Could you do Cognitive Mapping, Conceptual Model, Role Activity
Diagram for the following case
Adapted from: CREATING PROBLEM SOLVING, R L Flood and M C Jackson
(Wiley, 1991)
ELECTRONIC COMPONENTS DISTRIBUTORS
Electronic Components Distributors (ECD) is a manufacturers’
representative and distributor for electronic components. It is one of
the largest companies of its type in New Zealand and had a sales
turnover of about US$40 million in 1998. Profits recently have tended
to increase by about 20-25% every year. The company markets 15
different product lines from the United States and Europe. The
company's product lines are shown in Figure 1. These products are sold
to the local electronics industry, which has been booming recently.
ECD has a very large customer base. Big multinational corporations
contribute about 70% of the total sales. The remaining 30% are
generated from both local and overseas electronics contract
manufacturers, and other small local business organisations. There are
two broad categories of customer: OEM (original equipment
manufacturers) and distribution customers. For OEM customers, ECD acts
as a representative and is paid a commission on business transacted on
behalf of its overseas principals.
Product Category A:
Semiconductor component product lines A1, A2, A3, A4, A5, A6.
Product Category B:
Passive component product lines B1, B2, B3, B4, B5
Electromechanical component product lines: B6, B7, B8, B9
Fig 1. ECD's product lines
The products are shipped directly from factories to customers. For
distribution customers, ECD acts as a broker: buying, keeping stocks
and reselling them to end customers. Sub-distributors are also
appointed by ECD to sell to low volume users, such as universities,
other institutions and the general public.
By 1999, the business environment had changed considerably. Many
competitors had entered the market, competing head-on with ECD. The
number of competitors had increased from about 5 to 50 in the span of
six years. The competitors were very aggressive and were very
successful in penetrating many of ECD's key accounts, and nowadays are
enjoying substantial shares of this business arena. The market
environment is getting increasingly complex, hostile and turbulent.
The sales revenue for 1999 increased by 20% over the previous year but
the increase in profit dropped to about 7.5%. The cost of sales also
increased tremendously. This dramatic turnaround worried shareholders
and the Managing Director.
For many years, ECD has had no proper corporate objectives or
strategies to guide the company for the immediate and long term. The
only real objective is quantitative and that is the sales quota set
each year for the sales and marketing department. Other loosely
defined objectives are not well understood by most departments.
Departments tend to take their own initiatives and set their own goals
and objectives.
ECD is organised as shown in Figure 2. The Product Marketing, Sales,
and Customer Services Managers all report to the Director of Sales and
Marketing. This Director, together with the Financial Controller and
Personnel Manager, work for the Managing Director.
ECD appears weak in many key areas of its business activities. It does
very little market research. When “the need arises”, the marketing
department is responsible for carrying out this task. A quick
“opinions of salespeople” review is conducted on an irregular basis.
Most of the data thus collected are inaccurate. The advertising and
promotional activities are also very minimal. They are solely done by
the Marketing Manager who carries the added responsibility for new
business development. Internal communication between sales, customer
service and marketing is very poor.
The managers spend a lot of their time and effort on “fire fighting”,
concerned more with solving immediate daily operational problems than
on making policy decisions and monitoring and controlling staff
performance. The middle management team still adopt “old machine
thinking and working habits”. However, they do this inefficiently.
Subordinates have regularly been told to carry out certain tasks
without proper guidance. No standards are set. There are no proper job
definitions and there is overlapping of job responsibilities. A poorly
planned employee appraisal system is being used. It is a closed
appraisal (employees are not involved) and is done at the end of each
year. The annual pay increments of employees depend on how well they
fare in this appraisal.
ECD has maintained a team of very young salespeople. Their average age
is about 28 years. Unfortunately, they lack proper training and
professionalism, and do not seem motivated to establish and develop
good customer relations. Lack of knowledge about what the company can
offer leads to an inability to service customers properly.
The pricing method is based on the traditional way of “cost plus
mark-up” for all brokerage business. The mark-up can range from 25% to
40% and the sales staff are not allowed to sell below 25% mark-up
unless authorised by the Sales Manager. As for the OEM sales, the
pricing is set solely by the respective principals. The salesforce
will negotiate on their behalf. If special pricing is required,
authorisation will be sought from these principals. On occasions
profit margins derived from commissions on these sales can be as low
as 5%.
The marketing department is also responsible for conducting product
training for the sales staff. The Sales Manager and Customer Services
Supervisors are responsible for the initial training of new sales
staff and customer services representatives respectively. There is no
continuous training programme. After salespeople have been on-board
for a few months or after probation, they simply slot into their jobs
and are scarcely trained again. An annual budget of about 0.1 % of
sales is set aside for “settling-in” training. Staff development
programmes are also lacking and the company provides limited
subsidies, on a case by case basis, to employees who want to attend
outside courses.
In a good year, a salesperson can earn commission as high as eight to
nine months of basic salary equivalent. Salespeople are still unhappy
with the commission scheme as it has a ceiling imposed on it. To meet
a sales quota, most salespeople only sell high margin and easy to sell
products. Low margin and difficult to sell products, which require a
lot of sales follow-up, have been ignored. There are no additional
incentives to motivate extra effort. The Sales Manager is responsible
for setting an annual sales quota after consulting with individual
salespeople. Each salesperson is required to submit a six month
rolling sales forecast at the beginning of each month. The majority of
salespeople submit their reports and forecasts late. There is no
proper routing and call plan. Most salespeople make only one to two
calls per day. The morale of the salesforce is low.
The customer services department is overloaded with work. Many errors
are committed in order processing and this causes delays with order
confirmation. Shipments have been irregular, which detrimentally
affects customers' production plans. Many customers are annoyed and
frustrated. Many of the customer service staff work overtime,
including weekends, to get their job done. They are not given overtime
pay, but enjoy variable bonuses of about one-half to one month's pay
for every three months' salary. The morale of these people is also
low. Many have resigned over the year, being replaced by new people.
At the last physical inventory check, the warehouse contained about
US$l million worth of stock. About US$200,000 is dead stock and the
rest mostly excess stock. There is, however, insufficient buffer stock
for popular products, and products with long lead time, to support the
market upturn. As a result many customers have placed their orders
with ECD's competitors. Many orders have been lost to competitors who
seem to have geared themselves better for the changing market
environment.
The company's shareholders are obviously disappointed with the
company's performance, and have been putting pressure on the Managing
Director to get the situation under control. The Managing Director is
overwhelmed with difficulties and does not know how to begin “problem
solving”. He has decided to consult a management consulting group. |
