SALES FORCE INCENTIVES AT SERVICE SALES CORPORATION
SALES FORCE INCENTIVES AT SERVICE SALES CORPORATION
Sales Force Incentives at Service Sales Corporation
THE CONTEXT
Prior to 2011, Service Industries Limited’s (SIL) production for the Pakistani market was sold through the marketing and retailing network of Service Sales Corporation (SSC), as both SIL and SSC were owned by the Service Group. However, in 2011, the companies parted ways based on two main conditions. First, SSC would continue to buy shoes worth at least PKR 3.8 billion from SIL till 2021. Second, SIL would give exclusive license to SSC to use the Servis brand for the shoe business till 2021.
Omar Saeed, CEO of SIL, is reflecting on the previous four years’ performance for the shoe business division. It has not met the sales target for 2014, domestic sales are dependent on SSC and Klara (SIL’s own brand of wholesale), the European market is pressurising SIL to reduce prices as well as provide high variety and low volume orders, and more efforts need to be made to utilise SIL’s manufacturing facilities. Omar has to make SIL’s strategy for 2021, when SSC may not be there to give business worth PKR 3.8 billion, as well as plan the necessary roadmap. SIL’s top management wants to see SIL as a global player in its line of business.
THE DECISION
It was March 2015 and Omar Saeed, CEO of Service Industries Limited (SIL), was reflecting on his company’s previous four year performance while going through 2014’s annual report that had just arrived on his desk. The annual report of SIL, which had two manufacturing businesses, that is, shoes and tyres, carried mixed news. The tyre business had made satisfactory progress towards the company targets in the preceding four years. However, the shoe business had gone through ups and downs and was a source of worry for Omar.
Prior to 2011, SIL’s annual production of 11.4 million pairs of shoes for the Pakistani market was sold through the marketing and retailing network of Service Sales Corporation (SSC), as both SIL and SSC were owned by the same group. In the last four years, SSC had bought only the contractually required minimum number of shoes from SIL, that is, for PKR 3.8 billion per year. SIL started its own wholesale brand, Klara, which represented only six percent of SIL’s total shoe sales in 2014.
In the international market, SIL was working with two main customers, Caprice and Workout, and several small volume customers. Almost 90 percent of SIL’s export customers, mainly from Europe, were asking for reduction in prices, thus squeezing SIL’s margins. Moreover, the European customers, except Caprice, gave high variety and low volume orders along with cost pressures. Recently, SIL had obtained two orders from the European division of Zara, a mainstream international fashion brand. Since Zara offered large volume and less variety, SIL aspired to seek more business from Zara and the US market, where the economy was more stable and prices were attractive. However, Zara required better quality, low delivery lead times and a faster product development process.
Omar wondered what his strategy and roadmap for 2021 should be when SSC might reduce or completely cut down its purchasing from SIL. According to his brother and director of the company’s tyre manufacturing division, “SIL is the leading shoes manufacturer in Pakistan but we are not satisfied because we want to be a global player in our line of business.”
Reference
Rana, A.I., & Mumtaz, M.K. (2017). Sales Force Incentives at Service Sales Corporation. Asian Journal of Management Cases, 14(2), 160-175.
About the Author
Arif I. Rana is associate professor at the SDSB, LUMS. He teaches courses in operations management, decision analysis, family business, project management, retail management, and supply chain. He is the director of the Case Research Centre at the SDSB. He is also the program director for the executive programs on Growth and Continuity in Family-Run Businesses and Modern Retail Management. His research interests include quality management, scheduling and transportation, mathematical modelling in production, and supply chain management. His research has been published in Supply Chain Management: An International Journal, Journal of the Operational Research Society, European Journal of Operational Research, and Computers and Operations Research.