study of sales organization structure and its effectiveness in fmcg sector
TRANSCRIPT
1
Study of Sales organization structure and its
effectiveness in FMCG Sector
Submitted in partial fulfilment of the requirements
For the award of the degree of
Master of Business Administration
In
Software Enterprise Management
Under the guidance of
Mr. Amit kumar Gupta
(ERP Consultant)
Centre for Development of Advanced Computing, Noida
Affiliated to
Guru Gobind Singh Indraprastha University
Kashmere Gate, Delhi - 110006
2
ABSTRACT
Products which have a quick turnover, and relatively low cost are known as Fast Moving
Consumer Goods (FMCG). Examples of FMCG generally include a wide range of
frequently purchased consumer products such as toiletries, soap, cosmetics, tooth
cleaning products, shaving products and detergents, as well as other non-durables such
as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also
include pharmaceuticals, consumer electronics, packaged food products, soft drinks,
tissue paper, and chocolate bars. A subset of FMCGs is Fast Moving Consumer
Electronics which include innovative electronic products such as mobile phones, MP3
players, digital cameras, GPS Systems and Laptops.
Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods
Company, touching the lives of two out of three Indians with over 20 distinct categories
in Home &Personal Care Products and Foods & Beverages. They endow the company
with a scale of combined volumes of about 4 million tonnes and sales of Rs.10, 000
crores. HUL is also one of the country's largest exporters; it has been recognized as a
Golden Super Star Trading House by the Government of India.
Sales structure provide framework for sales organization operation by indicating what
specific activities are performed by whom in the sales organization. Designing a sales
organization is difficult many different type of structure might be used, and many
variations are possible within each basic type. Often the resultant structure is complex,
with many boxes and arrows. The basic concept involved specialization, centralization,
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span of control versus management levels, and line versus staff position. An effective
sales organization structure shall facilitate working relationships between various
entities in the organization and may improve the working efficiency within the
organizational units.
Purposes of sales organization
To permit the development of specialist.
To assure that all necessary activities are performed.
To achieve coordination or balance.
To define authority.
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TABLE OF CONTENTS
PARTICULARS PAGE NUMBER
I CHAPTER-1 INTRODUCTION 1-6
1.1 OBJECTIVE 2
1.2 SCOPE 2
1.3 INTRODUCTION TO FMCG 3
1.3.1 SEGMENTS OF FMCG 4
1.3.2 TOP COMPNIES IN FMCG SECTOR 4
1.4 INTRODUCTION TO HUL 5
1.4.1 BRANDS 6
II CHAPTER-2 METHODOLOGY OF THE STUDY 9-11
2.1 RESEARCH METHODOLOGY 10
2.1.1 EXECUTION OF THE PROJECT 11
2.1.2 DATA COLLECTION INSTRUMENTS 11
2.1.3 PRESENTATION OF DATA 11
2.1.4 TOOLS AND TECHNIQUE FOR ANALYSIS 11
III CHAPTER-3 REVIEW OF LITERATURE 12-32
3.1 SALES ORGANIZATION DESIGN 13
3.2 TYPES OF SALES ORGANIZATION 14
3.2.1 LINE ORGANIZATION 14
3.2.2 ORGANIZATION DESIGN BY TERRITORY 15
3.2.3 ORGANIZATION DESIGN BY MANAGEMENT 17
FUNCTION
3.2.4 ORGANIZATION DESIGN BY PRODUCT 20
3.2.5 ORGANIZATION DESIGN BY CUSTOMER 21
3.2.6 COMBINED ORGANIZATIONAL DESIGN 23
3.3 ORGANIZATIONAL EFFECTIVENESS 24
3.3.1 SALES ANALYSIS 26
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3.3.1.1 ORGANIZATIONAL LEVEL OF ANALYSIS 27
3.3.1.2 TYPE OF SALES 28
3.3.1.3 TYPES OF ANALYSIS 28
3.3.2 COST ANALYSIS 29
3.3.2.1 PERCETAGE OF SALES METHOD 30
3.3.2.2 OBJECTIVE AND TASK METHOD 31
3.3.3 PROFITABILITY ANALYSIS 31
3.3.3.1 INCOME STATEMENT ANALYSIS 31
3.3.4 PRODUCTIVE ANALYSIS 31
IV CHAPTER-4 ANALYSIS AND TOOLS 34-42
4.1 HUL SALES ORGANIZATION STRUCTURE 35
4.2 SALES ORGANIZATION EFFECTIVENESS OF HUL 38
4.2.1 SALES ANALYSIS 38
4.2.1.1 ORGANIZATIONAL LEVEL OF ANALYSIS 38
4.2.1.2 TYPE OF SALES 39
4.2.1.3 TYPES OF ANALYSIS 40
4.2.2 COST ANALYSIS 41
4.2.2.1 PERCETAGE OF SALES METHOD 41
4.2.2.2 OBJECTIVE AND TASK METHOD 41
4.2.3 PROFITABILITY ANALYSIS 42
4.2.4 PRODUCTIVE ANALYSIS 43
V CHAPTER-5 CONCLUSION 44-47
VI BIBLOIGRAPHY 47
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LIST OF TABLES
TABLE PAGE NUMBERS
4.1 Types of analysis 40
4.2 Objective and task method 41
4.3 Percentage of sales method 41
4.4 Profitability analysis 42
4.3 Productivity analysis 43
LIST OF FIGURES
FIGURES PAGE NUMBERS
3.1 Line Organization 15
3.2 Organizational design by territory 17
3.3 Organizational design by management function 19
3.4 Organizational design by product 21
3.5 Organizational design by customer 22
3.6 Combined organization design 23
3.7 Sales organization effectiveness 25
3.8 Types of sales analysis 27
4.1 HUL sales organization structure 37
4.2 Organizational level of analysis 38
4.3 Types of sales 39
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Chapter – 1
INTRODUCTION
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1 INTRODUCTION
1.1 OBJECTIVE:
To study the sales organization structure and its effectiveness in Hindustan Unilever
Limited.
1.2 SCOPE:
Study about FMCG sector
Study about HUL
Study the concept of sales organization structure
Study the sales organization structure of HUL
Explain the determinants of organizational effectiveness
Analyze the effectiveness of HUL sales organization
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1.3 INTRODUCTION TO FMCG:
Products which have a quick turnover, and relatively low cost are known as Fast Moving
Consumer Goods (FMCG). FMCG products are those that get replaced within a year.
Examples of FMCG generally include a wide range of frequently purchased consumer
products such as toiletries, soap, cosmetics, tooth cleaning products, shaving products
and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper
products, and plastic goods. FMCG may also include pharmaceuticals, consumer
electronics, packaged food products, soft drinks, tissue paper, and chocolate bars.
The Indian FMCG sector is the fourth largest sector in the economy with a total market
size in excess of US$ 13.1 billion. It has a strong MNC presence and is characterized by
a well established distribution network, intense competition between the organized and
unorganized segments and low operational cost. Availability of key raw materials,
cheaper labor costs and presence across the entire value chain gives India a competitive
advantage. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4
billion in 2015. Penetration level as well as per capita consumption in most product
categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the
untapped market potential. Burgeoning Indian population, particularly the middle class
and the rural segments, presents an opportunity to makers of branded products to convert
consumers to branded products. Growth is also likely to come from consumer
'upgrading' in the matured product categories. With 200 million people expected to shift
to processed and packaged food by 2010, India needs around US$ 28 billion of
investment in the food-processing industry.
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1.3.1 SEGMENTS OF FMCG
• Personal care
– Skin care
– Hair care
– Shampoos
• Household care
– Personal wash
– Detergents
• Branded and Packaged foods and beverages
– Food segment
– Tea
• Coffee
• Spirits and tobacco
1.3.2 THE TOP 10 COMPANIES IN FMCG SECTOR
S.
NO.
Companies
1. Hindustan Unilever Ltd.
2. ITC (Indian Tobacco Company)
3. Nestlé India
4. GCMMF (AMUL)
5. Dabur India
6. Asian Paints (India)
7. Cadbury India
8. Britannia Industries
9. Procter & Gamble Hygiene and
Health Care
10. Marico Industries
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1.4 INTRODUCTION TO HINDUSTAN UNILEVER LIMITED
Hindustan Unilever Limited also called Hindustan Lever Limited (HLL) was
established in 1933 as Lever Brothers India Limited and came into being in 1956
as Hindustan Lever Limited through a merger of Lever Brothers, Hindustan
Vanaspati Mfg. Co. Ltd. and United Traders Ltd. The company was renamed in
late June 2007 to “Hindustan Unilever Limited”
Hindustan Lever Limited (HLL) is India's largest Fast Moving Consumer Goods
Company, with a customer base of 2 out of every 3 Indian in the category of
Home & Personal Care Products and Foods & Beverages.
The company has combined volumes of about 4 million tones and sales of Rs.
13,718 crores. HLL is also one of the country's largest exporters.
Head quartered in Mumbai, India has employee strength of over 15,000
employees and contributes for indirect employment of over 52,000 people.
The Anglo-Dutch company Unilever owns a majority stake (52%) in Hindustan
Unilever Limited. HUL was one of the eight Indian companies to be featured on
the Forbes list of World’s Most Reputed companies in 2007.
The Government of India has recognized HLL as a Golden Super Star Trading
House
It is a mission HUL shares with its parent company, Unilever, which holds
52.10% of the equity. A Fortune 500 transnational, Unilever sells Foods and
Home and Personal Care brands in about 100 countries worldwide.
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1.4.1 BRANDS
The company has a distribution channel of 6.3 million outlets and owns 35 major
Indian brands.
HOME CARE
FOODS
NUTRITION
PERSONAL CARE BRAND
WATER
A. HOME CARE
Active wheel
Cif
Comfort
Domex
Rin
Sunlight
Surf Excel
Vim
B. PERSONAL CARE
Aviance
Axe
Lever ayush therapy
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Breeze
Clear
Clinic Plus
Close Up
Dove
Faire & Lovely
Humam
Lakeme
Lifeboy
Liril
Lux
Pears
Pepsodent
Pond’s
Rexona
Sunsilk
vaseline
C. FOOD
Brooke bond 3 roses
Red label
Taj mahel
Kissan
Knorr
Lipton
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Annapurna
Brooke bond taza
Bru
Kissan amaze brain food
Kwality’s walls
D. WATER
Purit
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Chapter – 2
METHODOLOGY OF THE
STUDY
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2.1 RESEARCH METHODOLOGY
Research can be defined as systemized effort to gain new knowledge. A research
is carried out by different methodologies which have their own pros and cons. Research
methodology is a way to solve research in studying and solving research problem along
with logic behind them are defined through research methodology. Thus while talking
about research methodology we are not only talking of research methods but also
considered the logic behind the methods. We are in context of our research studies and
explain why it is being used a particular method or technique and why the others are not
used. So that research result is capable of being evaluated either by researcher himself or
by others
Research has its special significance in solving various operational and planning
problems of business and industry. Research methodology is the way to systematically
solve the research problem.
2.1.1 Execution of the project: -
It is the very important step in the research process accuracy findings depends on
how systematically the study has been carried out in time so that it can make some sense
when required. I have executed the project after prior discussion with the guide and
structured in following steps:
a. Study about the Indian FMCG sector and Hindustan Unilever limited.
b. Study about the various sale organization structure.
c. Study about the sales organization structure in Hindustan Unilever limited.
d. Study about the effectiveness of sales organization.
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e. Analyse the effectiveness of HUL sales organization by doing cost analysis,
profitability analysis, productive analysis, sales analysis.
2.1.2 Data Collection Instruments:-
1. Internet
2. Books
3. Research paper
2.1.3 Presentation of Data
The data are presented through tables and figures.
2.1.4 Tools and Techniques for Analysis
The various technique used for analyze the effectiveness of sales
organization was
1. Sales analysis
2. Cost analysis
3. Profitability analysis
4. Productivity analysis
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Chapter – 3
REVIEW OF LITERATURE
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3.1 SALES ORGANIZATIONAL DESIGN
Sales organizational design refers to the formal and coordinated task of assigning
territories and establishing flows of communication and responsibilities of sales groups
and individuals to serve customers effectively. The developed structure helps the sales
people in the organization to identify their roles, responsibilities and command in the
organization. A proper organizational design helps in enhancing productivity, reduces
conflicts, and improves an individual’s quality of work by identifying the contents of the
job, the qualifications and experience required to undertake the job, and rewards
associated with the performance of the job. The organization of the sales department is
based on the nature and size of the organization, market coverage strategy, complexity
of the product offered, and the external condition of the market and the level of
competition.
The sales manager in the organization is the head of sales department and is the
representative of the top management in the chain of command. Divisional, district, and
branch heads are appointed to assist the sales manager in the large organizations. They
report to the sales manager and are accountable to the sales manager for their
responsibilities. So, organizational structure is relatively fixed, formally defined set of
relationships among jobs and within the organization. Though organization structures
look rigid, they should respond to the changes in the competitive environment and
should be adaptable to the changing situations.
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3.2 TYPES OF SALES ORGANIZATION
Sales organizations adopt different kinds of structures starting from the simple
line organization to special designs based on functions, geographic markets, products,
customers, or combination of all these forms.
The various sales organization structures are
1. Line organization
2. Organization Design by Territory
3. Organization Design by Management Function
4. Organizational design by product
5. Organizational Design by Customer
6. Combined Organizational Design
3.2.1 LINE ORGANIZATION
In a pure line organization, the chief executive does the decision making and
decisions flow down the line for execution. The chief executive has all the authority over
the sales function. Many small sales firms have such a structure. In these organizations,
decisions are made faster, overhead costs are lower, and sales people need to follow the
command. These kinds of organizations are called one-man show organizations or a
typical line organization. But, this kind of person-centric organization suffers from the
daily fire fighting operations of the executives, as they have no time to do sales planning
and are busy in achieving sales targets set at the top.
As organization grow in size, some degree of specialization occurs in most of the
organizations. Organizations are designed around geographic areas or territories,
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functions, products, customers, and a combination design. The basic objective is to
increase the sales force effectiveness and enhance productivity and allow sales people to
grow as customers experts. Specialization brings challenges of coordination, integration,
and higher expenses of sales realizations.
Fig3.1 Line Organization
3.2.2 ORGANIZATION DESIGN BY TERRITORY
The simplest method of designing an organization is on the basis of a geographic
territory, where every sales person is assigned a specific area for making sales. Several
areas are combined together has a territory for assigning a supervisor and then a number
of territories are combined for sales manager.
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This is a very distinct form of design. In this kind of design, the travel times are
limited and the sales force remains close to the customer. The quality of customer
service is better because the number of customers to be served is limited and
geographically concentrated. The conflict is minimised among sales staff as the
responsibility of serving customer is clearly identified in each area. The new product
demand for each area can also be identified and the necessary product modifications can
be done to suit this need of each customer in the specific territory. The varied marketing
strategy can be developed for each market as a response to the level of competition and a
comparative sales analysis is possible between territories, while sales recruitment can be
conducted as per the requirements of the job, area, demand, and the skills and the
experience of the sales person.
But these kinds of designs are not free from problems. The sales people, for example
have to sell the entire line of the product in a specific area to all types of customers.
There is a tendency to become mere order takers, when sales people have to sell entire
range of products in a specific area over the same period, and in the process, brands too
turn into commodities. The sales people spend too much time with the customers for
products that are easy to sell but may not be profitable or provide high growth
opportunity.
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Fig 3.2 Organization Design by Territory
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3.2.3 ORGANIZATION DESIGN BY MANAGEMENT FUNCTION
An organization based on the management function is also called a line and staff
function design. It is grouping of a sales task according to their characteristics. Line
authority means that people in the management positions have formal authority to direct
and control immediate subordinates. Here, staff authority is narrower and includes the
right to advice, recommend, and counsel the staff. Firms need special expertise for
which the divide the selling activities according to the functions to be performed like
sales planning, recruitment, training of sales personnel, supervision of sales personnel,
advertising function, sales promotion, and other functions like sales analysis and
marketing research.
This type of organizational design is used for organizations having single product lines.
It is very difficult for any single executive in charge of sales to handle all the sales
activities in large and complex organizations. The line function runs from the head of
sales force to the company sales people, where the same sales staff report directly to the
HR head or the regional sales manager. The staff authority adds the line managers in the
planning and operation function.
This kind of organizational design helps in achieving specializations at different levels
in the organizational hierarchy. The number of departments can be increased or
decreased depending upon the organizational requirements and business success. The
line and staff design is less expensive in comparison to other designs but the attention
needed on specific product lines is affective by this design. The Functions across the
departments slow down due to their dependence on each other for the final delivery of
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customer service. The integration of the function happens at higher level, making the job
of the higher authority more complex and rigid in nature.
Interdepartmental rivalry and non cooperation are issues that immerged in such
organizations and the inefficiency in one department effects the functions of other
department. However, such organizations are suitable when the size of the organization
is small, there are limited products, and there is a single line of operation in the
organizational production process.
Fig 3.3 Organization Design by Management Function
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3.2.4 ORGANIZATIONAL DESIGN BY PRODUCT
Many organizations with a diversified product portfolio prefer a design on the
basis of the type of product. So, organizations are designed on the basis of products so
that one can recruit sales people specializing on each product line. These types of
organizations are expensive because separate sales staffs are required for each product
line. Product specialization is necessary when the product are technical and complex,
more-or-less commodities, and relatively simple but completely different from one
another, when the product lines are distributed through the entire trade channel, and
when different products are sold to similar markets. When any combination of such
factors exists for the firm, the companies follow a product design. A General Manager
(Sales) is appointed for the overall supervision, control, and coordination of the product
line.
There are advantages of such a design, which include close attention to each
product in the product portfolio. The sales person can master all the relevant product
information and gather the required product knowledge to market complex products.
The interference by other functions is avoided but this design and it is easier to assign
responsibilities to each member in the sales department thus making it easier to do a
comparative evaluation of sale personnel. The satisfaction level of customers in this kind
of organizational design is the highest as the customer receives maximum attention.
There are disadvantages of such a design as there is a difficulty in coordinating
the sales function across product category. Sales people from the same organization
often make calls to the same customer for a sale leading to the duplication of efforts and
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an increase cost in surveying customers. The operational costs are higher because of the
large number of employees in the organization with product specialization.
Fig 3.4 Organization Design by Product
3.2.5 ORGANIZATIONAL DESIGN BY CUSTOMER
Organizations with several and distinct markets are designed on the basis of
customer profile. Modern sales firms are shifting from a product-based structure to a
customer-based structure because of customer profitability analysis and varied service
delivery product mix for each customer. This is also referred to as vertical marketing.
Each sales person sells the entire product line to the same customer. This design is more
customers driven and is successful when the customers are geographically concentrated.
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This kind of design helps in building successful customer relationships where trust and
corporation are the fundamental values of business. Sales and market planning can be
developed depending upon the customer requirements and behaviour. These kinds of
organizations are also expensive and there is also a duplication of efforts, as controlling
and coordinating sales activity across the customers is difficult to undertake in large
firms.
Sales organizations design on the basis of the customer help in buyer and supplier
integration and in co-creating products and services for end users in a business-to-
business market. This develops increased buyer loyalty. Sales managers create multiple
linkages with customers through cross-selling, up-selling, and training the customers to
use the products or services for a longer period of time.
Fig 3.5 Organization Design by Customer
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3.2.6 COMBINED ORGANIZATIONAL DESIGN
Many organizations those are large in size and complex in product offering prefer a
complex design that is a combination of different levels of hierarchy in the organization.
The combination can be made on the basis of the product, function, geography, or the
customer, depending on the market coverage and scope of business. Such a setup is
essential for the organization to get a specialization at every stage of marketing
Fig 3.6 Combined organizational design
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3.3 ORGANIZATIONAL EFFECTIVENESS
The study of organizational structure is necessary to understand organizational
effectiveness. In simple terms better the structure of an organization more effective
would be the organization and vice versa. You must be aware that some organizations
perform better and grow more rapidly than other. On the extreme side some
organizations perform badly and within a short period of time go out of business.
There is no one more summary measure of sales organization effectiveness sale
organization has multiple goals and objectives and thus multiple factor must be assessed.
There is four type of analysis are typically necessary to develop a comprehensive
evaluation of any sales organization
1. Sales analysis
2. Cost analysis
3. Profitability analysis
4. Productive analysis
Conducting analyses in each of this area is a complex task for two reasons
1. Many types of analyses can be performed to evaluate sales, cost profitability, and
productive result for example a sales analysis might focus on total sales, sales of specific
product sales to specific customer or other type of sales and might include sales
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comparisons to sales quotas, to previous periods, to sales of competitor ,or other type of
analyses.
2. Separate sales analyses need to be performed for different levels in sales organization.
Thus a typical evaluation would include separate sales analyses for sales zone, regions,
districts, and territories.
Customer satisfaction is also heavily relied upon sales organization effectiveness.
Now we will discuss how sales, cost, profitability and productivity analyses can be
conducted to evaluate sale organization effectiveness.
Fig 3.7 Sales organization effectiveness
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3.3.1 SALES ANALYSIS:-
Because the basic purpose of a sales organization is to generate
sales, sales analysis is an obvious and important element of evaluating sales organization
effectiveness. The difficulty however is to determining exactly what should be analyzed.
One key consideration is in defining what is by a sale.
Definitions include a placed order, a shipped order, and a paid order, defining a sale by
when an order is shipped is probably most common. Regardless of the definition used,
the sales organization must be consistent and develop an information system to track
sales based on whatever sales definition is used.
Another consideration is whether to focus on sales dollars or sales unit this can be
extremely important during times spanning price increase or when sales people have
substantial latitude in negotiating selling prices.
We can sub divide the sales analysis in different categories
1. Organization Level of Analysis
2. Type of sales
3. Type of analysis
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Fig 3.8 Types of sales analysis
3.3.1.1 ORGANIZATIONAL LEVEL OF ANALYSIS
Sales analysis should be performed for all levels in the
organization for two basic reasons
First sales managers needs at each level sales analysis at their level and the next level
below for evaluation and control purposes. For example, a regional sales manager
should have sales analyses for all regions as well as for all districts within his or her
region this makes it possible to assess the sales effectiveness of the region and to
determine sales contribution of each district.
Second, a useful way to identify problem areas in achieving sales effectiveness is to
perform a hierarchical sales analysis, which consists of evaluating sales results
throughout the sales organization from a top-down perspective essentially the analysis
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begins with total sales for the sales organization and proceeds through each successively
lower level in the sales organization .
3.3.1.2 TYPES OF SALES
It is usually desirable to evaluate several type of sale such as by the following
categories.
1. Product type or specific products.
2. Account type or specific account.
3. Type of distribution method.
4. Order size.
The analysis of different types of sales at different organization levels increases
management ability to detect and define problem areas in sales performance. However,
incorporating different sales types into the analysis complicates the evaluation process
and requires an information system capable of providing sales data concerning the
desired breakdowns.
3.3.1.3 TYPE OF ANALYSIS
The discussion to this point as focus on the actual sales results for
different organizational levels and type of sales however the use of actual sales results
limit the analysis to comparison across organizational level or sales type these with in
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organizational comparison provide some useful information but are insufficient
evaluation of sales effectiveness.
Comparing actual sales with sales results with sales forecasts and quotas is extremely
revealing. A sales forecast represents an expected level of firm sales for defined
products, markets, and time periods for a specified strategy. Based on this definition a
sales forecast provide a basis for establishing a specific sales quota and the reasonable
sales objective for a territory And effectiveness index can be computed by dividing
actual sales results by the sales quota and multiplying by hundred. The sales
effectiveness makes it easy to compare directly the sales effectiveness of different
organizational levels and different type of sales.
Another type of useful analysis is the comparison of actual results to previous periods.
This type of analysis is used to determine the sales growth rate for different
organizational levels and for different sales type.
A final type of analysis to be considered is a comparison of actual sales results to those
achieved by competitors this type of analysis is used to determine the sales growth rate
for different organizational levels and for different sales type.
3.3.2 COST ANALYSIS
A second major element in the evaluation of the sales organization of sales organization
effectiveness is cost analysis. The emphasis here is on assessing the costs incurred by the
sales organization to generate the achieve level of sales the general approach is to
compare the cost incurred with planned costs as defined by selling budgets.
Corporate resource earmarked for personal selling expenses for a designated period
represent the total selling budget.
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Selling budgets are developed at all level of the sales organization and for all key
expenditure categories.
Both the total expenditure for each of these categories and sales management budget
responsibility must be determined. Sales management budget responsibility depends on
the degree of centralization or decentralization in the sales organization. In general,
more centralized sales organization will place budget responsibility at higher sales
higher sales management levels. For example, if sales force recruitment and selection
take place at the regional level, then the regional sales managers will have responsibility
for this budget category.
The basic objective in budgeting for each category is to determine the lowest
expenditure level necessary to achieve the sales quotas.
Determining expenditure levels for each selling expense category is extremely difficult.
Although there is no perfect way to arrive at these expenditure levels, two approaches
warrant attention
1. Percentage of sales method
2. Objective and task method
3.3.2.1 PERCENTAGE OF SALES METHOD:
The percentage of sales method calculates an expenditure level
for each category by multiplying an expenditure percentage times forecasted sales. The
effectiveness of the percentage of sales method depends on the accuracy of sales
forecasts and the appropriateness of the expenditure percentage. If the sales forecasts are
37
not accurate, the selling budget will be incorrect, regardless of the expenditure
percentages used. If the sales forecasts are accurate, the key is determining the
expenditure percentage. This percentage may be derived from historical spending
patterns or industry averages. Sales management should adjust the percentage up or
down to reflect the unique aspects of their sales organization.
3.3.2.2 OBJECTIVE AND TASK METHOD
It is a type of zero based budgeting. In essence, each sales
manager prepare a separate budget request that stipulates the objective to be achieved,
the task required to achieve these objective, and the costs associated with performing the
necessary tasks.
3.3.3 PROFITABILITY ANALYSIS
Sales and cost data can be combined in various ways to produce
evaluations of sale organization profitability for different organizational levels of
different types of sales. The profitability analysis is done by Income statement analysis
3.3.3.1 INCOME STATEMENT ANALYSIS
The different levels in a sales organization and different types of sales can be
considered as separate business. Consequently income statement can be developed for
profitability analysis. One of the major difficulties in income statements analysis is that
some costs are shared between organization levels or sales types.
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Two approaches for dealing with the shared costs are
1. Full costs approached
2. Contribution approached
1. Full cost approach:
It attempts to allocate the shared costs to individual units based on some
type of cost allocation procedure. This result in a net profit figure for each unit.
2. The contribution approach:
It is different in that only direct costs are included. The net
contribution calculated from this approach represents the profit contribution of the unit
being analyzed. This profit contribution must be sufficient must be sufficient to cover
indirect costs and other overhead and to provide the net profit for the firm.
3.3.4 PRODUCTIVE ANALYSIS
Productivity is typically measured in terms of ratios between
output and inputs. A major advantage of productivity ratio is that they can be compared
directly across the entire sales organization and with other sales organization. This direct
comparison is possible because all the ratios are expressed in terms of the same units.
Because the basic job of sales managers is to manage sales people, the most useful input
unit for productivity analysis is the sales person. Therefore various types of productivity
ratios are calculated on a per sales person basis. The specific ratios depends on the
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characteristics of a particular selling situation but often include important output such as
sales, expenses, calls, demonstrations, and proposals.
The productivity analysis provides useful evaluative and diagnostic information that is
not directly available from the other type of analyses.
Productivity improvements are obtained in one of two basic ways:
1. Increasing output with the same level of input
2. Maintaining the same level
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Chapter – 4
ANALYSES AND TOOLS
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4.1 HINDUSTAN UNILEVER SALES ORGANIZATION
STRUCTURE
Hindustan Unilever Limited is India's largest Fast Moving Consumer Goods
(FMCG) Company. HUL and Group companies have about 15,000 employees, including
1200 managers.
The fundamental principle determining the organization structure is to infuse
speed and flexibility in decision-making and implementation, with empowered managers
across the company’s nationwide operations.
For this, HUL is organized into two self-sufficient divisions - Home & Personal Care
and Foods & Beverages - supported by certain central functions and resources to
leverage economies of scale wherever relevant.
Board is headed by the Chairman, and comprising 5 whole time Directors and 5
independent non-executive Directors. The day to day operations are supervised by the
National Management comprising the Vice Chairman, Managing Director (HPC),
Managing Director (Foods) and the Finance Director.
Divisions each division is self-sufficient with dedicated resources and assets in sales,
marketing, commercial, and manufacturing. The two divisions are further reorganized
into categories.
Typically, each category and each function - Sales, Commercial, Manufacturing - is
headed by a Vice President. They with their respective Managing Director comprise that
Division's Management Committee.
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For managing sales operations, HUL divides the country into four regions, with regional
branches in Delhi, Kolkata, Chennai and Mumbai. Headed by a Regional Manager, they
comprise Regional Sales Managers and Area Sales Managers, assisted by dedicated field
forces, comprising Sales Officers and Territory Sales Incharges.
In Marketing, each category has a Marketing Manager who heads a team of Brand
Managers dedicated to each or a group of brands.
The commercial team of a Division is responsible for its supply chain management.
There are teams dedicated to sourcing, planning and logistics.
Each Division has a nationwide manufacturing base, with each factory peopled by teams
of Production, Engineering, Quality Assurance, Commercial and Personnel Managers.
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Fig 4.1 Hindustan Unilever sales organization structure
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4.2 SALES ORGANIZATION EFFECTIVENESS OF HINDUSTAN
UNILEVER LIMITED
To measure the sales organization effectiveness of Hindustan Unilever limited we apply
the following analysis on HUL sales organization.
1. Sales analysis
2. Cost analysis
3. Profitability analysis
4. Productive analysis
4.2.1 SALES ANALYSIS
4.2.1.1 ORGANIZATION LEVEL OF ANALYSIS
Fig 4.2 organization level of analysis
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Sales for west region appear to be lower than those for other regions, so the analysis
proceeds to investigate the sale for all the districts on west region. Low sales are
identified for Orissa district, then district Orissa sales are analyzed by territory. The
result of this analysis suggest potential sales problem within konark territory.
4.2.1.2 TYPE OF SALES
Fig 4.3 Types of sales
It shows low sales volume for product Lipton tea. Additional analysis within this
product is needed to determine why sale are low in these areas and what to be done to
improve sales effectiveness.
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4.2.1.3 TYPE OF ANALYSIS
Bihar Orissa West Bengal
Sales 1,232 cr 988 cr 1178 cr
Sales quota 1,100 cr 1,000 cr 1,200 cr
Effectiveness index 112 98.8 98.1
Sales last year 1,170 cr 950 cr 1108 cr
Growth 5% 3% 6%
Table 4.1 Type of analysis
An effectiveness index can be computed by dividing actual sales result by sales quota
and multiplying by 100.
So here sales growth of orissa region is less, additional analysis will be done to identify
the problem and what need to be done to improve sales organization effectiveness.
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4.2.2 COST ANALYSIS
4.2.2.1 OBJECTIVE AND TASK METHOD
Compensation cost Training Cost
Actual Budgeted Variance Actual Budgeted Variance
Cost Cost Cost Cost
South 3,660,000 3,600,000 +60,000 985,000 1,030,000 -45,000
East 3,500,000 3,700,000 -200,000 2,110,000 2,040,000 +70,000
West 3,150,000 3,400,000 -250,000 830,000 1,060,000 -230,000
North 4,200,000 3,900,000 +300,000 2,340,000 2,160,000 +180,000
Table 4.2 Objective and task method
4.2.2.2 PERCENTAGE OF SALES METHOD
Compensation cost Training Cost
Actual Budgeted Actual Budgeted
%Sales %Sales %Sales %Sales
South 6.1 6 2.9 3
East 5.8 6 3.1 3
West 5.4 6 2.6 3
North 6.0 6 3.1 3
Table 4.3 percentage of sales method
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The first type of analysis calculates the variance between actual costs and budgeted costs
for the regions in a sales organization. Regions with the largest variation, especially
when actual costs far exceed budgeted costs, should be highlighted for further analysis.
Large variations are not necessarily bad, but the reason for variations should be
determined.
4.2.3 PROFITABILITY ANALYSIS
Full cost Contribution Approach
Approach
HUL Sales North East West South
Sales 21,927 7,805 4,448 3,398 6,565
Cost of Goods Sold 13,130 4,683 2,668 2,038 3,945
Gross Margin 8,797 3,122 1,780 1,360 2,630
Regional Selling 3,857 1,245 956 618 1,038
Expenses
Zone Direct Selling 1,985
Expenses
Profit Contribution 2,955 1,877 824 742 1,592
Table 4.4 profitability analysis
* All figures is in Crore
The full cost approach for accessing sales region profitability and the contribution
approaches for evaluating the district within the region.
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4.2.4 PRODUCTIVITY ANALYSIS
Bihar Orissa West Bengal
Sales 1,232 cr 988 cr 1178 cr
Selling Expenses 11.3 10 11.7
Sales calls 9,000 7,500 8,500
Proposals 220 180 260
Number of Sales people 110 50 80
Sales/Sales person 11.2 19.56 14.72
Expenses/Sales Person 0.102 0.2 0.146
Calls/Sales person 81.81 150 106.25
Proposals/sales Person 2 3.6 3.25
Table 4.5 Productivity analysis
Above table shows how productivity analysis provides a different and useful perspective
for evaluating sales organization effectiveness.
Take information concerning district Bihar. Although sales per person are reasonable
and expenses per person is relatively low, both calls per sales person and proposals per
sales person are much lower than those for the other districts. This may explain why
selling expenses are low, but is also suggest the sales people in this district may not be
covering the district adequately. The high sales may be due to a few large customers.
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Chapter – 5
CONCLUSION
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CONCLUSION
The organization should be based on certain principles like the principles of unity of
direction and command.
A sales organization is a structural body through which the functions o sales
management are carried out.
A good sales organization always aims at achieving the sales target at the minimum
cost and with maximum efficiency.
Careful attention to organizational design and costs in serving the customer helps in
designing the customer sales organization.
Each type of sales organization structure has certain advantage and disadvantages
and, so HUL use combined structure that combine the feature of several types.
There is no one best way to structure a sales organization. The appropriate way to
organize a sales force and sales management depends on certain characteristics of a
particular selling situation.
The objective underlying each of the analysis is to be able to evaluate effectiveness,
identify problem area and use this information to improve future sales organization
effectiveness.
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Conducting analyses for sales organization effectiveness is complex task for two
reasons
1. Many types of analyses can be performed to evaluate sales, cost profitability, and
productive result for example a sales analysis might focus on total sales, sales of specific
product sales to specific customer or other type of sales and might include sales
comparisons to sales quotas, to previous periods, to sales of competitor ,or other type of
analyses.
2. Separate sales analyses need to be performed for different levels in sales organization.
Thus a typical evaluation would include separate sales analyses for sales zone, regions,
districts, and territories.
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BIBLIOGRAPHY
Books
1. Ingram, Lagorge, Aila, Schwepker jr. Williams [2007] “ Sales management
analysis and decision making” Thomson corporation , sixth edition page no 79-
90, 245-278
2. Tapan k. Panda, Sunil sahadev [2005] “Sales and distribution management”
Oxford university press, fifth reprint, page no 202-234
3. William l. Crone, Thomas E. Decarlo [2009] “Sales management” Willy India
edition, Ninth edition, page no 166 -180
Research paper
1. Elizabeth McMillan “Considering organization structure and design from a
complexity paradigm perspective”