Having selected the most suitable salespeople in the organisation, the next
important function of the sales management is to train and develop these
new people according to the needs of the organisation. Training is so
important that organisations does not have a choice whether or not to
train personnel. The only choice with the management is that of the
method to be employed for training the personnel. If no planned
programme of training is established, the employees may engage
themselves in self-training by trial and error or by observing others and
thus training cost would not in any way, be lesser but it could be rather
higher.

All types of sales jobs require some type of training for their efficient
performance and therefore all sales people whether new or old require
training or retraining. Every new salesman irrespective of his past training,
education and experience needs training according to the work
environment of the firm. He must be taught how to perform specific
tasks. An old salesman also needs training when he is promoted to the
new position or transferred to the new sales job or when new skills are to
be learnt. Training is also necessary for better career advancement.
Training helps both the organisation and the employer. A trained
employee becomes an asset to the
firm. The entire production and marketing process culminates in the
making of sales, and management’s objective in training sales personnel is
improved job performance. Effective sales training also assists sales
management in discharging its social responsibility for controlling
marketing costs when sales people perform efficiently. Cost savings show
up in benefits to consumers as well as to the enterprises. A company’s
position in its industry is determined importantly by the performance of
its sales personnel. Skillfully designed and executed sales training
programmes have potential for helping sales personnel to achieve
effective job performance.

MEANING AND DEFINITION OF TRAINING OF SALESMAN

Salesman selected for the job need training for effective sales
performance. Here are a few definitions on sales training :

According to Edwin B. Flippo, “Training is the art of in-creasing

knowledge and skill of an employee for doing a particular job”.

According to National Society of Sales Training Executives, USA, “Sales

training is the intentional and sound application of ordinary human sense
to the problem of helping the sales personnel to make the most of its
talents”.

In the words of George R. Collins; “Sales training is an organised activity

involving fact finding, planning, coaching, practice, criticism and
accommodation in a purposive attempt to develop selling skills and to ask
those skills to selected native ability, casually acquired knowledge and
experience”
According to Michael J. Jucious, “The term training is used to indicate
only process by which the attitudes, skills and abilities of employees to
perform specific jobs are increased”.

From the above definitions, we conclude that sales training is a technique

or method by which efforts are made to increase the knowledge, skills and
efficiency of a salesman so that he may be in a position to solve the
problems of sales and provide active contribution in increasing sales of
the enterprise. Training is a systematic approach of the organisation which
aims at increasing the aptitude, skill and the abilities of the workers to
perform specific jobs. By training, the employee will acquire new practical
skills, technical knowledge, problem solving ability and attitude etc. Sales
training is a mean to increase the knowledge of the salesman about the
firm, product, market and customers so that he may sell the firm’s
product in an efficient manner.

OBJECTIVES OF SALES TRAINING

The main objectives of Sales training are :

(i) Acquainting the newly appointed salesmen with the principles of

salesmanship and techniques of selling.

(ii) Imparting knowledge of sales canvassing.

(iii) Making salesmen familiar with the firm’s policies and practices in
the
field of selling and also to make them familiar with the products of
the company.

(iv) Giving information about the dealers, middlemen, and the end
users of company’s products.
(v) Keeping the salesmen well informed about the laws governing
sales of firm’s products.

Salesmen should also be made aware of the position of competitors

(vi)
in the market and to show and also and the ways of combating such
competition.

(vii) Weeding out inefficient and unsuitable appointees or promotees.

(viii) Reducing sales force turnover.

(ix) Keeping ready a group of trained salesmen to take place of those

salesmen who resign or retire.

(x) Increasing efficiency.

Training must not be confused with education. Training is concerned with

increasing knowledge and skills in performing a particular job whereas
education is concerned with increasing general knowledge and
understanding of the total environment. Moreover training is imparted by
the employer and education is provided by our formal school system.

THE NEED OF TRAINING

The need of training salesmen arises not only at the time of hiring
salesmen but at all stages of their career. In the beginning, it is needed
because the newly appointed salesmen does not have the required
knowledge of the product and also the selling techniques, nor does he
know about the customers and their behaviour. Experienced salesmen
also need training to acquaint them with the new products of the firm and
those of the competitors. Son1e
people believe that sales training is necessary and possible only in some
big organisations with large sales force and sales budget. But this is not
true. Training is needed in all organisations big or small. There are three
basic reasons for this.

(1) To develop the right work-habits : Training the salesmen is

necessary to develop proper work culture. By training they learn how to
cover their territories, to approach customers, in what style to live while
travelling, what sort of records to keep, and how to plan and execute their
sales calls. Thus, they learn the best way of doing the things at the lowest
cost. If sales people are trained properly, they learn the right habits and
patterns, at the right time and from the right learning source.

(2) To offset the effects of Detraining : The second important point

why salesmen need training is that they develop something wrong in their
field experience and thereby they are constantly being detrained. They
adopt undesirable shortcuts, gravitate towards ineffective ways of selling
and often become discouraged and dispirited from the constant
buffeting of the competitive market place. It, therefore, becomes
necessary to train both new and experienced salespeople to offset the
negative effects of their field sales experience.

(3) Complexity of Personal Selling : Another factor contributing to the

need for effective sales training is the increased complexity and
sophistication of personal selling. New technology is changing the way
we used to sell earlier. The sales people, therefore, should be in constant
touch with such technologies through training.
Importance of Training to Salespeople and companies

The major benefits of training for Salesmen are as follows :

(1) Lower Turnover of the Salespeople : Proper training makes the

salesmen well prepared for the field work, resulting in the lower
rate of turnover of sales force. If they know their work and are
remunerated and motivated properly, they will not be leaving the
organisation. The lower rate of turnover results in reducing high cost
of training, recruitment and selection and also reduces a tag of
never stays with one firm’ which ultimately helps the salesman in
long run.

(2) Greater Sales Volume : A scientifically designed training

programme develops the right work habits & culture and offsets
the negative effects of the field sales experience. Salesmen learn
much about the product, the selling techniques and also how to
behave with company’s customers. This will naturally increase the
sales volume of the company and salesmen get rewards for selling
more.

(3) Better Customer Relations : A well trained Salesman knows how

to deal with the customers in a particular market situation. Training
makes the salespeople more flexible and innovative in meeting
changing competitive market situations. Training also helps in
maintaining good relations with present and potential customers.

(4) Lower Super vision Costs : Well trained salespersons require less
supervisory attention from their managers. They know what to do
and how to do it.
(5) Reduces Selling Cost : Training reduces the selling costs per unit
because of more territory coverage, higher sales volume, better use
of company supplied sales tools and correct application of company’s
selling policy or operating procedures, etc.

Thus, the net effect of training is development of proper work

culture and offsetting negative effects of field detraining. Sales volumes are
maximised and selling expenses are reduced to the minimum, resulting in
higher profits, by proper training..

CONTENTS OF A TRAINING PROGRAMME

The subject matter to be covered in a training programme vary from

organisation to organisation due to the nature and the size of the
organisation. But, in general, an effective training programme should
cover the following aspects :

1. Basic Principles of Salesmanship : A salesman should be well

acquainted with the principles of salesmanship viz. how to approach and
motivate the customers to buy company’s products and to know how he is
to satisfy customers’ needs and solve their problems. Salesmanship is an art,
yet it is a science too. The salesmen must know the basic principles of
salesmanship.

2. Information about the Firm : The Sales representative must know

about the company’s sales policies and procedures, organisational set-up,
company’s past history, reputation and goodwill earned. It enables the
salesman to do his work well.
3. Information about the Product : A good tinning programme
should impart knowledge to the salesman about the characteristics of the
product, its quality, usefulness and method of using it. It will enable him
to persuade the potential customers and if necessary to demonstrate its
use. Thus, a trained salesman can help in increasing the company’s sales
volume.

4. Information about the Customers : The Salesman must the trained

in different types of approaches to reach the customers and must also be
told about different motives which prompt them to make purchases. There
are different types of customers viz. silent, talkative, ill-tempered,
suspicious, nervous, hesitant, argumentative etc. The Salesman must know
how to deal with each one of them and satisfy them to get the product
sold. There are different motives of different customers. They include
considerations of health, convenience, the sense of fear, pride, fashion,
recreation, affection etc. The salesmen must also know how to cash on
these motives.

5. Information about market Conditions : The sales representative

should be well informed about the market conditions Le.”, policies and
procedures followed by the competing firms regarding pricing, discount
and commissions allowed to customers, premium schemes, quality of the
product etc. Such knowledge will help him in convincing the customers
about the company’s products and policies.

6. Matters pertaining to day-to-day work : Salesmen should also be

given proper training to know the following :

(i) Drafting of periodical reports.

(ii) Receiving of and Replying to letters.

(iii) Preparation of orders, cash memo and credit bills.

(iv) Maintenance of their own Sales accounts.

(v) Arrangement of display and demonstration of company’s products.

Thus, a training programme, should cover all the above matters so that
the salesman should possess ample knowledge about the firm, customers,
products, and the market etc.

METHODS OF SALES TRAINING

A number of methods to train salesmen are in use. The choice of any of

the methods depends. upon several factors like cost of training,
number of trainees, purpose of training, depth of knowledge required,
background of the trainee and so on. The Sales Manager may adopt one
or more of the following methods according to the needs of the
organisation :

1. On the Job Training : It is one of the most popular method of

training salesman. Under this method the salesman is trained on the job
itself. He is given opportunities of performing the activities of a typical
salesman. Usually such on the job training is made under the supervision
of a senior salesman. By keenly observing and actively participating in
the training, the salesman is able to rectify his mistakes and defects.
The senior salesman also points out his defects in the course of training
and explains the ways to correct it. Once the trainer thinks that the
salesman has gained enough knowledge and training to work
independently, he is allowed to do so.
2. School and Colleges : Some concerns may have many training
centers. The salesman are given the sales training in those centers. Smaller
firms may admit their trainee salesmen into colleges and schools which
provide coaching in salesmanship. The sponsoring authority has to pay
the tuition fees of the salesman to be trained and authority also
instructs them to attend such classes or courses to gain knowledge.

3. Training through Correspondence : Where the salesmen are

widely scattered and training needed by them are not very critical in
nature, correspondence training can be provided. It is just like getting
postal coaching. The training materials are sent to the trainees by post
regularly. In case of any doubts, the trainee salesman can clarify his
doubt by post. After the completion of such correspondence training, the
salesman are some times asked to appear in a test. This is one of the
cheap and easy methods. of training salesmen. This method can be
adopted only when the training required is not of such importance.

4. Sales Meetings and Conferences : The members of the sales

department may gather at regular intervals say for example weekly,
monthly or even half yearly for a meeting or conference. These meetings
or conferences of sales personnel are meant for educating sales people
about various aspects of sales. The participants express their views and
opinions about the present strategies and various aspects of sales. To
make these conferences and meetings interesting, sales story, dramas,
demonstrations are included in the schedules.

5. Sales Manuals : A sales manual of a company is the first course

for the trainee salesman. These sales manuals contain information about
the
history of the firm, policies, particulars of products, advertising, sales
promotion activities etc. Besides, they also provide instructions to
salesman from time to time. They are rightly called ready guide or a
tool of self study.

6. Visual Training : Visual training programmes are imparted with the

help of slides, strips, video recorders, etc. which tells a sales story or a
part of it. There are also other aids like black boards, charts, graphs,
diagrams, etc. with the help of which the salesmen are given training on
a particular aspect of sales. For example, approaching a salesman arid
dealing with annoyed customers can be shown. To make such
programmes successful, audio aids are also used. Audio aids include
tape recorders and record players. These are meant to improve the style
of speaking.

7. Role Playing : It is a newly developed method of training. Under

this method a play, fully scripted and rehearsed, is presented on a stage
so that the trainee salesman may understand the real life situation. By
witnessing such acts, the sales man is able to know the art of dealing with
various types of customers. Some times one saleman plays the role of
a customer or prospect and another ‘salesman tries to convince him in the
role of a salesman. The main advantages of this training technique are
that (i) it adds realism and interest to the training; (ii) increases the.
knowledge of the trainees in reacting immediately to selling problems in
a face to face sales situation; and (iii) the trainee gains a better
understanding of the dynamics of a sales situation because they
participate actively in the role playing. This type of training is useful
mainly for executive position. The weaknesses of the technique are (i)
trainees sometimes feel very awkward and harassed when
 they play their role in public and
audiences pass comments; (ii) the role
playing skills of the trainees vary
widely and, therefore, their
performance may not be upto the mark.
Both these defects can detract salesman
from the effectiveness of this training
device.

8. Lecture Method : This method is very commonly used in India. In

cases where depth of theoretical knowledge is required, formal lectures are
arranged by the organisation. Such lectures are delivered by a person
presumed to be a master of the subject at hand. The speaker may be an
employee of the organisation specially appointed for the purpose or an
official of the organisation such as chief sales executive or sales
manager or he may be an outsider but the master of the subject. Lectures
sometimes are supplemented by visual aids. To make lectures effective,
usually group discussions, seminars, and written tests are organised to
follow such lectures. Trainee salesmen attending these lectures should
take notes and ask questions.

The method is very economical as the cost of training per trainee is very
low. It economizes trainees’ time and trainer’s time. It is very effective
method for transmitting straight factual information. The difficulty inherent
in the lecture method is that, unless the lecture is not carefully prepared,
planned and rehearsed, the trainees will not be receptive.

9. Game or Simulation Method : This method somewhat resembles

role playing. It uses highly structuied contrieved situations based on reality
in which players assume decision making roles through successive rounds
of play. A unique feature of this technique is that trainees receive
informative feedback. In one game, for example, trainees play the roles
of decision
makers in customers’ organisation, using data ordinarily available to make
decisions on various aspects of the problem say, on the timing and size of
orders, and so on. The results of these decisions then are calculated by
referees and feedback for the players to use in their next round of
decisions.

The technique is mainly used to prepare trainees for management

positions. The method is not extensively used because, of the initial
difficulties in preparing games.

The simulation has a number of advantages. (i) participants take active

part in the games, hence they learn difficult tasks easily; (ii) players
develop skills in identifying key factors influencing decisions; (iii) Due
to builts in information feedback features, games are effective in
emphasizing the dynamic nature of problem situations and their inter-
relationship. The main limitations of the technique are : (i) It is a time
consuming process and a considerable time is required to play games,
(ii) Since game designs generally are based on ordinary decision
making processes, their rules often prevent payoffs on unusual or
novel approaches. (iii) Players may learn something that are not so.

10. Demonstration : Under this method, the trainer shows trainees the
working of the typical and complex products which need conveying
information to users. The method is highly appropriate when a new
product or selling technique is developed. Demonstrating how a new
product works and its uses can be extremely effective, much more so
than presenting the same thing by way of-a lecture.
Demonstration can generally be used in conjunction with other training
methods say lectures. Showing (demonstrating) something is more
effective than telling. Efficient trainers use this method very extensively.

EVALUATION OF TRAINING PROGRAMME

Sales training programmes have become a significant part of most of the

companies. Their evaluation i.e., measuring programme effectiveness is
necessary step, because a sales training programme requires a huge
amount of investment of time, money and effort, and therefore,
management must expect results commensurate with the total
investment.

In some respects, evaluation of sales training programme is not difficult.

As soon as the training programme is over, the trainees may be tested in
terms of what they feel about the training programme. Written
questionnaire may also be used for this purpose during and after the
programme. They may also be tested to find out if they know the pertinent
facts about products, company policies, and sales operations.

On the other hand, in the areas of sales skills and personal attitudes, the
evaluation of sales training programme is difficult. There are three main
reasons for this :

(i) Skills and attitudes are difficult to observe and to evaluate

(ii) objectively. One can never be sure to ascertain which changes in
the skill, and

attitude are the result of training and which changes may have
existed in the trainees before they are trained.
(iii) After training, one cannot be sure which skill, attitudes and
knowledge
the trainee has learnt from sales experience and which have came
from the training programme itself.

Like other educational activities, training is also a semi-measurable

activity.

Evaluating the effectiveness and efficiency of sales training can never be

a complete and accurate activity. During their sales career, the
salespeople acquire knowledge, skills and attitudes through experience or
through training – formal or informal. The process of evaluation is,
therefore, an unending process and a long term activity.

Training Evaluation Approaches

There are a number of approaches to evaluate the training programmes.

Some of them are given below :

1. Comparing Results with Objectives : Sales training programmes

are organised for some purpose. Certain needs, aims and objectives are
determined before training programmes are designed. The core of the
measurement is to compare the programme aims with the results such as
improved selling performance on the job etc. One can thus compare the
results with training aims and evaluate the training techniques used and
change or improve them to better fit market conditions.

But,. in this approach, the main difficulty is that it takes time to pick up
efficiency on the job and results may not show up until months after
training completion. In such cases, management may make some
comparisons of salesman’s performance, with the results. Such as the
length of time new
 sales personnel (who have completed
initial sales training) take to attain the
productivity level of the average
experienced salesperson; the
performance against standards of
trained and untrained sales personnel;
and the respective training histories of
the best and the worst performers on
the sales force. Such companies plot
each salesperson’s sales records on a
before and after training basis,
generally converting these records to
market-share percentages.

2. Through Customers : Some companies solicit the views of

customers on the salesperson’s performance after training. Such
customers can be contacted personally or by mail for their opinions.
Customer’s reactions may point out the strengths and weaknesses of
the training programme. Further customers have unique insights into their
needs that can be included in training programmes.

3. Observing Salespeople at Work : Some firms send skilled

observers with salespeople in the field after the training is completed.
Such observers are such persons who are closely associated with the
designing of training programmes and its objectives. They observe and
report how the salespeople are or are not applying the skills and
knowledge which were provided in the training. They can thus, evaluate
the training techniques used and change or improve them to better fit
market conditions.

4. Interviews and Written Tests : Some companies measure

programme effectiveness on pre and post training interviews and written
test basis to determine how much trainees have learned in their
aptitudes, skills and knowledge. Written tests are usually arranged in
lieu of or along with the interview.
5. Manager’s Opinion : Immediate bosses (sales managers or
supervisors) of trainees who have undergone training may be useful source
of information about the value of programme. They can report the
performance of the trainees after the programme. They can also suggest
what more should be taught to make the trainees fit for the market
situations. Management should measure the effectiveness of sales training
programme during and after the programme through any of the methods
discussed above. Such measures indicate what trainees have learnt. If
evaluation shows that something is lacking, the management must
redesign the training programme. This process begins with a re-
examination of the training objectives, programme contents, teaching
methods, location of training and training personnel. If
evaluation work show that the programme is satisfactory in all respect,
in such cases also, management should not discontinue the training
programme because the market place is in a constant state of change as
competitors introduce new products and new uses for the product. New
competitors also enter the market. Changes also occur in economic, socio-
cultural, demographic and political arena. Consequently the skills, attitudes
and knowledge required for successful selling are also in a constant
change and the form and content are always subject to change. The training
programme, therefore, must continue to make them over fit into market
conditions.

SELF-TEST QUESTIONS

1. What do you understand by training to salesman? What are the main

objectives of sales training?

2. Describe in brief the different methods of training salesmen.

CH-3

DESIGNING A SALES-COMPENSATION PLAN

Whether contemplating major or minor changes or drafting a completely

new sales-compensation plan, the executive should approach the project
systematically. Good compensation plans are built on solid foundations. A
systematic approach assures that no essential step is overlooked.

(A) Define the Sales Job

The first step is to examine the nature of the sales job. Up-to-date written
job descriptions are the logical place to start. If job descriptions are
outdated, or if they are not accurate and incomplete, revision is in order.

Other aspects of company operations should be considered in relation to

their impact on the sales job. Sales department objectives should be
analyzed for their effect on the salesperson’s job. Sales volume objectives,
for instance, whether in rupees, units of product, or numbers of dealers
and distributors, are translated ultimately into what is expected of the
sales personnel, as a group and individually. The impact of sales-related
marketing policies should be determined. Distribution policies, credit
policies, price policies, and other policies affect the salesperson’s job.
Current and proposed advertising and sales promotional programmes
should be evaluated as per their significance for sales personnel. The
review of company objectives, policies, at promotional programmes should
assist in clarifying the nature of the salesperson’s goals, duties, and
activities.
(B) Consider the Company’s General Compensation Structure

Most large companies, and many smaller ones, use systems of job
evaluation to determine the relative value of individual jobs. Job-
evaluation procedure is not scientific; it is an orderly approach based on
judgment. It focuses on the jobs, without considering the ability or
personality of individuals who do the work. Its purpose is to arrive at fair
compensation relationships among company jobs.
(C) Consider Compensation Patterns in Community and Industry

Because compensation levels for sales personnel are closely related to

extern, supply-and-demand factors, consideration should be given to
prevailing compensation patterns in the community and industry.
Management need answers to several key questions : (1) What
compensation systems are be in, used? (2) What is the average
compensation for similar positions? (3) How are other companies doing
with their plans? (4) What are the pros and con of departing from industry
or community patterns? The answers to these and related questions and
their relative significance, differ with the company and the industry.
(D) Determine Compensation Level

Management must determine the amount of compensation a salesperson

should receive on the average. Although the compensation level might be
set through individual bargaining, or on an arbitrary-judgment basis,
neither expedient is recommended. Management should ascertain whether
the caliber of the, present sales force measures up to what the company
would like to have. If it is too low, or if the company should have
lowergrade people than those currently employed, management should
determine the market value of sales personnel of the desired grade.
Management should also weigh the worth of individual persons to the
company through estimating the sales and profit that would be lost if
particular salesperson resigned. Still another consideration in setting
the sales compensation level is the amount the company can afford to
pay. The result of examining these and other factors, pertinent to the
situation of the individual firm, is a series of estimates for the total cost
of salespeople’s compensation.

(E) Provide For the Various Compensation Elements

A sales-compensation plan has as many as four basic elements : (1) a

(fixed element) either a salary or a drawing account, which is intended to
provide some stability of income; (2) a variable element (for example, a
commission, bonus, or profit-sharing arrangement), designed to serve as
an incentive; (3) an element providing for (reimbursement of expenses or
payment of expense allowances; and (4) an element covering the fringe or
“plus factors”, such as paid vacations, sickness and accident benefits, life
insurance, pension and the like. Not every company wants to, or should,
include all four elements.
Management should select the combination of elements that best fits the
requirements of the firm’s selling situation. The proportions that different
elements should bear to each other vary with the particular situation.
However, most companies split the fixed .and variable elements on a
60/40 to an 80/ 20 basis.

(F) Special Company Needs and Problems

Although a sales compensation plan is no panacea for marketing ills, yet

it is often possible to construct a plan that increases marketing
effectiveness. If a company’s earnings are depressed because sales
personnel overemphasize low-margin items and neglect more profitable
products, it may be possible, despite the existence of other managerial
alternatives, to adjust the compensation plan to stimulate the selling of
better-balanced orders.

Specifically, variable commission rates might be set on different products

with the higher rates applied to neglected products. Or, as another
example, a firm might have a “small-order” problem. It is possible to design
compensation plans that encourage sales personnel to take larger orders.
Commission rates can be graduated so that higher rates apply to larger
orders. However, the revised compensation plan probably should be
supplemented by a customer classification and call scheduling system,
enabling management to vary call frequency with account size.

(G) Consult the Present Sales Force

Management should consult the present sales personnel, as many

grievances have roots in the compensation plan. Sales personnel should
be asked for their likes and dislikes about the current plan and suggest
changes in it. Their criticism and suggestions should be appraised relative
to the plan or plans under consideration. But at this point, management
should compare the caliber of the present sales force with that of the
people whom it would like to have. If the present salespeople are not of
the grade that the company wishes to attract, their criticisms and
suggestions may be of limited usefulness.
Since, however, nearly every sales force has some people of the desired
caliber, more weight can be attached to their opinions than to those of
others.

(H) Reduce Tentative Plan to Writing and Pretest It

For clarification, and to eliminate inconsistencies that have crept in, the
tentative plan should be put in writing. Then it should be pretested. The
amount of testing required depends upon the extent to which the new plan
differs from the one in use. The greater the differences, the more thorough
should be the testing.

The plan should be tested for the sales force as a group and for
individuals) faced with unique selling conditions. Analysis should reveal
whether the plan permits earnings in line with the desired compensation
level. If deficiencies show up, the plan may not be at fault; weaknesses
may be traced to the way territorial assignments have been made or to
inaccuracies in sales forecasts, budgets, or quotas.

(I) Revise the Plan

After test results have been analyzed, the plan is revised to eliminate
troublespots or deficiencies. If alterations are extensive the revised plan
goes through further pretests and perhaps another pilot test. But if changes
have been only minor, further testing is not necessary.
(J) Implement the Plan and Provide for Follow-Up

At the time the new plan is implemented, it should be thoroughly explained

to sales personnel. Management should convince them of its basic fairness
and logic. The sales personnel should understand what management hopes
to accomplish through the new- plan and how this is to be done. Details of
changes from the old plan, and their significance, require explanation.

Provisions for follow-up should be made, in order to ascertain how the

plan is working, out in practice. From periodic check-ups, need for
further adjustments is detected. Periodic checks provide evidence of
the plan’s accomplishments, and they help uncover weaknesses needing
correction.

REQUIREMENTS OF A SOUND COMPENSATION PLAN

Designing a sales compensation plan is not an easy task. There is no

single compensation plan which suits all sizes and types of firms. Devising
a sound
plan, two considerations must be there in mind- (i) such plan must motivate
the sales people to do what the sales management wants. The sales
management wants maximum sales and yet to keep sales expenses a
minimum, (ii) From the sales person’s point of view, the basic concern is
to get a fair earnings in comparison with the incomes of his or her peer
group, of other company employees, and of the relevant labor market.
He also wants a balance of security (a fixed income) and payments for
extra efforts (incentive income). An effective compensation plan must
represent both points of view. A carefully designed compensation plan
must attract, motivate and retain capable salespeople within the
company’s budget.

The main characteristics of a sound compensation plan are as follows

:

(i) Simplicity : An effective compensation plan should be, as simple

as possible, easily understandable, and simple to operate.

A plan which is not easily understood loses its value as a

motivator.

(ii) Fairness : The compensation plan must ensure equity. It must be

fair
 both to company and its sales force. Compensation to sales force is
the major item of selling costs and therefore, it should be in line
with sales volume. The plan should not have any room for
discrimination against or for any individual salesman. A plan
should be to reward ability and productivity and therefore, it
needs a constant watch, scrutiny and willingness to revise the
plan, if necessary, to even out inequities resulting from territorial
differences.
(iii) Incentive : A sound compensation plan should stimulate the
salespeople to get what the company wants from them to meet the
company’s goals. In particular, it must motivate the salespeople to achieve
higher sales profits rather than higher sales volume.

(iv) Flexibility : A sound compensation plan should be flexible enough

to cope with the changing conditions of the company, salesman and
the market. Changes in the supply of salespeople, products and
customers as well as changes in the competitive situation will
require adjustments in the company’s compensation plan.

(v) Control : The salespeople are expected to do what the sales

management pays them to do. A sound compensation Plan should

control and direct the salespeople’s activities. The salesman should be

penalized if he fails to achieve the sales goals.

(vi) Guaranteed Income : The plan must guarantee a minimum

compensation so as the salespeople can maintain a minimum
standard s s s t a n d a r d living standard. A
Standard of living. A person worried about money matters cannot do
justice in performing his job.

(vii) Economical to Administer : The plan should be economical to

administer
otherwise it will add to the selling cost.

(viii) Help to attain objectives : A sound plan should help to attain the
objectives of the sales organization and of the firm. The main
 objective of the sales organizations is to earn higher profits with
lower selling costs.
(ix) Competitiveness : The level of compensation must be competitive
with that of other competitive firms. Attractive pay is necessary to
attract, keep and develop a good sales force.

Thus, in designing new plans or modifying old ones, the

management must consider the above points into consideration.

VARIOUS METHODS OF REMUNERATING SALESMEN

Monetary compensation is the single most important factor to affect the

efficiency of a salesman. Efficiency of salesman has direct relation with
the method of remuneration adopted by the company. There are a
number of methods of rewarding salesmen, it can, however, be brought
under the following three basic types of compensation plans :

(1) Straight Salary Method

(2) Straight Commission Method

(3) Combination of Salary and Other Variable Elements

(1) Straight Salary Method

This method is the simplest one. Under this method, salespeople get a
fixed sum of money at regular intervals (say weekly, fortnightly or
monthly) irrespective of the turnover he effected during the period.
Regular increments are given in the salary scale. The method is suitable in
the following cases :
(i) When a salesperson’s actual work function is not directly related
sales volume or to other quantitative measures of productivity. It is often
true when a salesperson is to perform many other non-selling functions
also such as market research, customer problem analysis, servicing and
sales promotion etc.,

(ii) when the firm introduces a product or develops a new market,

(iii) when a person is under training, and when there are seasonal
variations
in sales.

Advantages : Straight salary method of compensation has several

advantages over other methods as follows :

(i) It provides strong financial control over sales personnel. The

management has powers to direct the activities of the sales
personnel along the most productive lines.

(ii) There is more flexibility for management to switch customers and

territories without much resistance from the salesperson. Thus,
management can recast the field job according to the changed
selling situations.

(iii) This method is simple to understand and economical to administer.

(iv) From salespeople stand point, the straight salary plan ensures
stability of income and makes them free from uncertainties.
They are not
feared of the cut in earnings even when their efficiency is
temporarily impaired by injury or sickness.
Disadvantages : The system has several weaknesses :

(i) There is no monetary incentive to do hard work. Generally

salesmen do only an average rather than an outstanding job.

(ii) The system does not distinguish between efficient and inefficient
workers. All are paid on time basis.

(iii) It requires a continuous and strict supervision so that a

minimum
Can be obtained.

(iv) Due to higher sales force turnover, the cost of recruiting,

selecting and training goes up.
 (v)
From management point of view selling cost per unit vary with
the variation in sales volume because salary paid to salespeople
is a fixed expense and has no relation to sales.

(2) Straight Commission Method

Straight commission method is based on the theory that individual Sales

personnel should be paid strictly according to productivity. Sales volume is
considered to be the best measure of productivity and therefore,
salesperson is remunerated on the basis of sales effected by him. He
gets a fixed percentage of commission on total sales volume effected by
him during a period of time. The rate of commission may vary from
company to company or product to product or according to size of
orders.

Suitability : The plan is suitable in the following cases :

(i) Where the work assigned is of standardized nature such as

collecting orders etc., and the non-selling duties are relatively un-
important.
(ii)
Where management is more concerned with the volume of sales.
Advantages : The system claims the following advantages :

(i) Direct motivation is the key advantage of straight commission

method.
A strong incentive is provided to salespeople to increase sales
volume. i.e., productivity. Strong performers are attracted and
encouraged whereas marginal performers are eliminated.

(ii) Under this system, sales expenses have direct relation with sales
volume hence such expenses are variable in nature. Cost of sales,
therefore, can be budgeted in advance.

(iii) The system is flexible. The rates of commission can be revised

depending
upon the market conditions and the need of earning higher profits.
 Products fetching higher gross margins may bear higher rates of
commission.

(iv) The system requires no strict direct control and supervision over
the
salesmen. In other words, it encourages voluntary efforts to increase
sales.

(v) It ensures fairness to all people with poor performance get less
whereas a rewarding performance is suitably compensated.

Disadvantages : The system records the following weaknesses :

(i) Loss of control over salespeople’s activities is the major weakness

of this system. It further compounds when they pay their own
expenses.

Some undesirable selling practices develop under this system. The

ii) Strong incentive to sell more encourage over stocking, misrepresentation
of goods, considering individual accounts their private property and other
undesirable practices. Such practices lead to loss of goodwill of the firm.

(iii) Because sales people are more concerned with the sales volume,
they
prefer to sell easy-selling low margin items and neglect harder-top
sell high margin items. It will lower down the contribution. To
correct this, management can use differential commission rate.

(iv) The earning of the salespeople, under this system is quite uncertain.
They cannot plan their activities. If salesperson’s efficiency is impaired
temporarily, they will lose their earnings for that period. Their
earnings depend on so many factors and many of which are
beyond their control. A financially strained salesman cannot work
efficiently.

MODIFICATIONS OF STRAIGHT COMMISSION PLAN

Several modifications of the straight commission plan have been suggested

to overcome the disadvantages. The following are the popular modified
schemes :

(A) Commissions With Drawing Account : Under this system, the firm
maintains salesperson’s individual accounts from which money is advanced
to the salesperson-against future commissions and the commissions due are
credited to this account periodically. The overdrawn amount is adjusted in
future.
The advantages of this system are :

(i) It gives salesperson some security of a salary.

(ii) The management may have more control over the salespeople’s
activities.
The main problem in this system arises only when the salesperson fails to
earn sufficient commission to payoff the overdrawn accounts. In such
circumstances, either he may quit or be fired. In such cases, the company
has to bear the loss.

(B) Sliding Commission Plan : Under this plan, the rate of commission
increases with the increases in the volume of sales. This plan may also be
known as progressive commission plan. For example, a salesperson may
be paid 50/0 commission on sales upto Rs. 50,000, 6% for sales from
Rs. 50,000 to Rs. 1,00,000 and 7½% on sales above Rs. 1,00,000.

Under this plan, the earning of the safes people increases more than
proportionately. The plan provides a strong stimulus to increase sales.

(C) Regressive Commission Plan : This plan is just reverse of the

progressive plan. The rate of commission under this plan goes down with
the increase in sales and therefore earning of the salespeople decreases
more than proportionately. This plan gives strong financial incentives to
initial sales. The plan goes against common sense but it works well in
situations where the major task is to achieve the initial sales.

(D) Varied Commission Plans or Differential Commission Plans :

Under such plans, different rates of commission are fixed for different
items. Higher commissions are given for selling products with high gross
profitability and lower commissions for products with smaller profitability.
Though, it is not as simple as the straight commission plan, it is more
flexible. It also relates selling expenses to profitability.

(3) Combination of Salary-and-Incentive Plan : Both the straight

salary and straight commission methods have their own limitations. To
overcome the weaknesses of the two systems, certain other incentive
methods have been developed. Some of these are :

(A) Salary Plus Commission : This system is developed as an attempt

to offset the disadvantages of both the straight salary and straight
commission methods and capture the advantages of both. Under straight
salary system, incentive to sell more is not there. Where the straight
commission system is adopted, the executive has less financial control
over the non-selling activities of the sales force. Blending of the two
plan, will provide the management both control and motivation. Under
this method, each salesman is guaranteed of a minimum salary each
month. Over and above the fixed salary, the salesman also gets a fixed
percentage of commission on sales. It provides a security of income
and also an incentive to earn more by increasing the sales volume.

This method may take any of the following two forms :

(a) Salary plus commission on total sales.

(b) Salary plus commission over quota sales.

(a) Salary plus Commission on Total Sales : This system is quite simple
and most widely used. The salesman is paid a fixed and predetermined
amount as salary. Commission is also paid on totals sales effected by him.
(b) Salary Plus Commission Over Quota Sales : A fixed amount of
salary is paid in this method also but the calculation of commission is
not done on total sales effected by him. Under the method, a minimum
quota of sales is fixed for each salesman and no commission is paid until
he crosses his quota figure. In other words, he has to qualify himself
for the benefit of commission by selling over the quota fixed for him
over a period of time.

(B) Bonuses : Bonus is different than commission. It is an incentive

payment made at the discretion of the management for accomplishing a
specific level of achievement. It is usually a reward for special efforts and
provides direct motivation. Unlike commission, it is not directly related to
sales performance. Bonus is an additional incentive rather than part of the
basic compensation plan. Payment of bonus is given in addition to the
amount of salary or salary and commission or commission.
Different firms use different bases for calculating the amount of bonus.
In most cases, bonuses are paid in cash, but in certain cases, they are paid
in kinds. Thus, combination compensation plan provide security of stable
income and the direct stimulus to sales people to increase sales volume and
earn more. The main weakness of the system is that more complicated
records are required.

Ch-4
Sales Territories
SALES TERRITORIES

The task of assigning the sales territories to the sales representatives has
a significant effect on the functional efficiency of the sales department.
The sales representatives do not work within the boundaries of the
organisation. For them, working at the market place is the prime
responsibility. In case the territories are not assigned by clear planning,
there is likely to no control over the activities of the sales representatives.
Also, in case the territories are too large or too small, the performance is
bound to be affected. In case the nature of the territories is not
homogenous, the comparison of the performance of the sales
representatives becomes difficult. With this background of the difficulties
that can arise in case of unplanned territory allocation, it is of prime
importance that the managers plan the territories of the companies
very carefully.

Sales territory : the concept

The territory can be defined in terms of the size of the area in which the
sales representatives operate as well in terms of the number of customers.
Operationally, it is better to define the sales territory as a grouping of
customers, and prospects assigned to an individual sales person. This
definition lays more stress on the customers and prospects in an area
instead of the size of the territory. A company might prefer to keep
more sales representatives in a densely populated metropolitan city and
keep a few sales representatives in an area with a lesser density of the
customers and prospects. E.g. Tata Motors selling Harrier would prefer to
keep more
sales representatives in Delhi and might keep only a few sales
representatives in the entire state of Haryana or Himachal Pradesh,
although in terms of the size the states are much bigger.

PURPOSE OF ESTABLISHING SALES TERROTORIES OR

The benefits of setting sales territories

The task of setting up sales territories is a continuous process and in

constantly updated or revised keeping in view, the changes that occur in
the marketplace. The sales territories are primarily set up to facilitate
planning and control of sales operations. In specific terms, the reasons of
establishing the sales territories can be stated as under :

Proper coverage of market

In the present competitive world, the market coverage is the key to

gaining competitive advantage. The opportunities of the marketplace
cannot be wasted
and allowed to go into the hands of the competitors. So, the competition,
to provide adequate coverage of the market. In the present age of
competition, it is the sellers market and, not the buyers market. It is not
expected out of a customer to wait to purchase the product. So, the
companies have to make themselves available to the customer so that the
customer can purchase the product.

Controlling the sales expenses

While sales department is a major source of returns to the company, it is

also a major cost centre because of the investment and the costs incurred
in achieving the sales. The territory design has a key role to play in
controlling the sales expenses. In case the territories are too small in
terms of numbers of customers and prospects, the sales representatives
achieve the sales at a greater cost. The limit to the number of customers
would not allow the sales to grow beyond a point and the overhead
expenses would increase the
cost of sales. Similarly if the territories are large in terms of number of
customers, it might not-be possible for the sales representative to be able
to contact all of them. This would result into loss of some opportunities for
the company. If the sales territories were too large in terms of physical
size, the cost of sales would mount because of the greater traveling
expenses and less of productive time spent with the customers.

The sales representatives have to report to their area sales managers and
regional managers. So, an error in the territory design would affect their
organization structure also that thereby adding to the sales expenses. Thus,
the territory design has to be optimum to achieve the maximum sales at
the, lowest possible costs to increase the profitability.

Facilitating evaluation

The sales representatives are evaluated for their performance so that they
can be adequately compensated. In order to achieve a fair evaluation, the
sales representatives must have an equal platform for evaluation. The well
designed sales territories facilitate their evaluation. The territories must-be
so designed that they can be considered as homogenous for comparing the
performance of the sales representatives. It is noteworthy that the nature
of duties of the sales representative does not allow their performance
evaluation in the manner in which the functionaries of other department of
the company are evaluated.

Contributing to morale of sales force

As explained in the previous point, correctly designed territories facilitate

evaluation of the sales representatives When the sales representatives feel
that they are getting their due reward for their efforts, they feel motivated
to achieve higher levels of sales performance. Their commitment to the
company increases and their morale i.e. their drive increases.

Coordination

The territories help in achieving the coordination between personal selling

and advertisement. If left alone, both of them cannot be an effective means
to achieve higher sales. It is their combined effort, which can achieve the
sales objectives. By the allocation of territories, the specific requirement
of each area can be studied and the advertisement and the sales promotion
scheme can be designed accordingly. These customized approaches helps
in servicing the customer in-a better way and thus gain more sales.
E.g. A company can divide the Indian states as territories and study the
requirements of the customers of each state. Each state will have its
different language and may require different sales promotion
campaigns. Correctly formed territories will reduce the wasteful
expenditures into unproductive sales promotion schemes and adopt a
more effective and targeted approach.
STEPS FOR TERRITORY DESIGN

The steps for designing the sales territory very with the nature of business
operation. For example the principals followed while designing the sales
territories would be very different in case of FMGC companies like
Hindustan Levers, P&G etc. in comparison to consumers durable
companies like Maruti etc. Still some generalisation can be drawn
regarding the steps for setting of the sales territory :

(i) Selecting a basic geographical control unit.

(ii) Estimating the sales potential in control units.

(iii) Designing tentative territories from control units

(iv) Adjusting for coverage difficulty and redesigning the territory.

Selecting a basic geographical control unit.

The starting point in the planning of the sales territories is the basic
geographical unit. The commonly used geographical control unit in India
is the district or the state. In case of metropolitan cities, the territories
are allocated as per residential/business localities. Some of the other
bases of selecting a control unit are Zip code numbers (practiced in
U.S.A.), cities, trading areas etc. While selecting a control unit, it is
preferable to keep them small and allocate them on the basis of
geographical proximity in order to facilitate the sales operation
subsequently. Such an allocation of territories also facilitates readjustment
of territories at a later stage. The various basis of geographical control
units are further-described
Countries

The firms operating in multinational markets divide their markets on the

basis of the countries. The countries can be assumed to be homogenous
markets, although large countries need to be further subdivided into smaller
territories. However, the companies in the initial stages of multinational
marketing find it most convenient to divide their market on the basis of
countries or even groups of countries such as Middle East, Far East,
Europe, South Asia etc.

States

For the firms operating in India, state is considered to be a very

convenient geographical control unit. The companies might even use
groups of states and call it and region. The region shall be further divided
into the states and then the states further divided if necessary to districts
under the area sales managers with sales representatives operating in
the smaller towns. E.g. Cipla Ltd. A major pharmaceutical company has
22 regions in the country, each comprising of one or more states.
Similarly, most companies divide all India sales operations into five
regions. namely North, South, East, West and Central India. Each region
consists of a group of states.

Districts

With the increased competition, the companies have to formulate

territories much smaller than the states because they have to increase
their reach. For this purpose, the district serves as a logical basis for
division into territory. However, most companies divide the districts
according to their convenience
and may not adhere to the administrative districts as formed by the
government. E.g. Shahbad, although comes under district Kurukshetra,
most companies count it as a part of the territory of Ambala district
because the stockists of Ambala visit Shahbad while those of Kurukshetra
do not. So, the sales in Shahbad are not counted into the performance of
Kurukshetra district and are counted as the sales performance of
Ambala district. Analogous to districts, American companies use Zip
code as a basis for making the territories. Zip code contains area that can
be counted as one homogenous market.

Metropolitan cities

Metropolitan cities comprise of a large population in a relatively smaller

area. The population in Delhi is, almost equal to that of the state of
Haryana although in terms of area it is very small. So, in case of
metropolitan cities, the localities are divided depending on the basis of the
number of customers and prospects living in an area. Usually, the people
living in a locality can be taken as a fairly homogenous in terms of their
income levels, education and consequently consumer behaviour. So, they
can be taken as one territory. E.g. people of Greater Kailash and Nehru
Place localities in Delhi can be taken as one territory while those living,
in Janakpuri and Vikaspuri can be taken as another territory. Similarly,
people living across river Yamuna can be taken as another territory. The
economic level, education, occupation etc. in these localities is likely to
be homogenous. White the first is a posh locality, the second one may
be taken as middle income class locality and the third as a lower income
locality. The companies can allocate the resources to these territories and
achieve their sales targets.
Territory allocation on the basis of product

In certain cases, companies are resorting to allocating territories on the

basis of products. E.g. Cipla Ltd. Has representatives promoting
specialised products such as anti asthmatic and cardiac range of products
in addition to the representatives selling the regular antibiotics and anti
inflammatory .products. The representatives promoting specialised
products are assigned special territories, exclusive of the regular
territories. There might be representative selling cardiac products only in
Punjab and Chandigarh while the other may visit the doctors only in
Haryana and Delhi. With the evert increasing product lines of
companies, this basis bf territory allocation is also becoming quite
popular.

Estimating the sales potential in each control unit

Once the basis of a control unit is established, the sales potential of each
control unit is estimated. The sales potential is estimated not only in the
present terms but also the future terms by estimating the number of
prospects in a sales territory. For this, the customer profile must be
defined and an estimate of the number of customers is made. Caution
must be exercised to estimate of the number of target customers and
not vaguely defined individuals. E.g. a company (say Revelon) marketing
cosmetics has to estimate not the number of women in a territory but the
women who have the capacity to purchase their premium range of
cosmetics. So, they would be. interested to estimate the population of the
number of women in the upper middle class society whom they would
target in their marketing strategies. Thus, the territories must not be
looked upon merely in terms of the geographical area and population, but
in terms of the potential customers who can actually be
Useful to the marketers.

Designing tentative territories from control units

The control units are combined to be converted into the tentative

territories. The territories are always subject to change, so they have
been termed as tentative.
For example, .assume that the management estimates that an average sales
person can realise a sale of Rs. 25,000 and the sales potential of Haryana
is Rs. 2,50,000. The management will have to divide Haryana into ten
territories and appoint ten sales representatives in order to achieve the
sales targets. In practice, while every effort is made to keep the,
territories homogenous in size, such figures present lot of practical
difficulties. So, the sales potential of a territory is often expressed as the
percentage of sales potentials of the total market.

Designing the shape of territories

The shape of the territories affects the selling expenses as well as the
efficiency of the sales person. If the territory shape permits a sales person
to spend minimum time on the road and more time in meeting the
customers it results in more productive time and hence better
achievement of target. This also contributes to increasing the morale of
the sales persons. Three types of shapes are most commonly used; the
wedge, the circle and the clover leaf territories.

The wedge shape territory is appropriate when it contains both rural as

well as the urban areas. The urban areas are situated in the middle of the
wedge and the sides of the wedge protrude in the direction in which
the rural markets are spread. Wedges can be in many sizes. The travel
time along the adjoining wedges can be equalised by balancing urban and
non-urban calls.
The circle shaped territory is appropriate when the customers (accounts)
are evenly distributed throughout the area. The sales person assigned to
circular shaped territory is based at some point near the centre, making
for greater uniformity in frequency of calls on customers and
prospects. This also makes the sales persons nearer to more of the
customers than is possible in a wedge shaped territory.

The cloverleaf is desirable when accounts are located randomly throughout

the territory. Careful planning of call schedule results in each clover leaf
being completed in a week or a fortnight in order to facilitate the
completion of one touring cycle of the sales representative. The sales
representative can report to his head quarter after the completion of one
tour cycle. Usually home base of the sales persons assigned to the
territory is near the centre. Cloverleaf territories are more common among
consumer market and among companies cultivating the markets
extensively rather than intensively.

Assigning sales persons to the territories

Upon obtaining the best possible arrangement of the territories, the sales
persons are assigned to the territories. The above planning had assumed
that all the sales persons are similar in their performance, however the
actual allocation of persons poses lots of problems. People vary in ability,
initiative, effectiveness and physical condition. Moreover, sales persons
performance can vary in the territory. E.g. a South Indian is likely to be
less effective in Himachal Pradesh and vice versa. So, management has
to consider lots of factors while assigning the persons to the territories.
Some companies find that assigning hometown to the people to work
gives better results while some. companies think otherwise. There can be
no prescriptive basis to serve as a basis for assigning persons to the
territories. The task of assigning
persons must fit into individual’s ability and should result into highest contribution of the
individual towards corporate profit. It might be noted that even the periodic transfer of persons
of one territory to another might be done where it is felt that such an exercise will increase
the effectiveness of the person.

Routing and scheduling persons

The routing and scheduling plans aim to maintain the lines of communication so as to optimise
sales coverage and minimise wastage of time. The only productive time that the sales persons
spend is when they are in contact with the customers. The time spent in travelling and
reporting activities yields less returns to the company. 5d, the routes and schedules of the sales
persons should be so designed that the non-productive time is maximised and the productive
time is maximised. The management can consider the options of modes of transport in case this
results in increasing the productive time. E.g. the sales person may be provided with a car
which will result in increase in the productive time and an increase in the sales expenses also.
Depending the financial viability, such a decision should be taken. Similarly, companies might
allow sales persons to travel by air so as to reduce the travelling time.

The planned selection of routes will also result in reduction of non-productive time. The
schedules must be according to the convenience of the customer, but care must be taken that
the cost involved does not increase unnecessarily. The practical problems must be
accommodated while designing tour plans and schedules and adequate flexibility must be
allowed in the plans to allow the uncontrollable situations.

Ch-5

Salesforce Motivation

MEANING OF MOTIVATION

High productivity in sales personnel come about neither naturally nor accidentally. Some
sales personnel are self-starters, requiring little external, incentive to perform effectively, but
they are the exceptions. The majority of sales personnel require motivational help from
management in order to reach and maintain satisfactory job performance levels.

Motivation is goal-directed behaviour, underlying which are certain needs or desires. The term
“needs” suggests ‘lack of something’ or a state of felt deprivation of some basic satisfaction,
while the term “desires” suggests positive ardor and strength of feeling. The complex of
needs and desires stemming from within individuals leads them to act in ways that will satisfy
these needs and desires.

Specifically, as applied to sales personnel, motivation is the amount of effort the salesperson
desires to expend on each of the activities or tasks associated with the sales job, such as calling
on potential new accounts, planning sales
presentations, and filling sales reports. Expending effort on each activity making up the sales
job leads to some level of achievement on one or more dimensions of job performance-total
sales volume, profitability of sales, sales to new accounts, quota attainment and the like.

Motivational “Help” From Management

Most sales personnel require additional motivational “help” from management in order to reach
and maintain acceptable levels of job performance. They require additional motivation both as
individuals and as group members. As individuals they are targets for personalized
(b)efforts by their superiors. As members of the sales, force, they are targets for sales
motivational
management efforts aimed toward welding them into an effective selling team. Four
aspects of the salesperson’s job affect the quality of its performance. The following discussion
focuses on these aspects. Each aspect is an important reason why most sales personnel require
additional motivation to perform their jobs satisfactorily.

(a) Inherent Nature of the Sales Job : Although sales jobs vary from
company to company, sales jobs are alike in certain respects. To a greater or lesser
extent, each sales job involves a succession of ups and downs, a series of experiences
resulting in alternating feelings of exhilaration and depression. In the course of a day’s
work, salespersons interact with many pleasant and courteous people; but they also meet
some who are unpleasant and rude, with whom it is difficult to deal. They are frequently
frustrated, particularly when aggressive competing sales personnel are vying for the same
business, and they meet numerous
turndowns. Furthermore, sales personnel spend not only working time but considerable
after-hours time away from home, causing them to miss many of the most attractive parts
of family life. These conditions can cause an individual salesperson to become
discouraged, to achieve low performance levels, or even to seek a nonselling position.
The inherent nature of the sales job, then, often is the reason that additional motivation is
required to assure acceptable job performance.

Salesperson’s Boundary Position and Role Conflicts : The salesperson occupies a

“boundary position” in the company and must try to satisfy the expectations of people
both within the company (in the sales department and elsewhere) and in customer
organizations. There is linkage with four distinct groups : (1) the sales management
 group, (2) the balance of the company organization who must be depended upon for
order fulfillment, (3) the customers, and (4) other company sales personnel. Each group
imposes certain behavioral expectations on the salesperson and, in playing these
different roles, the salesperson faces role conflicts, such as :

1. Conflict of identification : This arises out of multi group membership. As the

salesperson works with the customer, it is reasonable to expect identification with the
customer rather than the company. However, on returning to the company, the
salesperson must drop identification with the customer and identify with company.

2. Advocacy conflict : This arises when the salesperson has identified with the customer,
and seeks to aid the customer by advocating the customer’s position to other groups in
the company organization. Although this may be important-and may be encouraged by
the sales n1anagement group it places the advocator in a difficult position.

(c) Tendency Toward Apathy : Many sales personnel have a natural tendency to become
apathetic, to get into a rut. Those who, year after year, cover the same territory and virtually the
same customers, tend to lose interest and enthusiasm. Gradually their sales calls degenerate
into routine order taking. Because they feel they know the customers so well. They come to
believe that good salesmanship is not longer necessary. Many salespeople require additional
motivation to maintain continuing enthusiasm for their work or to generate renewed interest
in it.

(d) Maintaining a Feeling of Group Identity : The salesperson, working

alone for the most part, finds it difficult to develop and maintain a feeling of group
identity with other company salespeople. Team spirit, if present at all, tends to be weak.
Thus, the contagious enthusiasm conducive to improving the entire group’s performance-
does not develop.

If management, through providing added motivation, succeeds in developing and maintaining

team spirit, individual sales personnel will strive hard to meet group performance standards :
Few people who do not consider themselves members of the sales team appear as poor
performers in the eyes of their colleagues in the sales force.

Providing the kind of working atmosphere in which all members of the sales force feel they are
participating in a cooperative endeavour is not easy-
nevertheless, effective sales management works continuously to achieve and maintain it.
Ch-6

SALES BUDGET

A sales budget is simply a tool, a financial plan, that depict how resources should best be
allocated to achieve forecast sales. In other words, sales budget is a blueprint for making
profitable sales. It details who is going to sell ‘how much’ of ‘what’ during the operating period,
and to which customers or class of trade and the likely selling expenses. It is a projection of
what a given sales programme means in terms of sales volume, selling expenses, and net
profits. The purpose of sales budgeting is to plan for and control the expenditure of resources
(money, material, people and facilities) necessary to achieve the desired sales objectives.

The sales forecast is the source for the sales volume portion of the sales budget. The sales
volume objective derived from the sales forecast is broken down into the quantities of products
that are to be sold, the sales personnel or sales districts that are to sell them, the customers or
classes of trade that are to buy them, and the quantities that are to be sold during different time
segments in the operating period. After these breakdowns are made, the selling expenses that
will be incurred in implementing the sales programme are estimated. Sales forecast and sales
budget are therefore, intimately related as much as if the sales budget is inadequate, the sales
forecast will not be achieved, or if the sales forecast is increased the sales budget must be
increased accordingly. Sales budget by relating sales obtained and resources
deployed also acts as a means for evaluating-sales planning and sales effort. It aims at attaining
maximum profits by directing the emphasis on most profitable segments, customers and
products.

(A) PURPOSE OF THE SALES BUDGET

A sales budget generally serves three important purposes.

(i) Instrument of Planning : The budgeting process requires complex

Sequences of planning decisions. In order to achieve goals and objectives of the sales
department, the managers must outline essential tasks to be performed and compute the
estimated costs required for their performance. The planners show how the targeted
volume can be reached, while keeping selling expenses at a level that permits attainment
of the targeted profit. Sales budgeting, hence, helps in profit planning and provides a
guideline for action towards achieving the organisational objectives. The alternative sales
plan are drafted so that selection of the most appropriate may serve the company’s sales
volume and net profit objectives.
(ii) A tool of coordination : Sales department is a sub-system of marketing
division and selling is one of the most important functions of marketing. To be effective,
it needs support from other elements of the marketing mix. The, process of developing
realistic sales budget draws upon backward and forward linkages of selling with
marketing and in turn brings about necessary integration within the various selling
and marketing functions, and coordination between sales, finance, production and purchase
function. The sales budget enables sales executives to
coordinate expenses with sales and with the budgets of the other departments.

(iii) Mechanism of Control : Control is the prime orientation in sales

budgeting. The budget, which is a composite of sales, expense, and profit goals for
various sales units, serves as a yardstick against which progress is measured.
Comparison of accomplishments with relevant breakdowns of the budget measures the
quality of performance of individual sales personnel, sales regions, products, marketing
channels, and customers. These evaluations identify specific weaknesses in operating
plans, enabling safes management to make revisions to, improve performance. The
sales budget itself, since it is a master standard against which diverse aspects of
performance are measured, then serves as an instrument for controlling sales volume,
selling expenses, and net profits.

(B) METHODS OF SALES BUDGETING

Methods of sales budgeting differ from company to company. There are a variety of methods
ranging from the sales manager’s gut feelings to application of computer based management
science models for determining the sales budgets. Some important methods are given below :

(i) Percentage of Sales : This method is also know as rules of thumb.

In this method manager multiplies the forecast sales by various percentages for
each category of expense. The resultant then becomes the amount budgeted for each
of the respective categories. It is generally based on the manager’s experience or
feelings about what portion of the sales volume can be spent on each business function
to achieve the desired profit. But, there are no guarantees that setting the budgets using
these percentages will lead to optimal performance. Mass selling organisations are
major users of this method.

ii) What is affordable : This method is generally used by firms dealing in capital
industrial goods. Also, companies giving low emphasis on sales and marketing function
or having small size of operation make use of this judgemental method.

iii) Competitive parity method: This method advocates determining sales budget
comparable to the competitors. The use of this method presumes knowledge of the
 competitor’s activities and resource allocation. Large sized companies’ whose
products face tough competition and need effective marketing to maintain profits use
this method.

iv) Objective and task method : In this method the manager starts with identifying the
objectives of sales department followed by determination of tasks that must be
accomplished in order to achieve the set objectives. Later, the cost of each activity or
task is calculated to arrive at the total budget. The finalisation of the budget may
require adjustment both in the objectives as well as in the way the task may be
performed.

v) Zero-base budgeting : It is relatively new approach to budgeting. It involves a

process in which the sales budget for each year is initiated from zero base thus, justifying
all expenditure and discarding continuation of conventions and rules of thumb. This
method suffers from practical limitations which relate to a very elaborate and time
consuming process required by it.

(C) SALES BUDGETARY PROCEDURE

Sales budgetary procedure differ from company to company with most differences
tracing to difference in basic planning styles, i.e., top-down and bottom up. In top down
planning, top management sets the objectives and drafts the plans for all organisational
units. By contrast, in bottom-up planning different organisational units (generally
departments) prepare their own tentative objectives and plans and forward them to top
management for consideration. Preparation of sales budget is one of the most
important elements of the sales planning process. Mostly sales organisations have their own
specified procedures, formats and time tables for developing the sales budget. However,
the general steps taken in systematic preparation of sales budget can be identified in the
sequence given below :

(i) Analysis of sales volume and expenses : The preparation of the sales
budget normally starts at the lowest level in the sales organisation and works upward.
Thus, each district sales manager estimates district sales volume and expenses for
the coming period. Some of the common items each sales budget includes are
salaries, travel, lodging, food, entertainment, commissions on sales, office
expenses, promotional material selling aids, contest awards, product sample etc.

These district budgets are submitted to the divisional or regional office, where
they are added together and are included with the divisional budget. In turn, divisional
budgets are submitted to the sales manager for the particular product or market
 group. At the end this chain of subordinate budgets, the top sales executive compiles
a companywide sales budget.
(ii) Handling competition for available funds within the marketing
division : Sales executives at the top level must communicate their sales
goals and objectives to the marketing department and argue effectively for
an equitable share of funds. The chief sales executive of the company should
encourage participation of all supervisors and managers in the budget
process so that, as a part of its development, they will accept responsibility
for it and later enthusiastically implement it.

(iii) Selling the sales budget to the top management: The top sales and
marketing executives must visualise that every budget proposal they are
presenting to the top management must remain in competition with
proposal submitted by the heads of other divisions. Each and every
division usually demand for an increased allocation of funds. Unless sale
managers rationally justify each item in their budgets on the basis of profit
contribution, the item may not get due consideration of the top management.

(D) BUDGET IMPLEMENTATION AND FEEDBACK

Actual budgetary control features go into operation, as soon as the approved

budgets have been distributed to all units of the company. Each item in the budget
serve as standards against which management measures performance. In case actual
performance is at a variance from budgeted performance, two courses of actions
are available to the organisation.

(i) To ascertain whether the variance is a result of poor performance

by the sales group - necessary steps should be taken to ensure that
sales
persons organise their selling efforts more carefully, so that budgeted
expenses can be brought back into line.
(ii) To revise the sales budget by incorporating the changed allocation of
the item. For example, if the travel expenses have increased because of the necessity of
calling on new customers not previously covered, action should be taken to revise the
budget to reflect the changed conditions.

Salespersons are generally trained to be budget-conscious. It is the responsibility of the sales

manager to ensure that sales revenue and cost ratios remain within reasonable budget limit.
Experiences bring out the following main items on which variance between budgeted and
actual costs often arise, are salaries and fringe benefits, direct selling expenses, maintenance of
company vehicles, promotional costs, discounts, etc. It is wise to tighten control over
expenses especially under circumstances when sales forecasts are not being met or sales
budgets are being exceeded.

(E) FLEXIBILITY IN BUDGETING

If sales budget estimates are consistently, or even frequently, found to be errorneous, it may
be that more time should be spent in budgetary planning.

Perhaps sales forecasting methods are misapplied or are inappropriate for the budgeting
situation. Experience shows that in most fields sales can be forecast for a sufficiently long
period, and within limits of accuracy that are sufficiently close to serve the purpose of
stabilising production. If it is possible to forecast sales within the limits needed to stabilise
production, it is possible to forecast sales within the limits of accuracy required for
purposes of budgeting selling expenses.
Some companies, either intentionally or because of difficulties in securing accurate sales
forecasts, use budgetary procedures without definite forecasts. One way is to prepare alternate
budgets, based on different assumptions about the level of sales volume. Thus, efficiency
can be evaluated, even though wide variations exists between expected volume and actual
volume, ‘Low-volume’ and ‘High-volume’ forecasts are prepared on break-even style charts and
interpolated to adjust for the difference between the two alternative budgeted sales figures and
the actual operating level.

However, flexible budgeting is the subject of considerable criticism, because whenever it is

used, plans must be made on the basis of wide range of probabilities. Some experts refer
to flexible budgeting as a crutch for weak executives who have not absorbed the art of
forecasting. Most writers on sales management argue that some flexibility is desirable.
Companies cannot authorise a year ahead expense appropriations so flexible that there is no
need later to review or revise them. Full advantage of new market opportunities must be taken
as they appear. If competitors initiate actions not foreseen at budget-making time, funds
must be allocated to counter-act them. A realistic attitude toward the dynamic character of a
market is part of effective sales budgeting.

When the budget is in error because of faulty sales forecasting and badly set sales and profit
objectives, the accepted procedure is to alter estimates by applying standard ratios of costs
to the adjusted volume figure. This system, known as variable budgeting, is used by most
business.

CONCLUSION
The sales budget is a statement of projected sales revenues and selling expenses. The
projected sales revenues are, in effect, the sales volume objectives derived from the various
sales forecasts. The projected selling expenses are determined by the different organisational
units within the sales department and are based on assigned sales and profit objectives. The
sales budget is best prepared in an atmosphere where the bottom-up planning style
predominates, with each preparing a tentative budget of revenue and expense. In reality, the
sales budget is a composite of quotas-for sales, profits, and expenses - and is a valuable
tool for control.

Ch-7
SALES CONTROL
Sales control ensures the productivity of the sales force and its mechanism varies from
companies to companies. Control on sales force keep them alert, creative, active and make
consistent them in their actions. An effective and suitable sales control system is essential
for both companies as well as salespeople.

Therefore, we can say that the right definition of sales control is to analyzing and
measuring the performance of sales force and comparing it with the standard performance,
noticing and pointing deviation and determine its causes, and taking suitable corrective steps to
tackle with different situations. Mostly time, sales volume, discipline, expenses, and activities,
etc. are considered bases for analyzing and comparing performances of team members.

Steps in Sales Control

1) Setting sales Force Standards- set target(e.g 20 lakh)

2) Measuring Actual sales Performance(19 lakh)

3) Comparing actual Performance with Standards- comparison of 20 lakh and 19
lakh(deviation is of 1 lakh)

Methods of Controlling Sales Force

There are different types of sales force controlling methods to control the efforts of the sales
force. However, these methods are not ideal for all organizations and scenarios. Applicability of a
controlling method depends on criteria, areas, and different aspects used for measuring and
comparing.

Followings are the widely used sales force controlling methods

1) Establishing sales Territories

Establish sales territories for the members of your sales force. In this way, they will not be
competing with one another and focus entirely on their getting leads and making more and more
sale. In addition to this, when the territory is well-defined to the members of the sales the chances
of missing out on potential customers reduce and it also becomes easy for a salesperson to
establish a relationship with customers to the future business.

2) Allocation of sales Quota

In most sales driven businesses define sales quota to each of its employees before one financial
year. Sales quota gives a goal to the salesperson to work on and also help the company to keep the
estimation of revenue generation by the end of a financial year.

3) Maintaining contact with a salesperson

It is important to keep constant contact with the members of the sales of your sales team. In this
way, you can keep them motivated and also can help them to solve issues that they face in
cracking sales deals.

The sales person can be contacted through phone calls or by face-to-face meetings.

4) Determining authorities and rights of salespersons

it is very important to make your sales team members aware of the rights and duties they have. By
being aware they can perform their job better and efficiently.

5) Salesman’s Reporting
Reporting is one of the most famous and used methods to keep track of the performances of
salespeople. You should make clear how and when they should report to their subordinators.

6) Complaints and Objection Notes

it is important to keep track of complaints and objection made by both salespersons as well as
customers, reacting to complaints and objections will eventually help you to improve your work
and services provided by your sales team.

7) Analyzing Sales Expenses

Salespeople are usually allocated limited expenses every day so that they can reach customers
without many difficulties.

However, some salespersons are known to take advantage of this facility. Therefore, expenses
submitted by them should be analyzed properly before approving them.

8) Observation and visits and field trips

Managers usually stay in touch with their team members over phone and emails. However, it is
important that you should go out on field trips with your once in six team members at least
months.

9) Providing sufficient sales tools:

Sales tools are important for salespeople to make sales efficiently. Sales tools include material
and literature like sales manual, sales literature, order forms, visiting cards, and small video clips
to teach them to make sales effectively.
Sales controls & Cost Analysis
Sales controls: Objectives, process & difficulties
 To ensure the achievement of sales and profit objectives
 sales people sometimes pay inadequate attention as they are caught up in the maze of everyday activities
- many related to individual sales personnel & customer problems – they neglect long term perspectives
 To find out strengths and weaknesses, opportunities and threats to the organization.
 To locate the defects and take corrective steps to improve the situation
 by coordinating and controlling effectively various sales operations
 Control process : Sales Audit, Sales Analysis & Cost analysis

What is a sales control & cost analysis ?

Sales control and cost analysis is the function of the sales management of the company to ensure the
achievement of sales and profit objectives by coordinating and controlling effectively various sales
operations.
The sales control and cost analysis tools are :
Sales audit
Sales Analysis
Cost Analysis

These tools provide means to a sales management to find out strengths and weaknesses, opportunities and
threats to the organization. By using the above different tools of control, the management can locate the
defects and take corrective steps to remove the shortcomings and improve the situation and tone up the
functioning of his department.

Sales audit
Sales audit is defined as

“ a systematic, critical and unbiased review and appraisal of the basic objectives and policies of the
selling function and of the organization,

methods, procedures and personnel employed

to implement those policies and achieve those objectives”.

The main purpose of the sales audit is to find out the opportunities for improving the effectiveness of the
sales organization. It also brings out strengths and weaknesses of the individual sales personnel, which
allows the management to take steps to improve their functioning.
There is no standard methods of sales audit. Normally, a sales audit examines six main aspects of a sales
organization. They are
Objectives

(clearly set the objectives. For example if the co is already commanding 15% market share, then the
objective is to increase the share by 10% next year)

Policies

( After setting the objectives the organization laid down the policies for achieving the objectives. Policies,
both express and implied should be clear and consistent with the objectives. For example should the
management follow a policy of promoting persons within the organization or should it hire from outside.)

Organisation
 (with respect to the structure of the organization, whether the organization has the facilities and
capabilities to achieve the sales objectives. For example, if overstaffed, it may achieve objectives but
profit may fail. If there is a complement of inefficient personnel, then it may fail I its achievement)
Methods

(Management should devise and adopt proper methods and measures to implement the stated policies
and strategies)
Procedures &

(Procedures should be clearly laid down. It should explain how to implement the policy to achieve the
stated objectives. It should clearly assign the responsibility to specified persons who should be
accountable for implementation)
Personnel

(All sales Personnel are subjectively evaluated as to their ability, efficiency and effectiveness in achieving
pre-determined objectives, policies and other aspects of sales operations)

Sales analysis
Sales analysis involves a systematic in-depth study of sales volume operations to find out strengths,
weaknesses, opportunities and threats.
It tries to find out the sales and profit trend, its reason and what steps to be taken for better sales
performance.
It gives information about
sales territories (having strong / weak
demand),

products (which product has higher/ lower

sale)

types of customers ( who are bulk/low

buyers).

Sales cost analysis

Sales cost analysis is done for controlling the various sales costs and is also known as “distribution cost
analysis”.
It undertakes the analysis of sales volume as well as sales expenses in order to find out profitability of the
various activities of sales operations.
Steps in doing sale cost analysis

Sales volume analysis:-

(dividing the sales volume into different categories such as sales territories, sales persons, types of
customers, channels of distribution, size of orders and so on)
Cost of each sales categories

(product/ territory wise)

Sales cost analysis is done to determine the strengths and weaknesses of the sales organization which in
turn helps to find out ways and means to improve the profitability in future.
Cost analysis: Procedures
 Classifying selling expenses
 Converting accounting expense data to activity expense group
 Bases for allocating common expenses
 Contribution margin

Unit-3
Ch-1
Introduction
Logistics Defined

The word Logistics traces its origin to the Greek word logistikos and the Latin word logisticus,
meaning the science of computing and calculating. In ancient times, the term was frequently
used in connection with the art of moving armies and supplies of food and armaments to the
war front. The use of this word can be traced back to the seventeenth century in the French
army. But during World War II, logistics gained importance in army operations as a term
referencing the movement of supplies, men and equipment across the border. The US army
officially used the word "logistics" after World War II. Today logistics has acquired a wider
meaning and is used in business to refer to the movement of raw materials from suppliers to
the manufacturer and, finally, the movement of finished goods to the consumers.
Logistics is also referred to as a physical distribution. Philip Kotler defines logistics as
"Planning, implementing, and controlling the physical flows of materials and finished goods
from point of origin to point of use to meet the customers need at a profit." The American
Council of Logistics Management defines logistics as "the process of planning, implementing
and controlling the efficient, cost effective flow and storage of raw materials, in process
inventory, finished goods and related information from point of origin to point of consumption
for the purpose of conforming to customers requirements."
Logic in Logistics for 30 Minutes Pizza
Ideally, the time taken for registering the order should be one minute. After that the pizza
goes to the guy in the "make line". He takes two minutes, and then oven time is five minutes.
When the pizza comes out of the oven it is inspected. One minute goes into quality check and
packing. Another minute goes in checking the route and confirming the order one last time.
The moment he is leaving, the delivery boy shouts the out-of-the-door time, which is normally
between 10 and 12 minutes. Then everybody yells out "drive safe". When he returns he
punches the time in. At the end of the day the average delivery time for all his orders is
checked. This helps the manager figure out which orders were not delivered in time. The next
day, the store manager calls each one of those whose orders got delayed and apologizes.
The essence is process sequencing, just-in-time inventory availability, and time management
for the success in this service operation logistics.

Dabbawalas of Mumbai

Dabbawalas in Action

Dabbawalas of Mumbai offer a reliable fool proof logistics system of delivering lunch boxes to
over 200,000 office employee every day without mix up of having the wrong tiffin going to the
wrong office or arriving late, irrespective of conditions such as rains, strikes, and scorching
heat. A team of around 5000 men and women, mostly illiterate, operate in assigned areas in
Mumbai, each handling 25-30 dabbas, which is the optimum lot size as more could create
confusion and affect promptness, which will lead to customer dissatisfaction. The dabbas are
collected from the houses and put in tiffing racks at a network of 96 railway stations all over
Mumbai to load into the train for further movement toward delivery points. They use a colour
code system on the dabbas to identify the collection and delivery points. After the lunch hour,
the system operates in reverse direction,
 again displaying accuracy with collection and quality of delivery closer to Six Sigma. This
system gives a much cheaper alternative to office workers than having their food in
restaurants and food joints. With this logistics system, 400,000 transactions are done daily
with the precision of Six Sigma accuracy.

Dabbawala/street code of residential station

Residential railway station code

Destination railway station code

Dabbawala code at destination

Building name for delivery

Floor number of the building

Laundry Service in Five Star Hotels

Laundry Service in Five Star Hotels

The laundry service in a five star hotel is a very simple service operation that does not use any
sophisticated software tools. At 10 a.m. the housekeeping department collects the laundry
from 210 rooms of a 300 room hotel operating at 70 percent occupancy. The laundry is
divided into three parts; staff uniforms, room laundry (bed sheets, pillow covers) and guest
clothes. Special attention is given to the guest's clothes for same day or express delivery.
Every single piece of clothing is allotted an identification code, and the informing is punched
into the computer for tracking, processing, and final delivery. The entire laundry is handed
over to the laundry service supplier, who collects the laundry in the morning and delivers to
the house keeping department in the evening as per the customers requirements.

This is a simple but effective laundry logistics operation of a hotel housekeeping department that leads to
customer satisfaction.
.
Logistics- A System Concept
In a manufacturing enterprise, the business process starts with the flow of material from the
suppliers to the manufacturing plant and then to the customer through the distribution
channel. Traditionally, in the functional organization, the business process consists of discrete
activities such as procurement, manufacturing, and distribution under the control of the
respective departments. The departments may excel in their respective functions, but as an
organization, their performance may be dismal. This might happen because of three reasons:
(1) a lack of coordination in their activities, (2) different goals to cherish and (3) no single
agency could control them to cherish a common goal.
The concept of logistics is based on the system approach. The flow of material from a supplier
to a manufacturing plant and finally to the end customer is viewed as a single chain, ensuring
efficiency and effectiveness in sequential activities to achieve the objective of customer
satisfaction at a reduced cost. Logistics recognizes that all the activities to material movement
across the business process are interdependent and need close coordination. These activities
are to be managed as a system. The functional areas of logistics, termed "Logistics Mix" by
Martin Christopher, consist of:

1. Information Flow
{ Order Registration
{ Order Checking and Editing
{ Order Processing
{ Coordination
2. Warehousing
{ Material Storage
{ Load Unitizing and Material Handling
{ Site Selection and Network Planning
{ Order Picking and Filling
{ Dispatch Documentation
3. Inventory Control
{ Material Requirement Planning
{ Inventory Level Decisions for Customer Service Objectives
4. Packaging
{ For Handling and Damage Prevention
{ For Communication
{ For Inter Modal Transportation
 5. Transportation
{ Route Planning
{ Mode Selection
{ Vehicle Scheduling
The objective of logistics is to facilitate the flow of material across the supply chain of an
enterprise so as to cost effectively make available the right product at the right place at the
right time. Logistics has to achieve the two polemic goals of customer satisfaction and least
cost. This is possible only when all the logistics functions are working as a unified system to
achieve the common goal.

Logistics Functions

Logistics is a process of movement of goods across the supply chain of a company. However
this process consists of various functions that have to be properly managed to bring
effectiveness and efficiency to the supply chain of the organization. The major logistical
functions are shown.

Order Processing
It is an important task in logistics operations. The purchase order placed by a buyer to a
supplier is an important legal document of the transactions between the two parties. This
document incorporates the description or technical details of the product to supply, price,
delivery period, payment terms, taxes, and other commercial terms as agreed. The Processing
of this document is important as it has a direct relationship with the order or the performance
cycle time, which indicates the time when the order is received and when the material is
received by the customer. The order processing activity consists of the following steps:
{ Order checking for any deviations in agreed-upon or negotiated terms
 { Prices, payment, and delivery terms
{ Checking the availability of materials in stocks
{ Production and material scheduling for shortage
{ Acknowledging the order indicating deviations, if any
The above process consumes more time if paperwork is involved. If the processing of the order
is slow and complicated, it will have a direct effect on the delivery period committed. It may
increase the transportation cost in order to deliver the material faster to compensate for the
delays in the order processing operation.
Order processing is a routine operation but requires a great deal of planning, training of people
involved, and investment in the system to bring efficiency and accuracy to it. In a large
organization where thousands of orders are received each day, it becomes impossible

to manually register the order and process the order quickly and correctly. In such a situation,
a system capable of handling such voluminous work with minimum or no human involvement
is a necessity. In addition, due to competitive pressure, the order fulfillment cycle has to be
shortened to have an edge over the rival firms for retaining the customers.
The only solution is to devise an order processing system ensuring efficiency and accuracy, but
with minimal investment costs.

Inventory Management
Inventory management is to keep enough inventory stocks to meet customer requirements,
and simultaneously its carrying cost should be the lowest. It is basically an exercise of striking
a balance between the customer service for not losing market opportunity and the cost to
meet the same. The inventory is the greatest culprit in the overall supply chain of a firm
because of its huge carrying cost, which indirectly eat away the profits. It consists of the cost
of financing the inventory, insurance, storage, losses, damages and pilferages. The average
cost of carrying inventory varies from 10 to 25 percent of the total inventory per year
depending on the products. In the case of perishable products, it is on the higher side. Even
though inventory is a major concern, without it a firm cannot meet the regular and timely
product requirements of its customers.
There are two approaches to inventory management: one is cost approach and the other is
customer satisfaction. Business firms try to strike a balance between the two. Due to advance
communications and computing facilities, some business firms in business markets are
operating on a zero inventory level by adopting the JIT technique. But this is possible with co-
partnership between the purchaser and the supplier, and they communicate on a real time
basis.

Warehousing

{ Number of warehouses
{ Size of the Warehouse
{ Warehouse layout
{ Design of the building
{ Ownership of the warehouse
Warehousing is an important component of logistics as it is directly linked to the ability of a
firm to deliver the desired level of customer service. The ownership of a warehouse
is private, public, or contractual. Each has advantages associated with it, and a firm
has to choose the best options depending on its objectives and the resources
available. However, the decision on warehousing requires proper planning and
analysis, as well as help from experts in real estate, industrial engineering, and
operations research.

Transportation
For movement of goods from the supplier to the buyer, transportation is the most
fundamental and important component of logistics. When an order is placed, the
transaction is not complete till the goods are physically moved to the customer's
place. The physical movement of goods is through various transportation modes. For
low unit value products, the transportation cost component is 20 percent of the
product cost. In logistics costs, its share varies from 65 to 70 percent in the case of
mass-consumed, very low unit-priced products.
Firms choose the mode of transportation depending on the infrastructure of
transportation in the country or region, cost is the most important consideration in
the selection of a particular mode of transport. However, sometimes urgency of the
goods at the end of customer overrides the cost consideration and the goods are sent
through the fastest mode, which is an expensive alternative.
The consideration of whether the firm should have its own fleet or go in for
outsourcing depends on investment, operating costs, expertise, and reliability. The
common modes available are road carriers, railways, airways, ships, pipelines, and
ropeways. Depending on the customers requirements and the availability of
transportation infrastructure and its reach and cost, firms decide on the mode with
an optimum cost under the given product market conditions.

Information
Logistics is basically an information based activity of inventory movement across a
supply chain. Hence, an information system plays a vital role in delivering a superior
service to the customers. Use of IT tools for information identification, access,
storage, analysis, retrieval, and decision support in logistics is helping business firms
to enhance their competitiveness.

Cost

It reduces costs of attaining logistics aims.

 Logistics Management - Objectives
The primary objective of a logistics system is to move the inventory in a supply chain
effectively and efficiently to extend the desired level of customer service at the least
cost. To achieve this, the following subsets of the above broader objective need to be
achieved:

Inventory Reduction
Inventory is the biggest culprit in adversely affecting the bottom line of an
enterprise. Through a financial accountancy perspective, inventory is an asset and
does not cause any appreciable disadvantage even when it is stocked in an excess
quantity. Traditionally, firms have carried an excess of inventory for the purpose of
extending excellent customer service. However, inventory as an asset requires
investment to possess it. The funds invested are blocked and cannot be used for any
other productive purpose. Moreover, there is a capital cost associated with it. The
carrying cost will be equivalent to the interest on the funds at the bank borrowing
rates currently applicable. The carrying cost will be drained on the enterprise profits.
Hence, the prime objective of logistics is to maintain the inventory at the minimum
level. However, the customer service goal can be managed through small but
frequent supplies. A higher transportation cost will be much lower than the
inventory carrying cost resulting in better margins.

Reliable and Consistent Delivery Performance

On-time delivery is crucial to the customer to maintain his production schedule. The
customer is not interested in a faster delivery of the material ahead of production
schedule. This area of operation is subject to variance. However, proper planning on
transportation modes and inventory availability along with a variation factor will
reduce the variance. The other objective of logistics should be consistency in delivery
performance, this will help to build customer confidence for keeping a long term
relationship.

Freight Economy
Freight is a major cost element in logistics cost. This can be reduced by adopting
measures such as freight consolidation, transport mode selection, route planning,
load unitizing, and long distance shipments.

Minimum Product Damages

Product damages add to the logistics cost. The reason for product damages are
improper logistical packaging, frequent consignment handling, absence of load
unitizing, and so on. Use of mechanized material handling equipment, load
unitization and proper logistical packaging will reduce the product damages.
 What is Logistics?
Logistics is basically a process of transporting goods (either raw material or finished products) from
one point to another point. The two major functions of logistics
are transportation and warehousing.
The operations include planning, implementing, and maintaining the transportation and storage of
goods that include service as well as information of the initial point and the endpoint.
Basically, it is an activity that comes under the supply chain system. If a person works in the field of
logistics management, then we can call him a logistician.

Types of Logistics
Since you have known the meaning and definition, now you should also know what are the types of
logistics. Following are the major types of logistics-
 Inbound Logistics
 Outbound Logistics
 Reverse Logistics
 Third-Party Logistics (3PL)
There are many more types apart from these also but the most used ones are these four.
Inbound Logistics
It is one of the primary types of Logistics. Basically, inbound logistics means transportation, storage,
and the receiving of the incoming resources (such as raw material or other goods) that you require to
manufacture a product.
Moreover, it can be the delivery of goods that you will procure in your inventory.
The below diagram shows the placement of inbound as well as outbound logistics in an
organization. For example- If you are dealing in footwear, then the inbound logistics in your
company will be the rubber for your shoes, the thread to be used for knitting the shoes, etc.

Outbound Logistics
Outbound logistics is a process of delivering the product to the customer on the committed time.
Customer satisfaction is the main objective here and the logisticians take care that the product
should reach the customer safely in minimum cost
For example- If you are dealing in footwear, then the outbound logistics in your company will
be the shipping of the final product which are shoes, sandals, slippers etc to your customers.
 Reverse Logistics
Reverse logistics is a process of transporting product from the end customer to the seller. It includes
the collection, inspection, sorting, refurbishing android distribution.
You have undoubtedly faced it at least once that you have ordered a product online and it did not
match your requirements. Then you raise a request for a replacement or refund regarding the
product.
The company picks up that product from your address. So, the process of reaching the product from
your side to the company is reverse logistics.

Third-Party Logistics (3PL)

The third-party logistics are focused only on the transportation of products from one end to another
end and nothing else.
It doesn’t matter whether it’s a seller to consumer or consumer to the seller. They take the
responsibility of delivering the products two right places at the right time.
It helps the businesses to focus on their primary operations instead of engaging their time in
monitoring the delivery services.

Importance of Logistics
Whether you are a manufacturer or a reseller, you can reach to your customers by marketing
techniques or by word of mouth. But, your product can reach them by a proper distribution network.
It depends on the seller whether they want to manage the delivery system by themselves or
outsource the logistics to a reliable company to handle their supply chain management.
Many distributors, dealers and retailers depend on logistics for the delivery of products they require.
The major responsibility of any logistics is to deliver the right product in the right quantity to the right
customer at the right time.
Unit- 4

Ch-2

LOGISTICS AND CUSTOMER SERVICE

Customers are the focus of any activity. The primary reason behind this being that ultimately
every product, service or idea finally needs to cater to the customer’s requirements.

According to Lalonde Bernard J, “Customer service as a complex of activities involving all

areas of the business which combine to deliver and invoice the companies product in a

fashion that is perceived as satisfactory by the customer and which advances the

companies objective”. Customer service, as a concept has many aspects to it. Logistics

management has a major role in enhancing the customer satisfaction and also retention

and thus creating a lifetime customer value.

In other words, customer service as a combination of activities enables a business firm to

add more value to the buyer. It is a key element of the product or service, which is offered to the
customer. With good customer service, the existing customers are satisfied and this

attracts new customers through word-of-mouth communication. Customer Service is not just a
function or an activity. It is a philosophy, and attitude. With so much importance given to
customer service, companies are trying to increase the level of customer service and scale up to
the expectations of the customer. Unless the products are in the hands of the customer at the time
and place of requirement, products do not have any value attached to them. To attain a
commendable service level, the firm has to plan a closely integrated

logistics strategy.

In today’s market, customers are so much demanding, not only in the quality aspect but also with
regard to the service aspect. Customers form a few perceptions in relation to the

various aspects of customer service like reliability, competency, responsiveness,

trustworthiness etc. With the help of these cues, customers evaluate the firm’s services and
conclude whether they are satisfied or not. Physical distribution plays a major role in

delivering customer service.

As there is an increase in the competition, and there is advancement in technology,

companies today are faced with the mounting pressure to develop even more innovative

strategies for customer service.

Two key factors that have contributed maximum for the growing importance of customer

service as a competitive weapon are the continuous development of customer expectations

and the gradual shift of customers from branded products to local unbranded products. The
rapidity of technological change and a decreased product life cycle has further developed the
importance of customer service.

The following are the elements of customer service:

Order Delivery Cycle Time:

The general tendency for a manufacturer to look into is the physical delivery of the product

when the orders are not delivered on time. So, when orders are not delivered on time and

customer complaints are received, the manufacturer looks into the physical delivery of the

product to the customer and tries to solve this problem by bringing the product closer to the
client. Thus, there is a tremendous increase in the stock-holding points for the

manufacturer. When the manufacturer examines this closely, he will realize that physical

delivery is not the most time consuming element of the order-delivery cycle time, but there

are a host of other activities like transmission of the order, processing the order, etc which

also affect the delivery. In fact an activity like the order processing itself consists of a series of
activities like the registering the order in supplier’s system, allocation of material from work – in
– progress, warehousing and distribution centers, packing the materials, dispatch of material etc.

Reliability of inventory:

When a specific item is out of stock, which is interpreted as a loss of sale and if these
stocks out conditions take place frequently, these will influence the customer service levels. And
would further lead to a loss of credibility for the company.

Consistency and frequency in delivery:

The firm must ensure the maintenance of a same or similar delivery period over a period of

time to deliver material to the customer. This means the firm must have the ability to coordinate
the various logistics arms, and also the efficiency and effectiveness of the entire

chain.

Also, the frequency of delivery is an important part of the customer service. Usually, a

customer does not prefer to stock huge quantities of particular items, and would prefer

smaller quantities in smaller lots. Eventually there is an increase in the transportation cost,

but the inventory cost reduces and there is a net effect in the entire supply chain. When

there are multiple orders from small clients, there is congestion in the logistics pipeline, and thus
this reduces the ability of the company to serve its larger clients more efficiently. Also the
logistics costs for small orders are more than the large orders and also they would

swallow up the profit on the large orders. To avoid such hassles, and to avoid additional

costs, the frequency of delivery and minimum orders are being used as limitations imposed

on suppliers as an effort to reduce normal tendency of most clients.

Other factors

Apart from the regular factors there are also others like the transmission of order collection,
frequency of visit of salesman to customers, invoicing and collection systems,

communications level between customers and suppliers which can be of more importance

to certain organizations.

Phases in Customer Service:

a) Pre transaction phase: In this phase, the service level and other related activities are

defined on a policy level in both qualitative and quantitative measures. It is the creation

of a service platform to serve the customer, so as to build up credibility in the market

and create a good image amongst the existing and prospective customers. In other

words, this refers to those elements, which determine the capability of service before

they are provided.

Pre – transaction elements are usually relate to corporate policies or programs, written

statements of service policy, adequacy of organizational structure and system

flexibility.

The following are the important elements of the pre-transaction phase:

o Customer Service Policy Statement: This gives the service standards for the

company. For example, company X, a leading automobile spare part

manufacturing company, makes a policy commitment to deliver the spare parts

to its customers within 48 hours of placement of the order.

o Accessibility: This refers to the ease with which customers can contact the

firm.

o Building the organization: In order to implement the policy derivatives on

customer service, the firm must formalize the reporting structure, delegate

authority and also allocate responsibility. Also, a proper reward system will

motivate employees who are involved in customer service to interface

efficiently with the customer.

o Structuring the service: The expectations of customers, the industry

standards, and the standard of service the firm would like to maintain influence

the basic structure of any service. For sustaining the competitive advantage,

innovation in service is very much necessary. Innovation adds to the value of

the offerings made to customers. Another key aspect to service structure is the

delivery. Two important aspects of delivery are place and time.

o Educating the customer: This is important because this can reduce the
customer complaints on deliveries of products, their operations and

maintenance etc., Usually customers are educated through manuals training,

seminars workshops etc.

o System design and flexibility: While designing the system, care should be

taken that all the possible queries, which the customers can ask, must be

answered. Also the adaptability of the service delivery systems to meet a

particular customer need is essential.

b) Transaction phase: During this phase, the customer service is associated with the

routine tasks, which have to be performed in the logistics supply chain. Those

variables directly involved in performance of the logistics functions, for example,

availability of product, order cycle time, reliability of delivery etc. The following are the

various service elements associated with this phase:

o Reliability of order fulfillment: This is a key factor. There needs to be reliability in

fulfilling the order within the agreed time frame and also with respect to the quantity

and quality of the material ordered.

o Order convenience: The ease with which customer can place an order. There are

various barriers to this like the paper work required by the supplier, compliance to

various procedures, complex payment terms, poor communication network at

suppliers end etc.

o Order postponement: Sometimes, the customer may postpone an entire order or

some parts of it. This means customer has to reschedule his requirements. In

some other case, due to availability of a certain product category in the future, the

seller can allow the buyer to place the order immediately and he would ship the
product when it is available on future dates.

o Consistency of delivery: Delivery consistency of repeat orders is important.

o Product substitute: There may be some situations in which the product ordered

couldn’t be shipped due to certain manufacturing or quality problems. In such

cases, the seller can offer a substitute product and honor his commitment.

c) Post transaction phase: This is a phase where customer satisfaction and building up

of a long-term relationship with the customer are involved. It involves commitment of

resources to offer the desired level of service. These measure the customer satisfaction on the
basis of the expected results. Generally supportive of the product in use, for example: warranty
of products, parts and repair service, procedures for complaints of customer and replacements of
products.

o Information of order status: In B2B transactions and e-commerce, the customer

after payment of part value (sometimes full value) of the product as an advance,

requests feed back on the status of the shipment on a continuous basis.

o Customer complaints, claims, and returns: The seller’s responsibility will not be

over once the product is dispatched to client. Sometimes, the products damaged

during transit, or the product may not be according to the functional requirements

of the customer. For this, there must be a policy for product return and this is

usually done through reverse logistics system.

o Product installation, commissioning and technical snags: This is part of the

after sales service, as complex products may sometimes develop technical snags

during the warranty period. The after sales department takes care of all these

issues.

o Customer awareness and training: A key aspect of service element in this

phase. For technically complex products, it is necessary for the seller to train or
educate the user regarding its operation.

Customer Retention – An Extension of customer service:

It is the totality of the ‘offer’, which delivers value to the customer. An illustration to highlight
this can be a comparison between a product in the warehouse and a product in the hands of the
customer. The value addition here is the fact that the product is in the hands of the customer.

According to the 80/20 Pareto (The Italian economist, Pareto) rule, 80 per cent of a

company’s profits come form 20 per cent of the customers. A further dimension to this

would be to say that 80 per cent of the total costs to service would be generated from 20

per cent of the customers.

Thus identification of the real profitability of customers and then develop strategies to

develop services that will improve the profitability of all customers is essential.

While ‘getting and retaining customers’ is the main focus of marketing, in practical terms,

organizations put in more effort in getting the customers rather than retaining them.

Organizations have to make a conscious effort in understanding how many of the customers they
had a year or six months ago are still with them as customers. The retained customers can be
more profitable than the new customers in the cost perspective. Also the word-of mouth
communication happens through existing customers.

The principle of ‘Relationship Marketing’ is rapidly gaining popularity. A high level of

customer satisfaction must be created so that they don’t consider any alternative suppliers

or offers.

There need to be certain pre-determined standards for controlling the service performance.

There are various standards available like order cycle time, order-size constraints, technical

support, order convenience, frequency of delivery, claims procedure etc.

Conclusion:
The basic purpose of providing services is to deliver value to the customer for the money he is
spending for the product. Customer service means all customers must be treated equally and also
to extend service to build a fundamental business relationship. Also, a step ahead of offering
basic services is to offer zero defect services. Repetitive operations have to be performed without
errors by using automated systems.

Another possibility is to provide value added service, which are basically unique and add

efficiency and effectiveness to the basic service capabilities of the firm. These value added

services have evolved due to forced innovation due to differentiated offering, for growing

and surviving in competitive markets.

Unit-3

Ch-3

Information Technology and Logistics

It has become appallingly obvious that our technology has exceeded our humanity

- Albert Einstein

Technology is playing a major role in the operational effectiveness and efficiency of various

functional areas of management. It helps in real-time information processing and analysis.

As a result, accuracy and speed in material and information flow in the supply chain has

increased manifold leading to productivity, effectiveness and efficiency in logistics operations.

Many new technologies in logistics are in use in the developed countries, while in India the

adoption process is a bit slower. Competitive pressure is building up and the only option for
competitiveness is to go in for technology enabled operations.

Introduction

Logistics information systems are the means of capturing, analyzing, and

communicating information related to logistics and supply chain management.
Information was largely paper-based during the past and thus resulted in slow,
unreliable, error-prone transfer of information. Now, with technology becoming
user friendly and also less expensive, logistics managers can effectively and
efficiently manage information electronically.
 Earlier, logistics focused on efficient flow of goods through the distribution
channel. Information flow was not given that much of importance. Now, timely
and accurate information is critical owing to the following reasons:

 Total customer service includes information related to order status, product

availability, delivery etc.
 To reduce supply chain inventory, information is very essential as this can
minimize demand uncertainty
 There is more flexibility with information as there is clarity as to how, when
and where resources may be utilized to gain strategic advantage

Latest technologies used are in the areas of:

1. Automatic Identification

2. Communication

3. Material Handling

4. Facility Design

The World Wide Web is responsible for a transformation of the global economy and with it

the supply chain management practices.

In increasingly competitive business environments, driven by customers growing demand

for service, speed and customization, the ability to deliver becomes the key differentiator.

Customers expectations have been shown to increase as their level of sophistication

increases. Net result is that companies are paying far more attention to their customers

need than ever before.

A second driver is technology which has enhanced the capability of companies to connect

with their suppliers and customers. Leveraging the power of technology has facilitated a

move toward real time visibility and optimization of the supply chain.

4.1.1 Customer -Centric Value Web Models

Name of Some More E-commerce Sites

The power of the internet to deliver convergence, speed and connectivity has changed

many customers expectations toward suppliers. Customer - Centric Value Web Model

reveals that the internet has the ability to connect everyone, everywhere, in real time.

Traditional supply chain boundaries are disappearing, to be replaced by a merging of

activities and processes in areas such as manufacturing, distribution and transportation.

The end result is that the traditional, liner supply chain model is being replaced by new

customer centric approaches.

Contemporary Technologies

GPRS

Bar Coding

EDI

Imaging

RF Technology

Automatic Identification (Auto Id) is the term used to describe the direct entry of data or

information in the computer system, programmable logic controllers or any

microprocessors-controlled device, without operating a key board. Auto-Id includes such

technologies as bar coding, radio frequency identification technology (RFID), data

communication, magnetic strip and voice recognition.

Benefits of Auto-Id are many such as:

Accuracy: Error-free data entry is possible ,as there is no human involvement.

Cost Saving: Reliable and correct information is made available to reduce the risk

element in decision making on resource allocations. The technology also facilitates

economies of scale for voluminous and repetitive operations.

Speed: Voluminous data can be stored, retrieved and transferred within a fraction of a

second.

Convenience: These technologies are user-friendly and provide ease in connectivity

to a wide range of processing and controlling equipment.

Bar Code

Bar codes are used for identification, handling, retrieval and storage of goods in warehouses

and stores. It is the most popular identification technology in many applications.

Bar code is assigned to a particular inventory items to show its identity during storage, retrieval
and dispatch.

Bar codes are also used for communication of dispatched items for the preparation of bills by
accounts departments and making periodic reports on inventory status and sales.

It facilitates the tracking of specific items in the warehouse during inventory audit or material
pick-up.

Information that may be required generally relates to the country code, manufacturer's name,
product details, date of manufacture, material content etc.

Bars are nothing but items of information in codified form which can be decodified or read with
the help of a scanner.

Bar code was first used in the US supermarkets in 1952, whereas food stores used it in US

on trial basis 1960. It is presently used in all industries. Besides speed, accuracy and reliability,
They offer following advantages:

Easy identification

Reduce paperwork and processing time leading cost reduction.

Eliminate human error

Increase productivity of the warehouse

Facilitate system automation

Bar codes are described by the symbologies used. Symbologies means the pattern of lines

and spaces used within the bar code to represent a no. or an alphabet. There are 260

symbologies available for different applications.

The various barcode symbologies differ in the way they represent data and in the type of

data they can encode. Some symbologies can encode numbers, while others both numbers
and letters, and some can encode letters, numbers as well as characters i.e. ASCII Codes.

Bar code symbologies divided into three:

1. Linear: Consists of a single row of bars.

2. Stacked: Several rows of bars and spaces and can be read by a multiple ID scanner

with moving laser beam.

3. Matrix: A polygonal array of data cells and are read from

a 2D image scanner.

Scanners are used for automatic identification of the bar

code.

Pattern of bars and spaces reflect the light pattern, which is

converted into electronic signals

to be decoded by the computer with reference to the memory

file in the computer system.

Two type of Scanner:

1. Contact Scanner-zero depth field

2. Non-contact scanner

It is one of the preferred forms of auto-identification of goods in manufacturing, retailing and

logistics industries. Such identification relies on storing and remotely retrieving data using

device called an RFID tag or transponder. The tag is an object that can be applied to or

incorporated into a product, animal, or person for the purpose of identification using waves.

RFID tags contain at least two parts.

1. One part consists of an integrated circuit for sorting and processing information,

modulating and demodulating RF signals and other specialized functions.

2. The second one is an antenna for receiving and transmitting the signal. It is also used

in transportation of payments.

The payment card can be recharged with cash at an add-value machine or in the shop and

can be read several centimetres from the reader.

 SIMPLY

BARCODES

Radio Frequency Identification

RFID and Logistics

In Logistics

Radio Frequency Tags

RFT are used as an alternative to bar codes for communicating inventory data to the readers

via radio waves. The reader is connected to the central computer. RFTs are pieces of silicon
chip to store data in the micro-circuit. They are programmable and have an erasable memory.

Data is stored in coded form and communicated to the reader through radio waves. RFTs

are available in passive or active form.

RFTs consist of two key components, namely tags that act as data carrier and reader or

antenna, which transfers information to and from tag. The basic principle of the tag is that the
antenna emits radio signals.

RFTs are very useful accompaniments to truck shipments.The tag contains information on
consignor, consignee, inventory items, quantity and value. RFT scan be helpful for quick
clearances at octroi or customs post.

Radio frequency identification, or RFID refers to the technology that uses radio
waves to automatically identify people or objects. An RFID system consists of a tag,
which is made up of a microchip with an antenna, and an interrogator or reader with
an antenna. The reader sends out electromagnetic waves. The tag antenna is tuned to
receive these waves. A passive RFID tag draws power from field created by the
reader and uses it to power the microchip’s circuits. The chip then modulates the
waves that the tag sends back to the reader and the reader converts the new waves
into digital data.
RFID is an evolutionary step in global supply chain integration. It makes it possible
to synchronize the physical flow of goods and the related information flow without
the need for human intervention from the point of origin to consumption.

Logistics Data Warehousing, Data Mining

Logistics Data Warehousing serves as the foundation for the entire Information
System. The data warehouse contains data structures, which are anticipated and
developed ahead of the requirements for the other execution as well as planning
systems, which makes the design, selection and implementations of those systems
easier, and less time consuming. It contains information, which describe past
activity levels as well as the current status, which serves as the basis for planning
future requirements. This enables access of data. Data access usually becomes a
bottleneck as it causes a lot of system failures, delays and response time problems.
Also, profiling the logistics activity and data mining is not possible until the logistics
data warehouse is designed and developed.

Logistics Data Mining is key to any logistics improvement initiative and is a

 methodical and systematic analysis of supply and demand activities. The process is
designed to identify the root cause of materials and information flow problems, to
identify major opportunities for improving processes, and also enables objective
decision-making.

Process of Logistics:-

Explanation for this process is same as of functions of logistics management as discussed

above.

Unit- 3
Ch- 4
Challenges Faced by Logistics Industry in India
Transport Related Challenges
In India road has become predominant mode of transportation of freight cargo.
Estimate of the modal movement of cargo highlights that in India nearly 60.2% of the
cargo is moved by road, 32.1% by rail, and rest by the coastal shipping, airways and
inland waterways. Pipelines constitute a very minor proportion.
While Road movement is preferred to rail, road movement has its own set of
challenges. They are:
1. Road network coverage- Freight movement in India is dependent on national
highways. While NH constitutes only about 2% of the road network of India, they
carry 40% of total traffic. As a result most of these highways are severely
congested.
2. Poor road quality- The road quality in India, on the NHs as well as the roads is
improving but is still poor in many locations. Estimates suggest that motor able
roads are still less than 10% of the total road network.
3. Expressway network will take time to develop- In many developed countries
expressway s have been developed to facilitate high speed freight movement
through linking of important cities, ports and industrial centers. In India the
expressway network is still largely at a planning stage.

4. High level of fragmentation of the trucking industry- The trucking industry in

India is largely fragmented and in the hand of small truck operators. Estimates
suggest that nearly 70% of the truck owners in India own between 1-5 trucks. Due
to this there is fierce competition amongst operators leading to truck owners
resorting to overloading to recover investments.
5. Multiple checkpoints- Trucks in India have to pass through multiple check
points in their journey. Trucks have to stop at state borders, for payment of toll
taxes, for RTO inspections etc.
Issues of Port Sector
1. High turnaround times- Data from Indian ports association shows that ports in
India suffer from high turnaround times for ships. JNPT, the premiere port in India,
has more than two times the turnaround time of Colombo and Singapore ports
because of congestion on berths and slow evacuation of cargos unloaded at berths.
2. Inadequate depth at ports- The depth at many ports in India is not enough and
dredging tenders take a long time in getting awarded. As a result with the existing
dates many ports are unable to attract very large vessels.
3. Coastal shipping has not taken off- Coastal shipping in India is hampered by
 inadequate port and land side infrastructure which hampers large scale use of it for
freight movements.
Storage Infrastructures Related Challenges
In addition to the poor transportation infrastructure the storage infrastructure in
India also needs significant improvement. Main reasons for this are:
1. State of ICD/CFS is poor- The ICD(Indian container depot) /CFS(Container
freight stations) infrastructure available for EXIM trade is inadequate. The land
requirement for setting up ICD/CFS at an appropriate place is difficult to come by
as several hurdles have to be cleared in the consolidation of land. As a result many
logistics companies with an interest in setting up ICD/CFS eventually fail to do so.
While it is difficult to set up a facility, at the same time the existing facilities are
plagued with several issues:
- Many of the older facilities today are located within city boundaries restricting
day movement of trucks.
- The approach roads to the facilities are poor making evacuation of cargo difficult.
- Most facilities have issues of inadequate parking, lack of available land for expansion etc.
2. State of warehousing is poor- Various estimates put warehousing costs to be
around 10% of the total logistics costs. Despite this the state of warehousing is
largely dismal. On the warehousing front 80-85% of warehouses are traditional
with sizes of less than 10,000sqft. Most of these warehouses are not leak proof,
equipped with security systems,

racking facilities etc. Majority of the operators of these warehouses are also small to
mid-sized entrepreneurs with limited investment capacity, The only large warehousing
owners are government agencies including central warehousing corporation and state
warehousing corporations, but their focus is mainly on food grain storage. There is also
shortage of warehouses. This is because land availability for warehousing at an
appropriate place and at an appropriate price is a concern.

3. State of cold storages is poor- Despite the significant requirement of cold

storages from the retail sector, pharmaceutical and chemical sector and the farm
sector, where it is estimated that up to 40% of the fruits and vegetables grown in
 India gets wasted, receptor needs to grow much faster to meet the needs.
4. Multi-modal logistic parks yet to take off- With emerging requirements of
integrated logistics, provision of transportation hub, value addition etc. large
logistics park were sought to be developed. However as with other areas the
number of such facilities continues to remain much less than the requirement.
Consolidation of large land parcels is a significant issue hampering their
development. Other issues include the lack of recognition of the concept of logistic
park by government.
Tax Structure Related Challenges
A complicated tax regime places several challenges on the logistics industry.
Payment of multiple state and Centre taxes results in:
1. Considerable loss of time in transit for road freight in order to pay such taxes.

2. Fragmentation of warehousing space especially for low margin products thereby

providing a disincentive to create a large integrated warehousing space. A uniform
tax structure to be introduced through the GST is being highlighted as the panacea
for the existing situation.
Technology and Skills Related Challenges
The logistics industry is also hampered by low rates of technology adoption and
poor skill levels. On the technology front the industry now seems to be paying serious
attention with use of RFID, vehicle tracking technologies, warehouse management
system etc. While acceptance is perhaps is not an issue anymore. Automation in
processes is still only in its infancy. Further progress is dependent on a certain level of
standardization which is made more difficult by the fragmentation in the industry. This
drawback needs to be tackled at the earliest.

In addition to the technology related issues the skill levels of in the logistic
industry also require to be upgraded urgently. As now courses focusing on logistic
industry remain few and far between. Also logistic industry is still not looked at as the
industry of choice for young graduates thereby making hiring of quality professional
manpower challenging.

Some of the skills required in this sector are technology skills, driving skills
 including safety procedures, industry understanding and multi operator’s skills.
MAJOR PROBLEMS THE GLOBAL LOGISTICS INDUSTRY IS FACING

Logistics is a huge industry. There are many challenges facing this industry today. Here are
some of the major issues mentioned below.

Changing customer needs

Now logistics solutions must be tailored to the customers’ needs. There should be full
transparency in orders and all stages from raw material stage to the final sale must be
visible. Reverse logistics is used by many. It is a challenge to keep up with the good quality
services as there are so many factors involved.

On time delivery
It is a challenge to provide on time delivery in the logistics industry. In the case of vessels,
it takes months to discharge. Air cargo takes less time, but they are expensive.

Infrastructure
There is a lack of infrastructure. Many terminals are trying to make room for large vessels.
This is causing congestion problems. If these infrastructure issues are not resolved fast, we
will continue to have congestion problems.

Capacity
In the U.S, there is overcapacity in ocean shipping and tightening capacity in domestic
shipping. So, freight rates are increasing. There is also aging workforce and increased
regulations that are increasing the cost.

Security
Security is a major concern in this industry. Goods are passed from one provider to the
other. They are kept in local warehouses and then delivered by truck. So, security is a big
problem

Unit- 3

Ch-5

Logistics Strategy

Introduction

In the modern day dynamic business environment, competitive pressures and customer

demands force a large number of firms in shifting their priorities towards understanding the
logistics supply chain process for delivering superior value to customer. In order to achieve

this objective, the historic role of warehousing, transportation, storage, and handling have

started with a more comprehensive role, which pervades the entire supply chain.

Logistics strategy facilitates gaining a competitive edge to support emerging technologies.

As a service function logistics involves the four basic features:

Reliability: Influences the degree of trust, which a supplier can have, in a company’s

capability for honoring commitments. The supplier has to be perceived as reliable and

for this the supplier needs to exhibit certain service characteristics. A high degree of

reliability in terms of inventory and material delivery is expected from the supplier end.

Thus a key objective of the logistical system needs to be reliability in meeting the

needs of the customer, according to the resource planning.

Responsiveness: The speed with which customer demands are being responded.

Responsiveness is expected at all levels of the supply chain. Response to pre-sales

enquiry by using latest available information and communication technologies is an

important strategy. Supplying material as per customer needs, and frequent deliveries

in fewer lot sizes are important. Deliveries can also be made at the various assembly

centers, which are in proximity to the markets. A firm will gain a winning edge in

competitive markets through a responsive strategy.

Relationship: Firms spend huge amounts in Customer Relationship Management

(CRM) related activities for development of long term relationships to retain customers,

and also reduce the element of risk in demand management. Partnering with the right

supplier and considering the supplier operations, as an extension of its own operations

will enhance the efficiency and effectiveness of the supply chain.

Rationalization: This refers to reducing the supplier base and partnering with select

suppliers. The supplier’s facility is treated as an extension of the buyer’s facility and
there is sharing of information, experience and resources for mutual advantage.

Requirements for an effective Logistics Strategy

Characteristics of an effective logistics strategic planning and project management are as

follows:

Dedicated planning resources and programs: Unless proper resources are set aside for

long term planning, it will not be carried out to the level of necessity to assess ways of

changing economic, technological, competitive, demographic and regulatory environments

affecting long-range requirement of logistics. A dedicated logistics planning team needs to

be organized. The logistics planning team should include analytical and operational

backgrounds that are required to resolve complex issues.

Formal Logistics Planning Methodology: Logistics is filled with interdependent activities,

which impact other areas of the organization. Planning activity goes through three important

phases such as investigation, vision and implementation. In the investigation phase, a

logistics audit is conducted and the company’s current performance and practices are

compared with world-class practices. The vision phase involves application of world-class

practices to the current environment. In the implementation phase, detailed project plans for

completing the recommended initiatives are developed and monitored.

Strategic Logistics Planning

Business firms have been forced to reengineer or redefine their business process so that

efficiency and effectiveness can be brought into the operations. The main reason for this

has been the increasing globalization of business activities, intense competition, and

uncertain markets. Different firms have different process of strategy formulation and

implementation. The process of strategic logistics planning has the following steps:

Analyzing the external and internal environment, which will help to determine the

resource requirements, limitations and any other factors.

The environmental analysis identifies the company’s strengths, weaknesses,

opportunities and threats in customer service.

SWOT enables in formulating the appropriate resources and the logistics mix or

resources required for achievement of organizational goals.

A structural design is needed to implement the strategy. The primary concern here is

the strategic planning of warehouses; transportation and information flow in the entire

supply chain. A proper interface between channel structure of the firm and its logistical

network can be done with the help of a structural design. The efficiency of the

functional elements in the movement of information and inventory across the supply

chain will influence the success of the strategy implementation.

Selection of transportation route, mode and carrier operator is a key aspect for offering

and maintaining a reliable and consistent service level.

The role of material procurement and management also cannot be ignored.

Implementing the strategy is absolutely important and its success depends on

efficiency of the human resources, equipment and the interfaces involved. A major

task at the level of operation are order registration, processing, picking, replenishment

and dispatching.

Thus, the process of strategic logistics planning will improve the overall responsiveness of the

organization.

Strategic Logistics Planning

Components of Information Decisions in Supply Chain Strategy:

Push Versus Pull: While designing the pieces of supply chain, it is necessary to

determine whether these are part of the push or pull phase in the supply chain. Push

systems require an elaborate Master Production Schedule (MPS) and Master

Requirements Planning (MRP). The Master Production Schedule rolls the Material
Requirements Planning (MRP) system. In contrast, for pull systems, information is

required on actual demand for quick transmission throughout the entire chain so that the

real demand is reflected.

Competitive Strategy: This defines the customer needs to be satisfied through its

products and services. A firm’s competitive strategy depends upon the customer

requirements. It targets the customer segments with a main objective of providing

products and services to cater to the customer needs.

Product Development Strategy: Mentions clearly the portfolio of new products, which

needs to be developed by a company giving an indication whether efforts towards these

are done internally or externally.

Marketing and Sales Strategy: Specifically mentions about market segmentation and

details relating to positioning, pricing and promotion of the product.

Supply Chain Strategy: A wide term, which includes supplier, operations and logistics

strategy. Includes decisions relating to inventory, transportation, operating facilities and

information flows. The strategy specifies the activities of supply chain such as

operations, distribution and service.

Other Strategies: A company also devises additional strategies for finance, accounting

information technology and human resources.

Logistics Strategies

Formulating a logistics strategy can be viewed from the following three angles:

Customer demands satisfied through strategy implementation

Targeting customers

Resources required for implementing strategies

Formulating a strategy is not an isolated process. Logistics strategy needs to have

congruence with the overall goal and strategy of the business. A synergy with the other
domains of the organization is necessary. An example of this can be the Management

Information Systems of an organization encompassing all the functional areas of business.

The MIS, being an information sharing system across the supply chain has considerable

synergy with logistics operation.. Considering the importance of formulating a logistics

strategy, the following are the possible approaches:

The following competitive and generic strategies could be pursued for logistics

Operations:

1. Cost Leadership: Achieving cost leadership is facilitated by logistics cost reduction to a

Major extent. This can be achieved by many ways. Examples of achieving logistics cost

Reduction are:

Warehouse operations based on scale economics

JIT which results in reduction of inventory and related

costs.

2. Differentiation: This strategy focuses on offering superior service. Examples of offering

logistics services for differentiation:

On time and consistent delivery

Logistics solutions to suit individual requirements

Tracking consignments

3. Collaboration: A strategy where the customer works in collaboration with the suppliers.

An example here is Vendor Managed Inventory (VMI). In VMI, customer places no orders

but instead shares information with the vendor. This information relates to actual usage or

sales of their product, their current on hand inventory and details of additional marketing

activity. On the basis of this information, the supplier takes responsibility for replenishment
of the customer inventory.

4. Diversification: Firms having a lot of operations adopt this strategy. The basic objective

here is the lower cost and better control over operations thus providing superior customer

service.

5. Outsourcing: Outsourcing services to logistics service providers having expertise in this area
in order to bring efficiency and effectiveness into the logistics operations. An example in
outsourcing is Customs Clearance service providers. As a majority of exporters and importers do
not have a proper expertise in this area of logistics operations, many logistics service providers
offer customs clearance services to their clients. This can reduce the overall transaction cost.

Unit-3

Ch-6

Wholesale and Retail

Essentially there are two main ways to sell your product - either as a wholesaler, or as a retailer.
Each has its benefits and potential pitfalls. When choosing the most appropriate avenue to
market, you must consider which model fits best with:

Your strengths and personality as a business owner

The brand identity of your business and its product or products

How best to reach your target market

What is the difference between a wholesaler and a retailer?

Wholesaler

A Wholesaler is a person or company who sells products in bulk to various outlets or retailers for
onward sale. Wholesalers are able to sell their products for a lower unit price as they are selling
in bulk, which reduces the handling time and costs involved. The Wholesaler may also be the
manufacturer or producer of the product, but they don’t have to be.
Retailer

A retailer is a person or a company who sells products directly to their customers for a profit.
The retailer may be the manufacturer of the product, or may acquire relevant products from a
distributor or a wholesaler.

Why Wholesale Might Suit You

Being a wholesaler gives you access to a diverse range of outlets and allows you to reach a large
customer base. Offering your product as wholesale allows a larger audience access to your
wares, therefore you are able to grow your business quickly. This can drive interest for your
product and can make you attractive to retailers who can see that there is a solid audience for
your goods and are more likely to want to stock your product.

1. Brand Awareness

Acting as a wholesaler is a great way to build awareness for your product. Instead of consumers
having to purchase exclusively from a particular shop, be it virtual or brick and mortar,
consumers can see your product in a variety of outlets. It can allow a wide range of consumers
who might otherwise not have been aware of your product to build a relationship with it.

2. Drop-Shipping

As a wholesaler, you can take advantage of a method of selling known as drop-shipping. A

retailer or merchant sells the product, but doesn’t own the inventory. Instead, the order comes
directly through to you and you dispatch the product directly to the customer. By doing this, you
gain the advantages of being a retailer (such as targeted branding and a direct line to the
customer), while a specialist retailer handles the front end of things. You retain ownership of the
inventory.

When drop-shipping, the system at the center of your business should offer you the flexibility of
being able to differentiate your drop-ship orders from others. Whether this be in the form of a
drop-ship symbol against orders, a different order status or a report filter, you should be able to
separate out these orders at a glance, quickly and easily. This allows for simple and effective
reporting, as well as your team being able to process the orders quickly and in the correct way,
according to your drop-shipping workflows.

3. Global Expansion
When selling goods via wholesale, it’s much faster and easier to expand into global markets.
Any growth and expansion is defined primarily by your relationship with those clients who buy
goods from you. If they sell globally, then so will you as you’re just getting the goods to where
they need to sell them.

Ensure your accounting system is setup to allow for multicurrency transactions so that you can
sell across multiple currencies to your various clients, quickly and easily. Another part to this is
that when selling via wholesale, you will be shipping your goods internationally as one large
container, as opposed to sending hundreds of individual retail packages. Depending on your
workflows and product costs, this could be a cheaper way of selling internationally.

Potential Pitfalls

A wholesaler is not able to be as responsive to the changing needs and desires of its consumer.
Whereas a retailer is at the front line of building a relationship with the consumer, a wholesaler is
at least one step away and relies heavily on market research and feedback from retailers to stay
ahead of the game.

1. Retaining Brand Identity

By trusting your product to a retailer, you’re putting faith in their ability to retain the brand
identity of your product. It may not always be possible to have control over how your product is
merchandised, how it’s discounted or what competitive products it’s displayed alongside.

2. Marketing Your Product

As a wholesaler, you still have responsibility for marketing your product to consumers. You
cannot expect the retailer to do all of the work for two reasons:

1. You need consistency of message regarding product placement and brand identity of your
product. You cannot expect each retailer to market the product as they choose while still
retaining any consistency in message.

2. Warehouse Space

Selling wholesale means that you will likely be selling your products in large quantities to many
different retailers and distributors. This means you need to ensure you have plenty of warehouse
storage space to facilitate those sales.
it’s also important to ensure your warehouse processes are streamlined and efficient to help
minimize any packing errors or wasted time locating goods in your warehouse. The inventory in
your warehouse should integrate seamlessly with your wholesale management platform, so that
you always know how many of each item is in your warehouse, ready for those large wholesale
orders you’re going to be fulfilling.

Why Retail Might Suit You

1. Targeted Consumer Base

You’re able to specifically target a tailored consumer base. By being the retailer, you can
personally select the channels that are most likely to reach customers who need and want your
product. This may be a brick and mortar shop, or an online presence instead of, or in addition to,
your physical shop.

The important thing here is to ensure you’re reporting on these sales channels, so that you can
make changes quickly if needed. Maybe there are a particular brand of products that are selling
well on Amazon, whereas your website is the go-to place for every other brand? Or is there a
particular type of product selling well on eBay versus your own brick and mortar store? However
you decide to slice and dice your reporting, use the analysis to your benefit, get your products on
the best channels and go where your shoppers are.

2. Personal Connection

You can get to know your customer base in great detail. You’re dealing with them directly, so
you can get a sense of their preferences and their habits, and your business can respond quickly
to that. Reporting in your business system is also very handy here - with various customer, sales
and product reports, you can very quickly see what are your best sellers versus no sellers.

3. Control Over Brand Identity

Having control allows you to ensure that your brand identity isn’t diluted and isn’t damaged.
You’re in control of where your product is seen, how it’s presented and what other products it’s
displayed alongside. You are in control of the marketing of the product, so can ensure that the
messages being put out to the world are consistent with how you want your product to be
viewed.
4. Price and Profit Margin

When developing your retail strategy, you can decide for yourself what price you are going to
sell your product for and at what profit margin. All of that profit will sit directly with you and
won’t be shared with a wholesaler. Use the margin reports in your system to ensure your
products are making you the best margins possible and make changes if needed.

You should also keep an eye on your margins across your sales channels as each platform will
incur different costs, such as eBay or Amazon fees. And don’t forget your landed costs such as
insurance, shipping and taxes! You’ll need to be on top of all of these to ensure your profits are
accurate and growing.

Adopt an integrated accounting system to gain real-time view of your business performance

Why not have the best of both worlds? It could be the perfect answer to both keep control of the
business from start to finish, maintain your own virtual or brick and mortar shop and to grow the
business quickly, all at the same time.

In theory, it sounds like an ideal answer for many companies who are able to juggle multiple
channels at once, and that want to retain direct contact with the consumer. However, there are a
number of issues, both positive and negative, to bear in mind before going down this path.

1. Competing Against Yourself

By being both retailer and wholesaler, you’re at risk of directly competing against your own
resellers, therefore you’re competing against your own product. It’s essential that you don’t
undercut your resellers, as this would damage your wholesale relationship with them and
retailers would be reluctant to take your inventory in the future.

Keep an eye on those all important reports! You should have separate price lists based on either
vendor, sales channel, or both. This will ensure you’re not undercutting your competition, or
damaging your own profits.
2. Different Ranges of Products

One way to avoid directly competing against your resellers would be to offer one line of products
in your own outlets, and to offer a different range of products for wholesale. This could be
completely different items, or the same product in different designs, colors or sizes. This is easy
to do through effective product .

3. Profit Margins

If choosing to sell via wholesale as well as retail, you need to be sure that your wholesale prices
cover your costs and still make a profit. This is where understanding your true inventory costs
comes in.

For instance, landed costs are often those hidden costs that you may not always think about, such
as insurance, fees and taxes. You should always take these into account when pricing products,
as well as the usual costs for shipping goods out to your customers, and receiving goods into
your warehouse.

Unit-3

Ch-7

Unit-3

Multi-Channel System or Hybrid System

Many businesses begin with single-channel distribution. That sole channel could be a brick-and-mortar store or an e-
commerce website. In either case, all sales flow through one outlet.

The advantage of a single-channel distribution management system is simplicity. There’s only one channel to
manage, one channel to stock, and one channel to market to customers. As a business expands, however, the
single-channel model can limit growth.

Definition of a Multi-Channel Distribution Management System

When distributing a product, each “channel” is an additional avenue to reach customers. Thus, multi-channel distribution
management is a strategy to provide customers with multiple ways to purchase the same product.
A multi-channel distribution management system is the set of business processes that enable profitable, sustainable
development of multiple distribution channels.

Many multi-channel distribution systems benefit from the support of technology. However, the “system” includes more than
just software that supports the execution of a multi-channel strategy. It also includes strategic business planning to help shape
the creation and improvement of that execution.

Why Some Businesses Opt for Multi-Channel Distribution

The simple answer is growth. However, while the long-term goal is the growth of sales, the near-term outcome may be the
growth of a customer base or purchasing options.

These are common reasons why businesses shift to a multi-channel strategy:

In-store sales have peaked. Even for a popular brick-and-mortar location, there are limits to revenue. A store is open for a
certain number of hours per day, can handle a certain number of customers, and can stock only a certain quantity of goods.
These limitations hamper growth-focused businesses from expansion.

Customers want more purchasing options. The popularity of a brick-and-mortar store may also work against it. For example, a
burger shop may frustrate customers with long lines after the workday or over weekends. Providing a second channel like home
delivery could give those same customers another, more convenient channel to get burgers. This effort to create a seamless
purchasing experience across all channels is known as omnichannel management.

Businesses want to reach new customers. This desire often provides the biggest opportunity for growth. The need to seek out
new customers is what can turn a local brand into a regional or national one. Many fast-food franchises began as local brands
before expanding their customer reach through the sale of individually-owned-and-operated stores throughout the country.

While each of these needs may inspire the development of a multi channel strategy, all focus on increasing sales and revenue. A
neighborhood shop may have no desire to expand its presence beyond the local community. But for companies with ambitious
long-term goals, the decision to adopt a multi-channel strategy is usually a question of “when” not “if.”

Benefits of a multichannel distribution system

Consumers expect products to be available in more than one place, making investing in a multichannel
strategy worthwhile. Merchants can experience benefits, including:

 Improved customer perception: Brands that create a seamless buying experience can gain significant
customer loyalty. They’re perceived as attentive to consumers’ needs, purchasing habits and digital-
savviness. With multichannel distribution, brands can also differentiate themselves not by lower price but
through convenience.

 Increased customer base: When brands place their merchandise in the path of customers who need them,
whether in-store or online, sales, exposure, and customer reach will increase.
 Diversify risk: It can protect merchants from relying on a single sales channel. In the event of a supply chain
breakdown or suspension of a major account, merchants who diversify their channels can avoid such a hit
against your revenue.

 Growing into untapped markets: Going multichannel also allows merchants to expose their products to new
customers and first-time buyers, leading to more product sales.

 Greater control over your brand’s future: With a multichannel strategy, you’re not reliant on a
single platform. You’re free to optimize your supply chain on your terms, get creative with your
marketing, and have complete access to your customer base. How to build a good pre-order
strategy.

Disadvantages of a multichannel distribution system

As with anything in business, there are drawbacks to multichannel selling. Although this strategy
can increase your sales and brand exposure, be prepared to face:

 Higher costs in labor and materials: More products in more places mean more suppliers,
geographically dispersed warehouses, staff to fulfill orders, and additional shipping costs. This strategy
requires more money. But just because you build it, doesn’t mean they will come. You’ll need to set
aside a budget for marketing and advertising. 

 Cannibalization of sales:
Cannibalization is a term used to refer to sales loss caused by a company’s introduction of a new
product or sales channel that displaces its own older products (or pre-existing channels) rather than
increasing the company’s overall market share. It’s a challenge faced by retailers when crafting
omnichannel shopping experiences.

 Potential for channel conflict: In multichannel distribution, conflict can take many forms: direct sales
competing with an independent distributor, two similar distributors competing for the purchase,
retailer vs. distributor

 Increased complexity: You have to manage thousands of inventory and SKUs, fulfill orders, work with
suppliers, provide excellent customer service, and guarantee delivery times. Multiply these efforts by
the number of extra channels you’re selling on. Management among systems, tools, and your
employees can prove to be time-consuming.

If you can’t keep up, problems will start popping up: redundant processes in warehouses, inability to
meet seasonal demand, incorrect displays of stock levels, or slow fulfillment of orders. These
seemingly minor issues will start adding up, leading to unhappy customers.

Unit-3

Ch-8
Ethical Issues in Supply Chain

Ethical issues are not just confined to the course of production,

but also involves several other layers of middlemen, traders & retailers till it finally reaches
the consumer.

 
Ethical Issues in Supply Chain :-Supply chain doesn’t merely involve moving of raw materials or
products in a systematic flow to end in the delivery of the final product.
It involves interaction of human beings at each step giving rise to a number of issues. Most of the
time, we tend to forget these interacting elements and just focus on the final product or outcome.
These issues remained under wraps in the past but it is not so anymore. With the advent of media
& fast communications methods, these news are just a click away from the people. Consumers
are much more aware and take their decisions based on these perceptions, thus becoming “ethical
shoppers or consumers”.
Ethical issues are not just confined to the course of production, but also involves several other
layers of middlemen, traders & retailers till it finally reaches the consumer. A dive down the
back end supply chain would take us further to the production of the “raw materials” thus giving
rise to a complex web of the supply chain.
In the entire system, there are a number of issues, that can be broadly divided into four
categories: Business Ethics, Labour & Welfare, Health & Safety & Environment. Besides these,
there are relevant national & local legal requirements that one must take into consideration rather
than just focusing on the compliance vs the non-compliance. One must note that the lapse on any
of these forms a major risk or threat to the organisation & thus directly affecting its
sustainability.
The degree of problems varies from country to country. Developing countries face the challenges
of Child labour, adolescent workers, basic minimum wage, overtime & above all health & safety
of the workers. Environment impact & the product footprint is also a major cause of concern
starting from pollution – air, water & soil, energy consumption, water consumption, waste
management along with the legal compliances wherever applicable.
Before declaring the product ethically sourced & ethically produced, one needs to think whether
the above mentioned issues are taken care of in real sense or is it looked through a rose-tinted
glass. With the world shrinking day by day in terms of distance & communication, one must
admit that business practices cannot be continued in its conventional or orthodox form.

Social issues in SCM

In today’s business world, growing attention is being paid on the business concept; “Corporate
Social Responsibility” (hereafter, CSR), mostly because of environmental concerns, regulatory
impacts, commercial benefits and reputation in front of the society. Increasing number of
companies initiates and implements practices considered as CSR activities.

Concept of Corporate Social Responsibility (CSR) has been first introduced by Bowen (1952)
and states that while implementing strategies and making their decisions, organizations should
act taking into consideration society’s values . In this respect, Carroll (1979) defined CSR as
sensitivity of an organization about the stakeholders’ expectations on the management of social,
environmental, economic, ethic and legal issues.

Towards the end of 1980s, concept of sustainable development has been introduced and has
focused on economic, social and environmental factors that organizations should consider.
Sustainable development emphasizes how today organizations can fulfill their needs without
jeopardizing the needs of the future generations . Concepts of social responsibility and
sustainable development have been developed separately and social responsibility mainly
focuses on social issues as human rights while sustainable development mainly focuses on
environmental issues. Nevertheless, in the recent management literature, those two concepts are
being used together.

Even though the term “CSR” includes the word “corporate”, CSR covers the issues related to
both social and environmental matters. On the other hand, CSR practices cannot be considered
distinct and even should be integrated to other organizational strategies or activities. Another
important issue is that CSR practices are mainly based on the principle of volunteering. That is
why those practices should be carried out by participation of relevant stakeholders.

During recent years, there have been several factors that force or stimulate organizations
concentrate on CSR and especially environmental applications.
Companies have realized the crucial importance of environment, started to adapt several
strategies and changed their ways of doing business. From the environmental perspective, those
companies involve the environmental issues as an important part of social responsibility.
Especially when it comes to manage supply chains, it becomes also important to consider
whether all suppliers and other companies in the chain implement CSR activities and practices.
All companies including suppliers take responsibility to do no harm to the environment, to
reduce waste and pollution, to control gas emissions, and to comply with governmental
regulations whilst at the same time to reduce their cost and to increase their profit.
Increasing concerns about the environment stimulates governments and international
organizations, such as European Union, European Commission, to promulgate new laws and
regulations. Thus all actors, including suppliers and manufacturers, in the product life cycle take
their own responsibilities on environmental issues. Furthermore, companies are obliged to meet
the standards and criteria in force to stay competitive in the market and to keep their sustainable
growth.

In addition to the environmental issues and regulatory concerns, social issues keep its crucial
importance. Although CSR activities require a great amount of investment, companies need to
integrate CSR concept to their processes for higher customer satisfaction and loyalty, better
corporate image and reputation, higher productivity, lower costs and thus higher business
profitability.

Changes in the behaviors of consumers whose awareness and sensitivity on social and
environmental issues increase constitute another reason to implement CSR applications.
Research has yielded that consumers prefer the products of companies that attach more
importance to protecting environment and put emphasis on activities related to social
responsibility. Research has also revealed that reputation and positive image of companies that
initiate CSR activities increase in front of society and enhanced reputation provides advantage to
those companies.

As a result, no matter in which field companies operate, in order to stay in the competition, they
should determine their CSR strategies and plan their relevant activities. Next section will explain
the different CSR areas which are considered important for supply chains.

Areas of social responsibility in supply chains

Supply Chain Management is a process comprised of several distinct but interconnected

functions and activities. Internal and external transportation management, warehousing,
inventory management, acquisition management, logistics service providers management,
resource management, packaging and assembly, customer services are among the most important
ones. It is also possible to break down the supply chain management process into two main
flows; i.e. forward flow and reverse flow. Taking into consideration those processes, main areas
of social responsibility in supply chains are

Organizational practices
Ethical practices

Environmental practices

Practices of human rights and working conditions

Practices of occupational health and safety

Practices to establish relationship with society

Table summarizes activities and practices considered good examples for the CSR areas listed
above.

Relevant CSR Areas

Organizational Practices
• Determining CSR goals for purchasing function

• Determining and defining roles and responsibilities of human resources related to CSR in
logistics

• Providing relevant training in CSR to the suppliers

• Sharing of CSR activities and practices with all relevant stakeholders

• Implementing a mechanism to receive feedback from stakeholders regarding CSR practices

Ethical Practices
• Not accepting gifts, free services, etc. from suppliers (especially during supplier selection
process)
• Not creating illegitimate pressures on suppliers
• Not sharing price and service information about suppliers with other irrelevant stakeholders
• Not favoring any particular supplier just because of managers’ preferences and assuring a fair
selection process
• Assuring all departments meet ethical standards in independent purchasing process
• Not creating illegitimate advantage in competition by using contract items
• Not giving out wrong information on purpose
• Not using specific items pointing out specific suppliers in contracts

Environmental Practices
• Purchasing and using recycled materials for packaging
• Supporting and encouraging suppliers on reducing waste (especially hazardous waste)
• Putting special emphasis on producing recyclable and reversible materials in production and
design
• Meeting standards for protecting environment in the processes of lifecycle management,
production, packaging and storing
• Supporting suppliers to implement processes that are appropriate for sustainable environmental
protection

Practices of human rights and working conditions

• Not keeping some suppliers out of cycle, just because they have managers from different
backgrounds
• Having procedures and also having mechanisms to monitor providing equal opportunity for
each employee working in all supplier companies
• Having appropriate procedures in place to assure that all employees can benefit from all their
legal rights, are working in accordance with rules, regulations and national/ international
standards
• Assuring that physical and psychological working conditions comply with all rules and
regulations in place

Practices of occupational health and safety

• Having appropriate procedures in place to assure that working conditions do not jeopardize
human health and safety
• Assuring that all safety, security and protection measures are in place for all activities
• Having procedures in place to assure that sensitive and delicate products are stored under
appropriate conditions
Practices to establish relationship with society
• Developing and carrying out programs for training and development of local suppliers
• Actively participating into and organizing non-for-profit social activities, such as volunteer
work, charities etc.
• Supporting sport activities and public education

Examples of CSR Applications in Supply Chain Management

Among those aforementioned activities, ensuring that all activities and functions comply with
national / international rules, regulations and standards and working with suppliers that fulfill
same requirements constitute the most important factors for CSR in supply chains. This issue is
also important to stay competitive in market and to have a sustainable growth in terms of
strategic perspective.

Green supply chain management

In general terms, Green Supply Chain Management (GSCM) can be defined as reflecting a
company’s consideration and sensitivity about environmental issues to all other supply chain
processes. GSCM also assures that companies consider not jeopardizing the environment in all
supply chain functions.

Companies usually perceive the GSCM practices as factors that increase the cost in general.
However, research has yielded that GSCM practices help companies to reduce general costs,
increase productivity, foster innovation, save resources and increase competitive advantage .
Besides those tangible benefits, GSCM practices also play important roles in increasing
employees’ job satisfaction and commitment, promoting customer loyalty and pleasure,
enhancing their reputation in the eyes of the society.

Main goal of GSCM is to assure that environmental practices are applied in the all phases of the
process from procurement of raw material to the delivery to the consumer; such as purchasing,
production, packaging, warehousing, distribution, assembly. Long-term goal of GSCM is to keep
under control all the processes, reduce the chemical waste, lessen the gas emissions and
eliminate all the activities that may be hazardous to the nature.
In the scope of GSCM, companies generally use three basic approaches:

Reactive approach

Proactive approach

Value seeking approach

Companies adapting reactive approach, usually apply procedures compliant with rules and
regulations in force, such as practices of human rights, minimum resource usage, supply recycled
products. Hence, reactive companies have a low level of GSCM.

On the other hand, companies adapting proactive approach, apply procedures to prevent possible
problems that may arise in the future, instead of struggling with past problems. Thus, proactive
companies develop programs and policies on how to implement and control green supply chain
applications.

Companies adapting value seeking approach systematically integrate their environmental

policies into their long-term business strategies, reflect those policies to their decisions and share
this with all their stakeholders. Besides, they establish a close communication with their
suppliers and stakeholders, and encourage them to integrate environmental policies to their own
business processes.

From the systems management approach, GSCM constitutes of a series of interconnected, not
independent, activities through a long process from the suppliers to the customers. Hence,
GSCM should be applied on the whole process in a holistic manner. Thus, to achieve a
successful GSCM, all activities and practices through the process should consider GSCM
principles.

Social and environmental practices in procurement and purchasing

Social responsibility in procurement and purchasing can be defined as performing all purchasing
activities in accordance with the CSR principles and taking into consideration CSR principles in
the decision-making process . If a company complies with the relevant standards on
environmental issues and involves its applications in the processes, procurement and purchasing
processes can be important activities to spread the CSR concept to the suppliers.

One of the first CSR practices that can be integrated into the procurement and purchasing is to
prefer recycled and/or recyclable materials. In addition to the purchasing of recyclable raw
materials, giving precedence to the procurement of technologies that consume less energy and
produce less waste is another important practice.

Social and environmental practices in production

Social responsibility in production process take place both in forward and reverse supply chain
management activities. In general terms, CSR in production includes the design of the product
taking into consideration CSR principles and the production without giving any damage or
hazard to the environment.

Among the most important long-term goals in the environment-friendly production process, to
implement the systematic mechanism reducing the amount of waste and to dispose the waste
without giving any hazard to the nature are considered the key practices.

Social and environmental practices in distribution and transportation

Social responsibility in distribution and transportation means developing required transportation
and distribution capability while maintaining and enhancing environmental, economic and social
sustainability.

CSR in transportation has been conceptualized during 1990s and has focused on environmental
and economic aspects of a sustainable transportation process. Most important effects towards the
environment include emission of greenhouse gas, emission of gas which is hazardous for the
ozone layer, discharge of hazardous waste produced during transportation.

Socially responsible practices in transportation area include giving opportunities to local

transportation companies, carefully monitoring that the traffic rules and regulations are followed
all the time, implementing mechanisms increasing safety and security performance in
transportation.
Social and environmental practices in packaging
For more than 20 years, there is already a pressure on the companies to lessen the negative
effects of the packaging material on the environment. Laws and regulations that have been put in
effect lately increase the importance of CSR in packaging function. Recently, influence of
packaging process on the environment is considered in the framework of product life-cycle from
a more holistic approach.

Under the CSR concept in packaging process, there are several activities to be considered, such
as storage, warehousing, protection of the product against deterioration. Throughout those
processes, CSR in packaging requires the usage of recycled and non-hazardous material,
reduction of waste, reduction of energy consumption and design the process in such a way that
does not harm the ecosystem.

In packaging, size of the package is a usually neglected but an important factor, since the size
directly determines the amount of material used. By having well-designed packages, companies
may increase the efficiency in resource usage. In addition, small size of a package helps
companies to formulate their loadings in the most optimum way and reduce their transportation
costs.

Social and environmental practices in warehousing

Social responsibility in warehousing is a relatively new concept. CSR in warehousing starts with
choosing the location of warehouses by taking into consideration all relevant environmental and
social issues.

In addition, providing a healthy and safe storage for products is another important activity. Even
more importantly, warehouses used to store hazardous material without threatening the
environment constitute a vitally important issue in CSR. Offering spare or extra materials for the
benefit of the society is also an activity considered under the CSR concept. Finally, as in the
other supply chain functions, taking all safety precautions and safety measures for the workers’
health and safety in warehousing is also an important activity.

Unit-4
UNIT- IV

Introduction to supply chain management Introduction: Definition, Components, objectives &

thoughts of supply chain management, Supply Chain Integration: Concept, Cost & benefits of Supply
Chain Integration, Forecasting & Partnering in supply chain. IT & Supply Chain : E business & Supply
Chain
Chapter-1
What is supply chain management?
Supply chain management is the heart of every organization. It consists of all the processes that
are involved in the life cycle of material in the organization from raw material to the
final product and delivery to the customer. The effectiveness of supply chain management plays
an essential role in the success of every business.

Companies are required to create a network of different suppliers to obtain different types of raw
material that they need for the production process. Moreover, companies must have suppliers
that can meet the demand of the material and can provide material in any quantity whenever it is
required in the organization.

The role of supply chain management (SCM) has even increased more because of cut-throat
competition in every market segment. Now several companies are providing similar products,
which gives more options to the consumers to choose from. As a result of that, it becomes
difficult for companies to survive in the market  and is required to continually think about
innovative ideas to stay ahead in the competition.

An adequate supply chain management is not only useful for the manufacturer, but it is also
helpful for the suppliers. The manufacturer can increase the profit margin by rightly knowing
the demand for the product in the market. Whereas, a supplier can manage his supply effectively
to different manufacturers as he communicated the need for material on time.

Moreover, supply chain management helps in minimizing the costs of producing, shipping,
storing, and ensuring the products that are not sold.

Six components of Supply Chain Management

The following are the six components of supply chain management.

1. Planning
Planning is the first and most essential element of supply chain management. The purpose of the
planning component is to manage and plan all required resources in the organization to produce
products and services to meet the demand of customers.

Planning for their supply chain design is necessary for an organization. Then they determine
which metric they should use to ensure the efficiency and effectiveness of the supply chain of the
organization. The role of planning is to keep up with the organizational goal and to stay ahead in
the competition.

With the help of an action plan, the organization makes sure that it delivers value to its
customers.

2. Sourcing
The second component of supply chain management is sourcing. The performance of an
organization largely depends on its suppliers. It is an essential job of an organization to choose
the right suppliers to deliver material and services that it requires to produce final products.

The organization gets into a contract with the suppliers, and suppliers provide products and
services to the organization. An organization uses different processes to manage its relationships
with the suppliers. Various methods are part of sourcing.

The main processes that are part of sourcing are ordering for the material, Receiving material,
management of inventory, keeping communication with suppliers, and authorizing suppliers’
payment

3. Making
The next component of supply chain management is the making component. It is the
responsibility of the supplier chain manager to coordinate the activities of production. Various
activities are part of the supply chain management process.

The example of these activities is accepting raw material, manufacturing products, testing the
quality of final products, discarding and recycling the stuff that does not match the quality
standards, packing the final products, and scheduling the final delivery.

Organizations regularly check the quality, the productivity of employees, and output of
production to make sure that the organization is creating products that meet the quality standards
or not.

4. Delivering
The delivery component of supply chain management is also referred to as logistics. The
delivery process is complex, and people choose your products influenced by the quality and
speed of your delivery.

The delivery component of the supply chain management process consists of activities like
coordinating customers’ orders, scheduling delivery, method of payment, dispatching deliveries,
invoicing customers, and receiving the payment. The speed of your delivery of goods depends on
the fleet of your vehicles.

Many organizations outsource their delivery work to specialized organizations to reduce their
work and in the case when the delivery process requires special handling and extra efforts.

5. Returning
In this step, the organization returns the goods that are unwanted, defective, or in excess
quantity. The supplier should be willing to take back the products and scrap or recycle the faulty
products. In case the received products are surplus in volume, but in good shape, then it should
be returned to the warehouse for sale.
6. Enabling
The supply chain requires different support processes to keep a check on the information
following through the supply chain process. Supply chain management should abide by the
regulations. The methods like Human resource, finance, IT, Portfolio management,
facilities, product design, quality assurance, and sales are the essential processes of the enabling
process.

Importance of Supply Chain Management

Supply chain management is essential for an organization. An organization can reduce cost,
wastage of material, and time required for the production process with the help of effective
supply chain management. In competitive times, the importance of supply chain management has
become even more crucial.

The industry standards require supply chains to become just-in-time supply chains where
manufacturers are immediately informed about manufacturing more as soon as the stock gets out
of stock; so that retail shelves are never empty and can be restocked as soon as the goods are sold
out.

The process can be improved by analyzing the data from supply chain management. The
following are the three scenarios in which effective supply chain management improves the
quality of the supply chain cycle.

1. Identifying the potential problems in the process

Several issues in the supply chain management process affect the performance of the business.
For example, it is cynical business ethics if your business can’t deliver to meet the demand of
customers. It will be considered as poor service if your organization is manufacturing less than
the demand in the market.

In such scenarios, by analyzing the data of supply chain management, manufacturers can identify
the shortage of goods and can manufacture accordingly to meet the demand of the customers. In
this way, you can save yourself from disappointing your customers and can retain them for a
more extended period.

2. Dynamic price optimization

Dynamic price optimization is necessary for the success of the business. Many products have a
limited shelf life. These products, if not sold on time, become useless and are usually scrapped at
the end of the season or are sold at discounted prices. Businesses whose businesses are affected
by season use dynamic pricing to meet the demand of customers. For example, companies like
airlines and hotels that sell perishable products adjust the pricing of their products dynamically.
Effective supply chain management helps in increasing the margin on the selling price of the
goods. For example, you can adjust the pricing of goods that have a limited shelf life in such a
way so that you can earn maximum profit in the beginning.

3. Enhancing the allocation of “available to promise” inventory

Sufficient supply chain management helps in the dynamic allocation of resources and material.
An organization can schedule their work based on the information obtained from supply chain
management. For example, production work can be planned according to the information
available about the delivery of raw material, forecast of sales, and an actual number of orders.

A manufacturer can place an order for the raw material according to the number of requests
received and the delivery date of goods. In this way, they can minimize the chances of
incorrectly-filled orders and excesses of products produced.

Key features of effective supply chain management

Supply chain management is one of the essential parts of a business. A proper and effective
supply chain management helps organizations to enhance their business and to build the
reputation of the company.

A company with a good reputation can sustain their business for an extended period and can
establish long-term relationships with the customers. It is essential to learn about the features of
an effective supply chain management if you want to learn about it in detail.

1. Comprehensive
The data collected using supply chain management is compared with the data collected in real-
time. The outcome obtained through this process is fast and thorough in nature. Supply chain
management helps in avoiding latency in the future.

2. Connected
Supply chain management helps in connecting not only suppliers and manufacturers but also
supports a manufacturer to communicate with their customers. A manufacturer can place orders
as per the requirement of raw material available for the production process.

For example, businesses can collect data about the changing trends and can use this information
to plan for future manufacturing work. This helps the organization to serve its customers better.

3. Cognitively enabled
The action in supply chain management is performed by collecting and coordinating information.
This helps the organization to perform effectively and make decisions in the supply chain. Many
organizations have advanced supply chains that enable organizations in automated learning.

4. Collaborative
Supply chain management helps in collaboration between suppliers and manufacturers. Active
partnership with suppliers helps an organization to serve its customers better.

5. Cyber aware
An adequate supply chain management should not only help the organization in enhancing their
business but should also help them in making the system of the organization safe and intrusion-
proof.

Principles of Supply Chain Management

The following are the seven core principles of supply chain management that can be used in the
supply chain of any organization irrespective of what type of product it produces.

1. Segment
Segmentation of your customers based on their demand and the service required by them. Then,
use this information to make alterations to your supply chain so that you can serve each segment
of customers efficiently and profitably.

Having a precise knowledge of your customer’s expectations and their purchasing habits enables

you to serve the needs of your customers adequately.

2. Customization of logistics based on the segments

Once you have customized parts of your customers and their demands, then you are required to
customize your logistics network to meet the service requirement and to serve each segment
efficiently.

Curate your services in such a way so that you can meet the individual demand of your
customers. In this way, you can not only serve your customers but can also stay profitable.

3. Forecast demands
Marketers are required to listen to the market demands and can plan their supply chain
accordingly. Make sure that you keep your forecast consistent and make the use of optimal
resource allocation. Make your Supply Chain Management (SCM) initiatives flexible so that you
can be ready for all types of unexpected events that may occur in the business.

4. Products differentiation
Differentiate your products further down the supply chain. This will help you in determining the
accurate demand metrics. You can be prepared with the customized products that your customers
might demand at any point in time in the future.

5. Minimize costs
You can manage your resources in such a way so that you can minimize the cost of production.
In this way, the total cost of owning material and producing products can be reduced. You can
optimize the cost of raw material by coordinating with your suppliers. In this way, you can take
benefit from the relationship with the suppliers.

6. Use technology
Make the use of technology  and supply chain management tools to help you in decision-making
at various levels and to provide a clear view of products, services, and information related to
them.

7. Analyze the performance

At last, you are required to analyze the performance of all the efforts made by you. This will help
you in determining the areas where you are required to put more energy so that your processes
run smoothly.

History (Thoughts of Supply Chain)

In the 1940s and 1950s, the focus of logistics research was on how to use mechanization (e.g.,
pallets and pallet lifts) to improve the very labor intensive processes of material handling and
how to take better advantage of space using racking and better warehouse design and layout.In
the mid-1950s, this concept was extended to transportation management with the development of
intermodal containers together with ships, trains, and trucks to handle these containers.
By the 1960s, a clear trend had developed in shifting more time-dependent freight
transportation to truck rather than rail. This led to the need for joint consideration of
warehousing, material handling, and freight transportation, which emerged under the label of
“Physical Distribution.” The National Council of Physical Distribution Management was formed
in 1963.
This area gained much wider recognition in both industry and academia due in large part
to the fundamental paradigm change that occurred during the 1960s and 1970s with regard to
computers. Prior to the 1960s, virtually all transactions and record keeping were done manually.
The 1980s marked the beginning of a sea-change in logistics in the history of supply
chain management. The emergence of personal computers in the early 1980s provided
tremendously better computer access to planners and a new graphical environment for planning.
Perhaps the most important trend for logistics in the 1980s was that it had begun to get
tremendous recognition in industry as being very expensive, very important, and very complex.
In 1985, the National Council of Physical Distribution Management changed its name to the
Council of Logistics Management (CLM).The logistics boom was fueled further in the 1990s by
the emergence of Enterprise Resource Planning (ERP) systems. These systems were motivated in
part by the successes achieved by Material Requirements Planning systems developed in the
1970s and 1980s, In spite of some significant problems in getting the ERP systems installed and
working, by 2000 most large companies had installed ERP systems. The result of this change to
ERP systems was a tremendous improvement in data availability and accuracy. The new ERP
software also dramatically increased recognition of the need for better planning and integration
among logistics components.
The widespread recognition of the term “supply chain” has come primarily as a result of
the globalization of manufacturing since the mid-1990s, particularly the growth of manufacturing
in China. This growing association of supply chain management with strategy is reflected in the
Council of Logistics Management’s changing its name to the Council of Supply Chain
Management Professionals in 2005. They make the distinction that “Logistics is that part of the
supply chain process that plans, implements, and controls the efficient, effective forward and
reverse flow and storage of goods, services, and related information between the point of origin
and the point of consumption in order to meet customers’ requirements” while “Supply Chain
Management is the systemic, strategic coordination of the traditional business functions and the
tactics across these business functions within a particular company.”

The concept of supply chain management was in effect long before the term was created in 1982.
In the colonial era, international trade by ship was already making for complicated transportation
issues and the need for efficiency. During the Industrial Revolution, the ability to quickly
produce goods with machine assistance led to the need to manage significant inventory and
constant consumption. By the time history arrives at Henry Ford’s famous assembly line for the
world’s first car production in 1913, supply chain management had become an art. 
 
As the century wore on, more companies were producing more goods and looking for ways to
reduce costs. They vertically integrated into owned supply chains to try reducing costs at each
stage. In the 1980s and on, globalization became a realistic dream for many companies, because
of computer systems, easier communication, and commerce-friendly trade laws. Around the
1990s, it became a common practice for firms to specialize, and focus on core competencies and
outsourcing the rest, abandoning the vertical integration of the previous era. At this point, supply
chains became truly complex, in order to coordinate hundreds of otherwise unrelated and
geographically-distant manufacturers, suppliers, shippers, warehouses, and retailers. 
 
Now, in the “SCM 2.0” era, the Internet and new methodologies have led to collaborative
platforms and democratized processes. This is allowing smaller competitors to use some of the
same manufacturers as major players, and reducing inefficiencies for those manufacturers as a
result. Better communication and planning tools are providing a way for small and large
companies alike to manage even more complex supply chains.
Unit-4

Ch-2

Supply Chain Integration

Supply chain integration can be defined as a close calibration and collaboration within a supply
chain, mostly with the application of shared management information systems. A supply chain is
made from all parties that participate in the completion of a purchase, like the resources, raw
materials, manufacturing of the product, shipping of completed products and facilitating services.
There are different levels of supply chain integration. We will understand this with the help of an
example of a computer manufacturing company.

The initial step in integration shall include choosing precise merchants to supply certain inputs
and ensuring compliance for them for supplying certain amount of inputs within the year at a set
cost. This assures that the company has the appropriate materials required to produce the
expected output of computers during the year. In the meanwhile, this computer company may
sign a bond with a large supplier of circuit boards; the bond expects it to deliver a precise
quantity at precise times within a year and fix a price that will be effective during the bond year.
If we move to a higher level, the next step would be to integrate the companies more closely. The
circuit board supplier may construct a plant close to the assembly plant and may also share
production software. Hence, the circuit board company would be able to see how many boards
are required in the upcoming month and can construct them in time, as the company requires
them in order to meet its sales demand. Further higher level is referred as vertical integration.
This level starts when the supply chain of a company is actually owned by the company itself.
Here, a computer company may buy the circuit board company just to ensure a devoted supply of
elements.

Strategies of supply chain integration

a) Push System:-

In a push-based supply chain, the goods are pushed with the help of a medium, from the source
point, e.g., the production site, to the retailer, e.g., the destination site. The production level is set
in accordance with the previous ordering patterns by the manufacturer. A push-based supply
chain is time consuming when it has to respond to fluctuations in demand, which can result in
overstocking or bottlenecks and delays, unacceptable service levels and product obsolescence.
This system is based on the deliberation of customer’s demand. It tries to push as many products
into the market as possible. As a result, the production is time consuming because the producer
and the retailer struggle to react to the changes in the market. Forecast or prediction plays an
important role in the push system. Optimum level of products can be produced through long term
prediction. This deliberative nature of the push system leads to high production cost, high
inventory cost as well as high shipment cost . Thus, in the push view of supply chain integration,
the manager of a firm may sometimes fail to satisfy or cope with the fluctuating demand pattern.
This system leads to high inventory and high size of batches.

b) Pull System:-

The pull-based supply chain is based on demand-driven techniques; the procurement, production
and distribution are demand-driven rather than predicting. This system doesn’t always follow the
make-to-order production. For example, Toyota Motors Manufacturing produces products yet do
not religiously produce to order. They follow the supermarket model. According to this model,
limited inventory is kept and piled up as it is consumed. Talking about Toyota, Kanban cards are
used to hint at the requirement of piling up inventory. In this system, the demand is real and the
company responds to the customer demands. It assists the company in producing the exact
amount of products demanded by the clients. The major drawback in this system is that in case
the demand exceeds than the amount of products manufactured, then the company fails to meet
the customer demand, which in turn leads to loss of opportunity cost. Basically in the pull
system, the total time allotted for manufacturing of products(lead time) is not sufficient. The
production unit and distribution unit of the company rely on the demand. From this point of
view, we can say that the company has a reactive supply chain. Thus, it has less inventories as
well as variability. It minimizes the lead time in the complete process. The biggest drawback in
pull based supply chain integration is that it can’t minimize the price by ranking up the
production and operations. Differences in Push and Pull System The major differences between
push and pull view in supply chain are as follows:

1. In the push system, the implementation begins in anticipation of customer order whereas
in the pull system, the implementation starts as a result of customer’s order.

2. In the push system, there is an uncertainty in demand whereas in pull system, the demand
remains certain.

3. The push system is a speculative process whereas the pull system is a reactive process.

4. The level of complexity is high in the push system whereas it is low in the pull system.

5. The push based system concentrates on resources allocation whereas the pull system stresses
on responsiveness.

6. The push system has a long lead time whereas the pull system has a short lead time.

7. The push system assists in supply chain planning whereas the pull system facilitates in order
completion.
To conclude, the push based supply chain integrations works with an objective of minimizing the
cost whereas the pull based supply chain integration works with an objective to maximize the
services it provides.

Push &Pull System : Mostly we find a supply chain as merger of both push and pull systems,
where the medium between the stages of the push-based and the pull-based systems is referred as
the push–pull boundary. The terms push and pull were framed in logistics and supply chain
management, but these terms are broadly used in the field of marketing as well as in the hotel
distribution business. To present an example, Wal-Mart implements the push vs. pull strategy. A
push and pull system in business represents the shipment of a product or information between
two subjects. Generally, the consumers use pull system in the markets for the goods or
information they demand for their requirements whereas the merchants or suppliers use the push
system towards the consumers. In supply chains, all the levels or stages function actively for the
push and the pull system. The production in push system depends on the demand predicted and
production in pull system depends on absolute or consumed demand. The medium between these
two levels is referred as the push–pull boundary or decoupling point. Generally, this strategy is
recommended for products where uncertainty in demand is high. Further, economies of scale
play a crucial role in minimizing production and/or delivery costs. For example, the furniture
industries use the push and pull strategy. Here the production unit uses the pull-based strategy
because it is impossible to make production decisions on the basis on long term prediction.
Meanwhile, the distribution unit needs to enjoy the benefits of economy of scale so that the
shipment cost can be reduced; thus it uses a push-based strategy.

c) Demand-Driven Strategies

The demand-driven strategies were first developed to understand the impact of inactivity and
collection, as information fertilizes the supply chain from the source of demand to the suppliers.
Within a mentioned supply lead time, normally the manufacturers manufacture sufficient goods
to satisfy the needs of their clients predicted. But this is only somewhat accurate at the granular
level at which inventory decisions are made. Anyways, when the actual demand varies from the
demand predicted, the first thing to be done is to adjust the supply levels needed in accordance
with each step of the supply chain. But because of time delay between changing demands and its
detection at several at points along the supply chain, its impact is amplified, resulting in
inventory shortages or excesses. The inventory levels of the companies are disturbed because of
the overcompensation done by the companies either by slowing down or speeding up production.
These fluctuations prove to be a costly and inefficient affair for all participants. Basically, the
demand-driven strategies or the demand-driven supply chain is completely based on the demand
as well as the supply part of marketing. So it can be uniquely organized in terms of the demand
side and supply side initiatives. The demand-side initiatives concentrate on efficient methods to
acquire the demand signal closer to the source, observe the demand to sense the latest and most
accurate demand signal and shape the demand by implementing and following promotional and
pricing strategies to gear up demand in accordance with business objectives.

Cost & Benefits of Supply chain integration:-

Companies that have an integrated supply chain increase their flexibility to adjust to client
requests, competitors’ actions, and events within the industry. They also reduce waste and lower
costs. Overall, with an integrated supply chain they are gaining an advantage over the
competition and the whole business benefits.

1. Flexibility

The ability to be flexible and adapt to different situations is important in any competitive
industry. Having an integrated supply chain allows companies to do that much more quickly and
fluidly than would be possible with a traditional logistics model.

One example of this flexibility is just-in-time capability, in which just enough freight is used to
meet daily demand. This limits the amount of warehouse space used and helps keep costs down.
While very beneficial to a company’s costs and space, this method can be detrimental if the
supply chain isn’t effective or responsive enough limiting inventory and creating delays and
ultimately costing more than the savings are worth.

2. Eliminate Waste

Reducing or eliminating waste is a constant goal for most companies, partly for the long-term
cost savings, but also to meet increasingly numerous requirements for eco-friendly
manufacturing.

Integrating your supply chain will dramatically reduce waste in several areas. You will save on
space in warehousing due to better route management. This will also save on emissions helping
you to meet low-waste environmental goals. Trucks will be filled on every leg of the route
maximizing cube and ensuring that you don’t have empty trucks driving around. This means that
you will be more efficient and save money.

3. Lower Costs

It is challenging for an enterprise supply chain to respond quickly to changing business

requirements, to maintain transparency with trading partners, and gives access to real-time
intelligence for supply chain visibility. All these lead to reactive supply chains that require huge
manpower to manage the operations, product delays and an increase in infrastructure investments
eventually leading to lower productivity and more costs.

Supply Chain integration provides a holistic solution to all these issues directly leading to cost
savings and provide an opportunity for an enterprise to focus more on customer needs and how
their needs can be met profitably.
Being flexible and getting rid of waste will help to lower costs. There are other things that can
help such as the expertise of your team, the dependability of equipment and cost sharing. Having
a dedicated, knowledgeable team will increase productivity and improve workflow. 

4. Increased collaboration and visibility
In an integrated supply chain, it is important to link together as many areas as possible to
enable strong collaboration with the end goal of reducing costs, waste, production time and
response time. Rather than allow different enterprise functions to operate separately,
an integrated supply chain promotes centralization to ensure enterprise-wide visibility.  By
aligning and integrating your supply chain, you can move from having your teams work at cross-
purposes to seamlessly sharing information for an increase in cross-operational visibility and
collaboration. 

5. Stay on top of demand

Directly related to increased visibility is the increased ability to stay on top of demand with an
integrated supply chain. Without the line of sight an integrated supply chain provides, it would
be virtually impossible to balance supply and demand. With integrated logistics, supply
chain, product innovation and financial strategies, companies are better positioned to predict
demand and act accordingly. Today’s increasingly global supply chain needs to be able to spin
on a dime and accommodate shorter product life cycles, emerging markets and fluctuating
economies.

Cost in SCI Due to Bullwhip Effect

Failure to accurately estimate demand and share information among supply chain entities can
result in bloated inventory levels due to cumulative effect of poor information cascading up
through a supply chain. This is in fact quite natural in a way. If a firm doesn’t have information
of the demand it will unnecessary carry a load of additional inventory or even increase the lead-
time to cater for the uncertainty. Either ways the inventory gets bloated, if the lead-time
increases so will the buyer increase order quantities (based on conventional recorder point
calculations). This will result in the supplier interpreting this to be growing customer demand,
with a cascading effect on the supplier who feels the necessity to increase capacity to meet the
trend. To add fuel to the fire, just as supplier has added additional capacity to meet the increase
in demand, demand falls off because the buying firm has excessive stock available. The resultant
is firing of employees, selling of assets in order to reduce the capacity. This ‘phantom’ demand
in SCM is called as bullwhip effect. In other words, ‘the increase in variability as we travel
upwards in the supply chain is referred to as the bullwhip effect.

Short-Circuit the Bullwhip

 Make information transparent:
 Use Electronic Data Interchange (EDI) to support Just-In-Time supplier
replenishment
 Use bar codes & electronic scanning to capture & share point-of-sale data

Electronic Data Interchange

 The most common method of using computer-to-computer links to exchange data
between supply chain partners in a standardized format.
Benefits of EDI include:
 Quick transfer of information
 Reduced paperwork & administration
 Improved data accuracy & tracking capability

Integrated SCM
 Implementing integrated SCM requires:
 Analyzing the whole supply chain
 Starting by integrating internal functions first
 Integrating external suppliers through partnerships
 Possible Supply Chain Objectives
 Reduce costs, improve quality
 Reduce lead time and inventory
 Reduce time to market
 Increase sales
 Improve demand data/forecasting

Forecasting and partnering in supply chain

Impacts of Demand Forecasting on Supply Chain :

Improved supplier relations and purchasing terms: Demand forecasting drives the raw
material planning process which facilities the Purchasing Managers to release timely purchase
plan to suppliers. Visibility and transparency of raw material demand improve supplier relations
and empowers Purchasing Managers to negotiate favorable terms for their companies.

Better capacity utilization and allocation of resources: Based on the current inventory levels,
raw material availability and expected customer orders, production can be scheduled effectively.
This leads to improved capacity utilization and judicious allocation of manufacturing resources.

Optimization of inventory levels: A proper Demand Forecast provides vital information for
driving the desired raw material, WIP and finished goods inventory levels. This reduces the
Bullwhip effect across the Supply Chain, leading to optimization of inventory levels and
reduction in stock-out or over-stocking situations.

Improved distribution planning and logistics: Apart from small businesses, this is particularly
evident in businesses dealing with multiple SKU(Stock keeping unit) and wide distribution
networks. Distribution and Logistics Managers are enabled to balance inventory across the
network and negotiate favorable terms with Transporters.

Increase in customer service levels: With optimized inventory levels and improved
Distribution Planning and Logistics, customer service metrics like on-time delivery (OTD), on-
time in-full (OTIF), case-fill/fill-rate, etc. are improved due to right sizing and right positioning
of inventory.

Better product lifecycle management: Medium to long range Demand Forecasts provide better
visibility of new product launches and old product discontinuations. This drives synchronized
raw material, manufacturing and inventory planning to support new product launches and most
importantly, reducing the risk of obsolescence of discontinued products.

Facilitates performance management: Management can set KPIs and targets for various
functions like Sales, Finance, Purchase, Manufacturing, Logistics, etc. based on the medium to
long range plans derived from the Demand Forecasting process. Organizational efficiency,
effectiveness, and improvement initiatives can be designed for key areas of the company.

3 Main Roles of Forecasting in Supply Chain Management

Forecasting and partnering plays three major roles in effective supply chain:-

Pivotal in strategic planning of Business: Forecasting is the underlying hypothesis for strategic
business activities like expansion planning, budgeting, financial planning, risk assessment, and
mitigation. Critical business assumptions like turnover, profit margins, cash flow, capital
expenditure, etc. are also dependent on Forecasting.

Initiating all push–processes of Supply Chain: Forecasting is the starting point for all push-
processes of Supply Chain like raw material planning, purchasing, inbound logistics, and
manufacturing. Better forecasts help optimize the inventory levels and capacity utilization.

Driving all pull–processes of Supply Chain: Forecasting drives all pull-process of Supply
Chain like order management, packaging, distribution, and outbound logistics. Better forecast
improves the distribution and logistics and increases customer service levels.

Unit-4

Ch-3

E business Supply Chain Management:

E-business technology constitutes a powerful tool in contemporary supply management.
Efficient information integration between supply chain members offers several advantages for
the business partners, such as the automation of routine work, faster lead times, process
transparency and opportunities for further improvements. Moreover potential benefits of utilizing
technologies in supply chain management may also include, for example, open information
sharing, increased visibility of customer demand, decrease in delivery lead times, improved
visibility and the development of core competencies. The role of information technology in
logistics stated that information technology can have significant effects on logistics operations
because it facilitates, for example, collaboration and automation which, moreover, makes
possible for managers to focus on more strategic issues.

As information technology has made it possible to share large amounts of information along the
supply chain, and it is often referred to as an essential enabler of supply chain management
activities. The information technologies which use the internet, web and web-based applications
for communication are termed e-business technologies in the literature.

Croom (2005) defines e business as the “use of systems and open communication channels for
information exchange, transactions and knowledge sharing between organizations.”

According to Johnson and Wang (2002), e-business applications can be divided into

E-commerce,

E-procurement

E-collaboration

E-commerce has been defined to be useful in terms of identifying possible exchange partners
and responding quickly to changing customer demands, and it more specifically, relates to
buying and selling products on the internet. E-commerce is linked to individual consumers.

E-procurement usually involves dealing with companies. Johnson and Wang (2002) define e-
procurement as efficient purchasing using the internet or other pre-specified protocols to carry
out transactions between buyer and supplier companies.

E-collaboration, which is the third e-business application according to Johnson and Wang
(2002), consists of B2B interactions beyond buying and selling transactions, including
relationship management and the sharing of processes, resources and decisions. It could thus be
stated that e-business is an overall concept involving e-commerce, e-procurement and e-
collaboration. It incorporates production, customer and firm-internal processes that are indirectly
related to commercial transactions.

Advantages of e business Supply Chain Management:

The competitiveness among e commerce businesses is rising day by day. Internet access has
helped customers to easily access e Commerce sites and purchase. An effective and efficient e
Commerce SCM provides connecting with customers and converting leads.

Transparency

SCM provides clear visibility across the entire network. It assists the users to invigilate the status
of all the undergoing activities across supply, production, warehousing, and distribution. This
ensures a more comprehensive tracking and management of all process from ordering to
shipping of finished products.

Enhanced CRM

The merits of good CRM can’t be overlooked! SCM ensures timely deliveries, which in turn
keeps the customers happy. Also, it assists the business to keep an eye on the requirements of the
customers. It makes sure that the business is attuned to changes in various demands of the
products and services. With the help of an e Commerce integrated supply chain, businesses can
get requirements and feedbacks about their products directly.

Minimized delays

Delays in delivery can cause strained relationships and lost business. Late shipment from
vendors, holdups during production and logistic errors in distribution channels negatively affect
a company’s image amongst its customers. With an effective SCM, all activities can be
coordinated and executed from top to bottom.

Cost reduction

One of the principal reasons due to which the customers invest their time and money in
eCommerce is reduced costs. Probably, there are a lot of areas where business invests more than
required. Some of such areas could definitely be streamlined. It’s worth taking a look at your
supply chain to recognize areas where the costs could be cut down.

An e Commerce based SCM removes various stages of distribution, retailers, and more. This
also means higher profits!

It could be concluded that e-business has significantly influenced supply management and supply
processes in companies. It has also affected their bargaining and competitive positions in chains,
networks and industries. It appears that high-flying companies will be the ones that consider e-
business an essential element of their business strategy and business model