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Objectives To develop value-added processes that deliver innovative, high-quality, low cost products on time with shorter development cycles and greater responsiveness than before, and simultaneously reducing inventory and operating costs. Issues There are several problems that eventually led to NGL market share nose dive of 21% in the last decade. The foremost issue is the disintegration of supply. There are the differences of priorities among various sections of supply chain. NGL is in an extensively competitive environment developed by “brown baggers” who are stealing market share from NGL. This situation got worse when the average sale price of hybrid seeds market decreased sharply last year. The root cause of the entire dilemma faced by supply chain is wrong demand forecasting that leads to either high inventory cost or stock outs. These stock outs cause heavy financial losses to the company. The higher inventory cost and transportation cost are due to remote location of production site. There is also a concern of task conflict among different departments which result in an inefficient system. Another concern is the relationship with vendors and sales force that is decreasing productivity. The last, but not the least, is the dealing with Nokalb Seeds Shops. Thus it is within such factors that NGL is striving to regain its balance as a profitable company. Assumptions The revised forecast and winter production forecast is done by marketing manager in coordination with general manager. The price per ton is taken as an average of Rs.700. Nokalb seeds shops keeps a minimum of 3 days inventory. Analysis NGL lost its large market share to “brown baggers” in the past few years. These brown baggers are small farmers who produce seeds by planting Nokalb seeds and selling them as generic hybrid seeds. Their production cost is very low as they are not producing a standardized product. Their packaging cost is also low due to no branding. They can price their product very low because of these specific advantages. This price war has an adverse effect on NGL as it had to decrease the prices of products to capture the market share. This step eventually put pressure on the supply chain department to increase its productivity. A lack of cross-functional cooperation and communication is a result of the nature of conflicting objectives and the presence of counterproductive measures. Initiatives are tied directly and immediately to the individual’s incentives and profit-and-loss statements of the company. People
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are acting as a barrier to information because of their functional perspective. The goals, decision making priorities and measure to achieve those goals are remarkably departed among functions as shown in Exhibit-1. This misalignment is a big hindrance in the path of integrating the whole supply chain. The major concern for Nokalb is demand forecasting of cotton seeds as this is affecting the whole supply chain of the product. The main predicament in forecasting is the variability in sales. This variability is due to the factors like infestation the year before, financial condition of farmers, expected crop prices, performance of our sales team, efforts of the franchises, and timing of rainfall. NGL is also offering large number of products (21 in 44 SKUs) that also further complicate the forecasting as shown in Exhibit-4 & 5. Sales forecast starts eighteen months before the actual sale and contains systematic and random fluctuations. The information flow during the forecasting process along with risks involved is shown in Exhibit-2. The overall forecasting model at marketing manager level is adequate. He takes inputs from area mangers’ estimates, farmers’ feedback, competitor prices, and general manager insights. He also reduces the targets by 5-10% of the forecast. But the forecasting process in the company at lower levels is not taken seriously. The regional sales managers ask the warehouse in-charges to do the forecast instead of doing it themselves and involving the territory sales in charges (TSI) in the process. TSI are at direct contact with the customers so they have the better understanding of demand. The warehouse in-charges’ forecast is not reliable due to their scant knowledge and lack of enthusiasm shown by regional managers. Thus, this makes the chain neither customer driven, nor supplier driven. The improper forecasting results in significant cost in production phase and a high supply-demand mismatch cost. Exhibit-7 NGL post harvest production plant is located in Multan in the proximity of clusters of seed growing fields. The cotton growing fields are dense in Multan and Bahawalpur. This strategic location of plant gives advantage to save in finished goods inventory. NGL keeps two days (3000 tons) of inventory in its warehouse shown in Exhibit-2. NGL have 443 franchises outlets and 86% of those are located in Punjab as shown in Exhibit-5. The transportation cost of those 14% outlets is very high due to their distant location far away till Hyderabad. NGL should revise their marketing strategy as they are concentrating their outlets in Punjab but about 30% market of cotton growing fields exist in Sind as evident from Exhibit 3 of case. In this way, NGL is giving competitors opportunity to capture the market by limiting their own presence in that market.
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Minor changes in product design cause adversely in production. Moreover, the hybrid seeds can expire as their shelf life is two years. NGL have significant obsolescence cost as their product return at the end of the season. Also they cannot sell left over product in the next season due to change in packaging design and customer preferences about the product. Historically, NGL’s attitude towards vendors has been very cooperative. They helped their vendors in mutually benefiting activities such as reducing defect rates, investing money for twin packing machinery, helping give quality training and sending inspectors to their plant frequently to optimize their processes. They categorized the vendors on their performance and awarded business on their performance. Quality improvement drives and joint sessions with vendors enhanced two-way communication at that part of supply chain. But even with this sort of extensive communication, the problem of placing above capacity orders to them by NGL is still present. Moreover, the shift of ordering decision to vendors from production to purchasing department within NGL creates problems. The dealing with vendors at dual level hurts productivity as lot. Purchasing department’s goal of cost reduction is different from production department’s goal of quality. This creates task conflict between purchasing and production departments as shown in Exhibit-1. The purchasing department’s goal helps in reducing overall packaging cost but hurts NGL’s long term relationship with vendors. This also results in bad quality of product which increases defect rates, late deliveries and stock outs. All these issues result in high supply demand mismatch cost. The incentives given to Territory Sales In-charges (TSI) are also creating problems. Their 70% of annual compensation is fixed salary. While the remaining 30% of annual compensation, is divided between sales targets and promotional activities i.e. 60% and 40% respectively. That represents 18% of their annual compensation is tied up with achieving sales targets and 12% with promotional activities. This clearly depicts very little motivation for TSI to achieve sales targets. They have no motivation to high performance as they never try to sell above 10-15% their targets. The Nokalb Seeds Shops (NSS) are categorized in four groups by NGL on their sales. Almost 50% of the shops fall in category C and D which depicts that half of the NSS performing below average as shown in Exhibit-5. There is also an issue of payment to franchises by the company. There is no clear demarcation between high-performers and low-performers as NGL is paying fixed and uniform rates to NSS. The ineffectiveness of this part of supply chain is inherent in the
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system. The major portion of their payment is tied up with their orders instead of their sales. This gives NSS very much motivation of stocking piles with them. Recommendations Efforts should be made to align objectives and share resources within and across companies to deliver greater value.

The responsibility of providing the best possible customer demand information should fall on the Seed shops closest to the end customers (Exhibit-2).Forecast should start from the seed shop owners in Q I of previous year as they can estimate the sales this year with an accuracy of 20%. The forecast revisions should be made in Q IV as seed owners can estimate the sales with an accuracy of 10% in December.

In order to ensure cross-functional communication and cooperation, value added bridges should be built between the companies. Focus must be on the collaborative efforts on building tighter relationships with supply chain partners. A cross-functional interorganizational team is the best solution. Top management must commit to collaboration by investing in the creation of a team oriented culture. Team must cultivate common vision, an understanding of individual roles, an ability to work together, and a willingness to adjust and adapt in order to create superior value.

TSI compensation should have four components2, a fixed amount, a variable amount, expense allowances and benefits. The structure of pay should be Base Salary, Variable sales targets (Exhibit-10), Periodic incentives tied to short-term goals, Annual Incentives tied to longer-term sales activities, Commission-based incentives and Perquisites like forecasting to facilitate sales efforts. A Sales performance dimension (Exhibit-11), must be included for the evaluation of the TSI.

Nokalb needs to build agility, adaptability and alignment with suppliers within its system. The changes in product design, etc that can have a major impact on customer’s perception or product itself should be made after coordination with the supplier and vendor. The suppliers can give important feedback that whether the changes can result in more sales or lost sales and it would also build their trust on the company.

Long term Contracts should be made with ‘A’ Category Franchises. Extra efforts should be made to create value by frequent communication across multiple levels, inter-firm teams, integrated information systems, aligned performance measures and collaborative
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training. Efforts should also be made to convert ‘B’ category franchises into ‘A’ category franchises. (Exhibit 8 & 9)

An accurate response system approach should be used for the forecasting process which provides a way to figure out what forecasters can and cannot predict well, and then making supply chain fast and flexible so that managers can postpone decisions about their most unpredictable items until they have some market signals. Accurate response system takes into account two new elements in forecasting process: missed sales opportunities plus the distinction of predictable and unpredictable products. It requires being more resourceful in using demand indicators to improve forecasts and having a system for tracking forecasting errors.

A new Post-Harvest Production Plant should be built in the southern areas of Pakistan as presently the Multan Plant is running on Full capacity, i-e running 24 hours a day and 7 days a week. A backup is needed as any accident in the plant can restrict the production which would result in lost sales. The transportation cost builds up as the product moves from Multan to Karachi. The plant also has one warehouse with a limited capacity of 3,000 tons which can store only 2 days production. They should also increase their franchise outlets in that vicinity. (Exhibit 6)

The inventory holding cost and stock out cost can be minimized by changing the invoicing and payment structure across franchises. The commission should not be on invoice value but on actual sales. In this way the franchises would only order what they can sell.

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Exhibit-1: Conflicting Objectives and Counterproductive Measures

Exhibit-2: Product Flow
Location: Multan - Products: 21 7 Warehouses - SKUS: 44 located all over - Storage: 3,000 Pakistan Trucks & containers Warehouses tons Production Plant

443 Shops Rented Vans Seed shops Customers

Exhibit-3: Forecasting Information Flow

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Inform ation F low Activites WareHouse

Jan'98
Start Forecasting

March'98 April
Planning Planning

May
Planning

June~ Nov
Field Field Field Field Field Field Prod. Prod. Prod. Prod. Prod. Prod.

Dec

Jan'99

F eb

March

Apr

May~ June
Distribution + Shipping

Post Post Harvest+ Winter Harvest+ Winter Prod Prod

Post Post Harvest+ Winter Harvest+ Winter Prod Prod Winter Prod Distribution + Shipping Distribution + Shipping

-Forecast not taken Seriously -W/Hincharge make the forecast Risks: 1) Unreliable because of low estimates. 2) Scant kowledge Available Information: 1) Performance in field. 2) Competitors. 3) Availibility of parent inbreds. 4) seed field yield history. 5) current seed supplies. - Targets< (5~ %of of 10) product forecast - Feed back from Farmers (perception surverys) -Competitor Prices - Revised forecast because of more information available (Infestation level)

Regional Mgr

Area Mgr

Marketing Mgr

Product Mgr

- SKU forecast (Product category)

- Winter production Decision based on revised Dec forecast

General Mgr

Production Mgr

Acreage Allocation (After Agreement)

- Risk: 1) Seeds field Isolation.2) Infestation. 3) Weather Condition

Agronomists =Risks Contract Seed Growers =Information

Regional Managers Jan'98 Warehouse Incharges Jan'98

Area Managers March'98 March'98

Marketing Manager

Forecast Decision May'98

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Exhibit-4: Product related Characteristics Category Demand Sold Wheat Seeds More Predictable October-January

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Cotton Seeds Less Predictable June-August

Exhibit-5: Categorizing Franchises
Franchise Category A B C D Total Franchises Total Sales Punjab Sales(Total *0.86) Other Sales(Total*0.14) No. of Franchises 96 128 215 4 443 =443 *2.6=1,151,800,00 0 99 0,548,000 16 1,252,000

Exhibit-6: Warehouse Capacity
Production Days 1 2 3 Warehouse Inventory 1411.2 2822.4 4233.6

Exhibit-7: Lost Revenue
Year 2000 2000 2001- 200x 2000 Title Stockouts Lost Sales Subsequent Year Loss Inventory Cost Approximate Total Loss Tons 350 200 =(350+ 200)*3 =550 =14-15 %(600 million) Loss (Rs.) 245,000 140,000 385,000 84,000,000 84,385,000

Exhibit-8 Solutions for Relationship and Task Conflicts:
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[Vendors, Nokalb, Contactors, Franchises]
4 Smoothing 3 Avoiding Hi 2 Confrontation 1 Mediation/ Negotiation

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Low

Exhibit-9 Solutions for Relationship and Task Conflicts Low TASK Hi

Hi

4 Win-Lose

1 Win-Win

3 No-Win

2 Win-Lose

Self Concerns Low Low

Hi

Exhibit-10 Sales Performance
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Exhibit-11 Sales Performance1 Sales Performance = Readiness x Productivity x Efficiency x Effectiveness

Common Metrics

• • • • •

References

Turnover Training Sales Capacity Employee Satisfaction Headcount

• • • •

Revenue per TSI • Time Utilization • Win/Loss Margin per TSI • Sales Cycle Time Customer • Satisfaction Revenue/Expense Expense • Average Deal Size

http:// kguru.blogspot.com/ 2http://salesforcecompensation.blogspot.com/

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