Madison Fiber Corporation - Case Study Example

Madison Fiber Corporation Introduction The profitability of a manufacturing company is largely dependent on the efficiency of its sales representatives. Manufacturing companies engage in numerous business dealings that involve the services of sales representatives. For a company to make huge sales, it must have an efficient team of sales representatives. The performance of sales representatives is dependent on the working condition and the remuneration strategies used by a company (Abshire, 2009). The Madison Fiber Corporation is faced with the challenge of choosing the best course of action to take for compensating and remunerating its sales force. The company has expanded the lines of business and, therefore, requires effective performance of the work force. The company has a pool of options where it can choose the most appropriate option to improve the performance of its sales force. My role is to scrutinize the various options that the company intends to implement and recommend the best option among them. As a management consultant, I believe that I possess sufficient knowledge that can help the company to solve its current problems. It is worth noting that sales representatives are important components of an organization and they should treated with utmost respect. Objectives The major objective is to ensure that a long lasting solution to the various management dilemmas facing the company is found. Another objective is to ensure that the most economical approach is employed to compensate the sales force. Basically, additional expenses by the company’s executive on the sales force should be reflected in the volume of sales and profits from sales. Generally, the changes in the compensation plan of the company should be beneficial to both the sales force and the company. A positive change is always good for a company’s progress; however, a critical analysis should be made before implementing changes in any department of an organization. The financial implication of change should be evaluated critically to identify the value of change to the company. An overview of the dilemma facing the company Madison Fiber Corporation has a number of product lines that involve manufacturing and selling of carpets. The oldest product lines include the synthetic carpet fiber, industrial fabric and yarn carpets. The company used to manufacture carpet products with natural material until the 1960s when synthetic fiber entered the market. From the 1960s Madison and its competitors in the industry ventured into using synthetic fiber to manufacture carpets. The market performance in the carpet industry improved in the late 1990s and the executives at Madison Company anticipated a more improved performance in the subsequent years. For this reason, the company embarked on reconstructing the nature of the workforce to facilitate the expansion of the market share. The company was structured into four departments with each having specified functions. Each department was manned by a vice president who worked under the authorization of the company’s president. A development manager was appointed to develop and oversee sales plan for each line of product. Sales and sales activities of the company The duties of sales representatives at Madison Fiber Corporation was multidimensional. For instance, the sales representatives were required to obtain orders and service the company’s accounts. In addition, the sales representatives were required to guide customers in determining the desired stock level. In general, the jobs performed by the sales representatives within the company were not clearly specified. In this regard, substantial efforts had to be done to ensure the motivation of the sales force is enhanced. Motivation is an essential factor for the employees of any company since it paves the way to better performance. There are many ways in which employee motivation can be enforced in an organization. For instance, an organization can choose to use salary increment as motivation strategy. Other organizations might choose to use commissions as a way to motivate the sales force. Basically, the welfare of the sales force is very essential in enhancing superficial performance. The Madison Fiber Corporation had five options to choose from for the purpose of improving its sales force compensation and remuneration strategy. The company had to choose whether to employ a straight salary method, continue with the current plan, straight commission method, salary and a bonus based on product line, or salary and a quarterly bonus. Analysis of the options Straight salary option Under this option, the sales representatives were to be paid an unwavering salary. The determination of the future payment was to be done in consideration of past performance. The straight salary method of compensation was favorable on the side of the management since it gave managers control over the sales representatives. The success of sales representatives at Madison largely depended on their capacity to rally the internal resources of a company together in facilitating solution of the various problems facing the customers. A critical analysis of the straight salary method shows that it was biased since it never considered the wellbeing of the sales representatives. The method only favored the company’s interest. The sales representatives had to show above average performance for them to receive a sound remuneration. In this regard, the method was not appropriate since it focused on the interests of the company at the expense of sales representatives’ welfare. Therefore, the method was not the best compensation mechanism to employ. Continuing with the current plan The opinion to hold on the current plan was based on the argument that the path you have always used is better than taking a new route. The marketing vice president was worried that taking a new plan might result in adverse consequences on sales. The vice resident held that the present plan was well known to all people and it was advantageous in that the chances of occurrence of risks were rare as the company was used to the system. The sales representatives were not comfortable with the system since it had issues when it came to the determination of bonuses. The sales representatives felt that the management did not consider several fundamental factors when allocating bonuses. The hard work of some sales representatives was not adequately compensated. In this regard, the plan by then was erroneous since it never offered a clear explanations for the mechanisms used in the determination of bonuses. The opinion of the marketing vice president to retain the then plan was not professional. The marketing environment keeps on changing and, therefore, the arrangements between the company and the sales representatives should not be rigid. The vice president should have recognized that a change was inevitable since the competition in the industry keeps on rising. Many firms enter the industry every year thereby increasing the level of competition. In addition, the competitors offered better compensation packages to their sales representatives compared to the Madison Company. In this regard, the Marketing vice president could have established that better remuneration and compensation packages by the competitors would attracted the company’s sales representatives. Additionally, the realization by the company’s sales representatives that the sales representatives of other companies were paid better than them had a negative impact on motivation. In this regard, the option was not the best to take since the sales representatives were not satisfied with the management’s compensation scheme. Sales and annual bonus based on product line This method was proposed by the sales manager of Madison Fiber Corporation. The sales manager’s point of view was that operating under quota arrangements would result in increased sales. The sales representatives were to receive a bonus only after exceeding the set quota in the respective product lines. The more sales beyond the set quota, the higher the bonus a sales representative was to get. This method appeared to be effective in that it would boost sales and generate sufficient funds for the company. Despite the promising outcomes of the approach, several challenges were evident. For instance, establishing a standard method of deciding the quotas was very challenging. Additionally, some products lines might be assigned small quotas thereby resulting in overpayments. In addition, the sales volume of the company was affected by the production capacity of the plant. For this reason, the approach was not the best option to pursue since plant production capacity was sometimes unpredictable. Additionally, the market behavior was unpredictable over time. In this case, use of this method of compensation would have adverse results on either the company or the sales representatives. In this case, the company should not implement this option. Salary and a quarterly bonus. The other option was to introduce a compensation scheme that provide for a salary and a quarterly bonus founded on capitalized sales expense. The method involved determination of sales expenses likely to be spent by the managers. Once the expenses were determined, the percentage of bonus to be paid to the sales representatives was calculated. The method was a good strategy but was complicated to the sales force. The implementation of the plan required massive awareness to the sales force. Though the method was good, its implementation cost was high. In this case, pursuing the option would have meant additional expense on issues such as training and awareness campaigns. In addition, the method never encouraged the sales representatives to work harder. In essence, the method had an insignificant impact on boosting sales and increasing the company’s market share. In this regard, the method was not worth pursuing since it had no economic benefits to the company. Straight commission The straight commission approach to compensation was favorable for sales representatives. The percentage paid on sales as the commission was favorable to the sales representatives. In addition, the commission payment duration was convenient for the sales representatives since it happened monthly. Straight commission compensation method was the best option to pursue. The method compelled the sales representatives to work hard in order to earn as much money as possible. Generally, the straight commission method is a source of intrinsic motivation to the company’s sales representatives. In this regard, the company returns from sales increased significantly and the profit margins become adorable. The choice of the straight commission compensation method would have been very beneficial to the company’s sales department. Intrinsic motivation has been the most effective method of boosting performance of employees in many organization. In this regard, use of mechanism that promote intrinsic motivation is an appropriate method of boosting the company’s profits. Profit maximization is the motive for many business organizations. In this regard, organizations have to employ means that are geared towards enhancing profit maximization. An analysis of the trends in marketing for many industries reveals that straight commission is an effective strategy for boosting sales. Sales representatives require a source of motivation to executive their duties optimally. In this regard, adoption of the straight commission compensation strategy will solve both the company’s and sales representatives’ problems. The sales representatives will earn good income while the company will make good sales. The management of the company should implement the compensation method to enhance improved sales and increased profitability of the company production lines. Conclusion The marketing field has experienced massive changes in past few decades. Manufacturing companies have established numerous techniques for boosting sales of their products. The issue of sales representative compensations approaches has elicited heighted debate all over the globe. Different companies have established varied compensation arrangements for their sales representatives. The performance of the sales representatives is highly influenced by the source of motivation and the nature of remuneration given by a company. There are various compensation mechanisms that can be employed to boost the working morale of sales representatives. The straight commission method is among the best compensation options that organizations can use to boost the working morale of sales representatives. Adoption of the straight commission method by the management would mean improved sales and consequently an increase in the company’s profits. In addition, straight commission method will enhance full commitment of sales representatives in executing the duties assigned to them. In essence, straight commission method would aid in reducing expenses for the company since the approach is a source of intrinsic motivation to the sales representatives. Reference: Abshire, R. (2009). Garland: A contemporary history. San Antonio, Tex: Historical Pub. Network. Read More