CHEMGROW, INC. Evaluating Sales Performance By September 18, 2002, Mr. John Kee, vice presi- dent of agricultural sales, will be presenting his newly conceived Dealer Marketing Plan and Eval- uation Program to the president of ChemGrow, Ine., Mr. William Joseph. Company History ChemGrow is one of the largest fertilizer manufac turers in the world. Tt is basie in phosphate rock and manufactares phosphoric acid, anhydrous ammonia, and other mixed fertilizer produc In the past 10 years, the company's production ‘This ease was developed by Willian D, Perreault, Jr, of the University of North Carolina al Chapel Hill and Kevin McNeilly of Miami University, This case is eopyrightod hy the authors and is reprinted hers with (heir permission530 APPENDIX A__ Integrative Cases (continued) characteristics have shifted dramatically from a Much of the ammonia made at Verdigris will manufacturer of specialized NPK (nitrogen, phos start flowing early nest year through ChemGrow's i phates, and potassium) materials in over 40 plants own 4,900sile pipeline that runs from Oklahoma. i to the production of high-analysis fertilizers in a up through the fertilizerhungry Midwest farm i few very large capacity installarions, ‘states and into North Dakota, Minnesota, and Ohio, ChemGrow's inajor production facilities are in. ChemGrow's present expansion activities alone Florida, Louisiana, and Arkansas. They are located should boost its fertilizer output 30 percent over | on or close to river or ocean transportation, and the 8.7 million tons of produets it inade in 2000, {| can therefore lake advantage of low-cost barge The key to capacity growth for ChemGrow hes Uansportation to large terminal points located to been its control of its raw materials, ChemGrow supply the market at the lowest possible cost (Ex- has enough phosphate rock reserves to mainain hibit 6-1) its present phosphate production levels for 70 i i) During late 1009 and 2000, ChemGrow evalu- years, Fer the nitrogen side of its business, Chen ! aed future fertilizer demand anu found de need to Grow signed early last year a IT-year natural gas develop alarge-scale expansion program. The $250 contract with Oklahoma Natural Gas Compang. million project included a new 426,000-ton-a.year_ CheiGrow's expansion program also includes ex- ba anhydrous ammonia plant at Verdigris, Oklahoma —_ploration for natural gas in seven offshore Texas i (cost: $35 million), expansion of the phosphate and Louisiana tracts. rock mining facilities that it bought from Southern ChemGrow has been very optimistic about fer Gas at South Pierce, Florida, and construction of a tilizer growth, but there have been critics of the 400,000ton phosphoric acid plant near Donald- — company—mustly competitors—who believe that sonville, Louisiana, as well as sulfuric acid, nitric ChemGrow's fertilizer expansion is atrociously ill acid, area, and granulation facilities, and several timed, They feel that after last year's boum, when formulating facilities, buyers feared shortages and seized all the fertilizer Gist EXHIBI 16-1) ChemGrow’s Current Major Production Facilities ChenGrow Current Major Production Facilities Fousting, Louisiana Biytieville, Arkansas Pierce, Plorid Ammonia Phosphate Rocke Fuustina, Loaistens Biting Louisiana UreaAPPENDIX A they could find, the industry may now be’on the verge of a worldwide glut, perhaps comparable to the agonizing oversupply of 1972-1974 Management Team AL thé headquarters of ChamGrow, Ine. in Tulsa, Oklahoma, Mr. Willian Joseph has built a winning managerial combination for an industrial empire. Mr. Joseph believes that when it comes to exect- tives, ihe bost are the cheapest forthe company in tie Jong run and that you on't make money by be- ing a serooge. In selecting top people, he has looked forsuch qualities as iniliative and drive; then ke provides his people with the tools with which to work and with an incentive, Money i an incentive, but Mr. Joseph also holieves they must have a price in the company. The job ofa chief executive includes eve- ating the atmosphere that these people ean operate ly. Mrs Joseph has built on the mana: getial philosophy that in order to succeed in any ‘venture, you don't need a team of people, you need the right man to head up the effort and then he'll develop his own team, Mr. John Kee, one of Mr. Joseph's lenders is now in the process of reevaluating and developing his own marketing team. His fitst step was to de- fine a basic outline for the Dealer Marketing Plan and Evaluation Program, Some of the major as- pects of the plan are outlined below: 1, State ChemGrow's marketing philoso- phy—include various statements on channel trade goals, major emphasis products, cus tomer classification and qualiffeations, aunt price strategy, 2, Analyze present position—use historical sales dala, customer/producviterritory profiles; define major and minor competition's supply network: descnbe ChemGrow’s strengitis and weaknesses compared jo each competitor, 3. Project future environment—by product tons consumed per acreage, industry projec ons for product mix, favorable and untayor- able trends, and future competitive programs, 4. Define marketing regions’ goals—develop goals for product tonnase by account manager for the long and short term, plan strategies w attain these goals by increasing customer growth, increasing the market share in the re 531 Itogvative Cases gion hy obtaining new customers, and locating, expansion into new ares. Determine support required to obtain goals—inelude manpower requirements, sup- ply and distribution requirements, marketing programs, training programs, and extra serv ices needed, Mr. Kee felt that the overall basic plan for market- ing was specific in tertas of dhe company’s primary interests for growth but Loo genoral for the region manigets lo putinto action, so another outline was developed for the mechanics of the account man- ager marketing plan: 1, Prior to customer call outline your tori- tory, locate and entity present customers and their trailing area, locate competitor's sup- ply points, and your own, and identify prospec live areas of concentration for new custamers, 2. Steps to be completed with customers— complete sales forecast, update sales history for each customer, and complete customer profile with prospective customers. 2. Steps to summarize territory marketing plans—prepare product profile for present customers, prepare marketing plan work sheet, and prepare sales volume forecest for the territory. 4, Your territory plans—make up six-month time allocation schedule, make up 2 monthly calendar, prepare frst call action plan for prospective customers, and get regional ap- proval and support for plans and needed help, Current Issues Mr: Kee is pleased with the marketing plans whieh he has outlined, but he knows that getting the ap- propriate iuformation to complete and implement the plans may be a problem, In the past, efforts at sales analysis hacl always heen done on a “crisis” basis; whenever he absolutely needed a certain form of information, an analyst was assigned to the problem and the answers were developed on a ‘one-time basis. But there was still little systemutic evaluation of the sales data available in the com- pany: Mr Keo knows that this void needs to be filled If adequate information is to be available for decisions concerning sales effort planning and controlAPPENDIX A CHEMGROW, IN Mr, Kee’s general concem about the present ‘quantitetive evaluation program has recently been highlighted by an upcoming deadline, He knows that at the end of the month decisions need to be made involving (1) a special bonus plan for the most productive region, (2) a 10clay vacation to Mexico for the most outstanding salesperson in cach zegion, and (8) a list of “most valuable” cus voruers, Who will be invited to participate in a hu ury Dealer Couneil meeting, AL the beginning of 2001, when Mr. Kee set up the program wich of fered these sales promotion incentives, he was in tentionally vague about how the customers, sales people, and regions would be evaluated in arriving atthe award decisions, He knows that time is run- ning short and that those evaluations must be ace soon. Yet he is also sensitive to the fact chat the salespeople and customers alike will be invi- lated if the award decisions do not appear to be alr, He wails whatever decisions are made to be objective and consistent, Mr, Kee has expressed to several of his aides ‘his frustration that he isin need of sales analyst formation and that once again it must be assem bled on a crisis basis He sald in his last stait mect- ing that he is placing high priority on doveloping a usable, accessible computerized information sys- fem so that problems of this sort do not arise in the fume, and so that in the future ongoing sales analysis reports can provide systematic inputs for sales force decision making Ja recent years, all quantitative sales analysis has been dune manually under the direction of Me, Kee's assistant, Richard Evans, Richarti never en- Joyed these jobs in the past, feeling that he was ‘spending his time on whal appeared to be work that was cletical in nature or, worse yet, that could have been done more rapidly, accurately, and com pleiely by computer: This time, however, Richard feels 2 new sense of intellectual challenge in the Job. While he knows that he faces the immediate tusk of identifying the best performing territory overall, the best salesperson in each ttritozy, and the list of key customers, he also sees that he can’ have inputs to the design of an integrative sales analysis system, He knows Utat he can work him- Tntegrative Cases (continued) selfout of this recurring drudgery ifhe does a good job of figuring out what information is needed and in communicating that need to the computer per- sonnel inthe firm. In fact, Mr. Koo has told fain that he Wanis a memorandum from Richard oudining his thoughts on what sales analysis reports they an request starting in the immediate future. ‘The Available Information In preparing for his assignment, Richard has talked with several others on the siles management staff and he has been sensitized to the fact that his prob- Jem is nota simple one, For example, he has been reminded that each salesperson sells threo differ- ent products and that each product has a different ross Margin associated with it, Moreover, the sales department is concemed with its sales (and margin) growth over time, 50 Richard wanls ta be certain tat ile does not lake a statie view in evalu- ating performance. Unfortunaiely, the information which he would like is not currently assembled i» ane place, From the accounting departinent he is able to get good eslimates of the gross margin per Lon of sales for each of the three major products (ammonia, phos phate, and potash) sold in this division, These gross margin figures are summarized in Exhibit 6-2. Richard knows that different salespeople tend o sell ese proctcts in different proportions, however. In fact, several months ago this was raised as a concer, Mr, Kee felt that sorue of the salespeople were selling primarily the products that were easy to sell, rather than a conyplete prod- uct line in general and ¢ profitable mix of products in particular, At that time, Richard had done an analysis on that issue, and it oecurs to him that it sniight be useful for him to check his fles for the re- port he prepated then, With the report in hand, Richard is reminded of what he had done. Pirst, he Had tabulated for each salesperson what propor- tion of his total ton sales were in each of the prod- uuct lines. The summary table froun his report is 1e- produced here as Fixhibit 6-8, He also remembers that he had found the same information across df= ferent customers and during different time peri- ods, Richaird puts that report to the side, but maleesAPPENDIX A (CSE EXUIBIT 6-2) Produce Ammonia Phosphates Posh Dollar Gross Margin Co: 533 Intogradive Cases bution for Bach Product Rei Salesperson Amumonda, Phosphates Potash MeFow co 356 om Collann 5 20 D Paks 0 WG 10 Dow 100 4 ° Contest Thoms a) 20 0 Cook 2 50 35 Bivek 30 60 Fowier 20 6 Northwest 20 10 q 65 2 ira 80 10 10 Wilkio 20 10 w Souttrwest Goodie 5 5 36 Stubber 5 16 80 Holden o ° 100 Macke 10 20 70 @ mental note that this information can be helpful to him in his current assignment Finally, to get sales information on different customers, Richard goes to the accounting do- partment, where ho is told, ina pleasant mamwer, that right now (hey are in the midlle of an audit and will not be able lo respond ta his requests une {il after his immediate deadline, However, G. N. Leshades, the head of the accounting department suggests that the distribution center may have some of the information he needs, At the distribu. tion department, Richard dees in fact tind some helpfill information: an alphabetical computer peiatout summanzing, the total tans of products shipped to each customer in 1998, 1909, and each quarter of 2000. Back al lus office, Rictaud’s secretary volun teers to teorganize the information on Uke com. puler printout and to group the dicferent cus- tomers according to the salesperson that sells to {hem arul the region in which they are located. Phe seerctaty prepares a different summaty table for each region, and gives them to Richard. These are summatized here as Exhibits (4 through 6-7,APPENDIX A CHEMGROW, ING. (eont Richard knows that more information would be belter; but itis not clear that he would be able to get more complete information, even if he had the Gime to wait. As he sits down to worleon his analy- sis, he focuses on the immediate evaluations that he needs to have comupleied by the end of the month, but-he also writes down his more general thoughts about what computer-generated reports the sles department will want in the futuro, In fact, he finds that in organizing some of his ciurent analysis be is developing good formats and specifi. catious for the reports that he will suggest in his memorandum to Mr. Kee. Integrative Cases Questions: J. What decisions would you make with regard to which is the most productive region, who is the most outstanding salesperson, and who are the most valuable customers? 2, What computer reports should be yenerated 68 a regular basis (o assist the managers in ‘thew evaluations?