Chap - 16 - Logistics Management

The logistical network is involved in the actual transportation of the goods and services from the
place of manufacture to the place of consumption.Logistics management is conventionally defined as
the process that has the responsibility to ensure the delivery of the right product at the right place at
the right time in right quantities. Normally, when logistics management is talked about, the entire
supply chain is considered, from the raw material procurement stage to the delivery of finished goods
to the customers

Logistics is the process of planning, implementing, and controlling the efficient, cost-effective flow
and storage of raw materials, in-process inventory, finished goods and related information from the
point of origin to the point of consumption for the purpose of conforming to customer requirements.

Objectives of logistics

The logistics strategy comprises three objectives (i) cost reduction, (ii) capital reduction, and (iii)
service improvement.
The cost reduction strategy is aimed at reducing the variable cost related to the movement and
storage of goods. The cost reduction is usually achieved by such tactics like altering the number and
location of warehouses, altering the mode of transport, route optimization for the transport function,
optimizing the quantum of inventory; etc. Technology can also be used to reduce the variable cost of
logistics.

Capital reduction is a strategy devoted towards minimizing the level of investment in the logistical
system. The main aim is to maximize the return on investment. A substantial amount of money is
spent on creating capital assets for undertaking the logistical function. These assets include
warehouses, trucks, material handling equipment, software for order processing, etc. With increased
outlay on these accounts, the total cost of logistical operations becomes very substantial. The
objective of the logistics strategy, therefore, is to reduce the outlay for capital assets such that only
the most critical assets are acquired. Also, substantial capital reduction can be achieved by leasing
and renting facilities without affecting the service output to the customers.

Service improvements involve giving better service across the dimension of service without
substantially increasing the cost of logistics. Although the costs increase rapidly with greater service
levels, service improvements can also be achieved in the context of greater anticipation of revenue
by attracting more customers. The increase in logistics costs can thus be offset by the increase in
revenue.

Logistical Planning

Logistics planning tackles four major problem areas: (i) customer service levels (ii) facility
planning (iii) inventory management, and (iv) transportation decisions. The customer service
demand is however very critical for the logistics planning process since it is instrumental in
providing the central objective for the logistical planning function. The entire plan revolves around
this aspect. Thus, the logistics planning process is often considered as a triangle of logistics decision-
making.
3 types of logistics strategies

In direct shipment strategies, goods once manufactured are directly shipped to the point of sale
without being stocked anywhere. While this strategy is practicable and increasingly being adopted by
companies the world over, it is an extremely difficult strategy to implement especially when there is
need for an extensive distribution network so as give maximum spatial convenience to the customers.

In the warehousing strategy, however, goods once manufactured are stored in warehouses waiting
for orders from the retail outlets or other points of sale. This is the classic strategy where the logistics
system consists of a network of warehouses which adjusts the differences in the pattern of production
and the pattern of demand. Given the huge difference in these patterns both in terms of the size of
orders, the timing of the orders, and the time interval permissible between the customer's order and
delivery, warehouses which adjusts these discrepancies are considered to be a must.
In cross-docking, while warehouses do exist, the storage time is reduced to a minimum. In this
strategy, items are distributed continuously from suppliers through warehouses to suppliers with the
items lying in the warehouses for just a few hours. Such a strategy also requires a high level of
coordination between production and sales department. Being an extremely difficult activity, cross-
docking is possible only when certain conditions are satisfied. Some of the important conditions are:
(i) the inventory destination is known when stocks are received, (ii) customer is ready to receive
inventory immediately, (iii) the number of locations to ship inventories are not high (less than 200),
(iv) it is possible to pre-label the inventory, and (v) inventory arrives at a state where it is
immediately conveyable

In the absence of a warehouse, tracking the inventory position for thousands of SKUs being sourced
from several plants becomes a difficult task. Warehouses also serve as points of allocation. It is at the
warehouse that the products usually received in bulk quantities are broken down into smaller
quantities as per the order received from the retailers or the next entity in the chain.

The information transfer function of warehousing occurs simultaneously with the movement and
storage functions. Information on inventory levels, throughout levels (i.e., the amount of product
moving through the warehouse), stock keeping locations, inbound and outbound shipments, facility
space utilization, order fulfillment data, etc. are the type of information that a firm expects a
warehouse to provide. Information technology is increasingly being used to make it easier to capture
these kinds of data and transfer it online to decision makers.
Main decisions in warehousing

(i) the number of warehouses and (ii) the location of the warehouse

Number of warehouses Four factors are considered in deciding about the number of
warehouses (i) cost of lost sales, (ii) inventory costs, (iii) warehousing costs, and (iv)
transportation costs.
Cost of lost sales The cost of lost sales is the stockout cost when a customer's. The inventory costs
are the costs incurred in procuring and holding the inventory for the entire system. Since every
warehouse will have a specified safety stock for all the items stocked, the inventory costs are
estimated to go up with the number of warehouses. Transportation costs Transportation costs of the
system includes the costs incurred in transportation for the entire system consisting of the
transportation from the production points to the warehouses as well as the warehouses to the points
of sale. Transportation costs initially decline with the increase in the number of warehouses

However, when the number of warehouses increases beyond a point, the transportation costs are seen
to increase owing to the combination of the inbound and outbound transportation costs. Warehousing
costs The warehousing costs consist of the cost of renting, leasing, or owning the warehouse as well
as the maintenance of the warehouse. Warehousing costs will naturally increase in direct proportion
with the number of warehouses

Warehousing locations Being supply points for the entire market, it is very important that the
warehouses are properly located. Proper location will lead to greater customer need fulfillment at a
lesser cost. Hence, the objectives of location decisions must be to ensure the required level of
customer service with regard to the service output levels with the minimum costs.

INVENTORY MANAGEMENT DECISIONS

Managing the inventory in the distribution system is probably the most critical activity in the
logistics management process. Inventory levels directly influence the profitability of a company
since building up inventories lead to greater costs.

Why do we Need Inventories? Several reasons are responsible for the existence of inventories in a
distribution channel. Some of the most important ones are:
Improves Customer Service Production facilities, which have to be programmed in advance for
producing at specific capacities, cannot respond to fluctuating demands instantaneously. However,
demand is normally very stochastic in the short term. This means that the exact level of demand
cannot be accurately predicted in the short term. Hence, inventory is required to service the possible
increase in demand that might occur defying the forecasts.
Smoothens the Operations of the Logistics System Much of the inventory is actually carried out as
a buffer to service unpredictable demand during the lead time after passing the order for
replenishment to the production facility. Any logistics system will have a lead time between the
order transmission and the order receipt.
Reduces Costs While inventory pile up usually leads to higher costs, some cost-saving is also
effected due to inventory management. For instance, the capability to carry inventory in the system
enables a production facility to avail of quantity discounts from its raw material suppliers.

Objectives of Inventory Management Inventory management aims to achieve the perfect balance
between achieving customer service targets and reducing inventory costs. The customer service
demands are expressed in terms of product availability. The term used to express the service level is
fill rate (FR). Fill Rate is defined as the ratio of the number of orders completely serviced to the total
number of or

Fill Rate Expression The expression fill rate is actually used to express two different perspectives to
indicate the service level of the logistics system. These two measures are line fill rate (LFR) and
order fill rate (OFR). Both the measures are used to denote the extent to which the warehouse or the
inventory management system has been able to fulfill the orders placed in the expected lead time. It
is in reality an indication of the system's ability to anticipate the demand from the retailers or
customers downstream.

the OFR is a more exacting measure of inventory management service levels. It is possible to have a
high line fill rate with abysmal order fill rate.

Costs Associated with Inventory The costs associated with inventory can broadly be classified into
three: (i) inventory procurement costs, (ii) inventory carrying costs, and (iii) stockout costs. If the
inventory carrying cost is reduced by ordering lesser quantities of inventory each time, both the
procurement and the stock-out costs will increase. Inventory Procurement Cost The inventory
procurement costs are normally considered as the ordering costs for the inventory. These are fixed
costs which have to be incurred in setting up the machinery, procurement of related materials,
transportation, order processing, etc. Hence, when the order quantity is large, the procurement costs
will come down. Inventory Carrying Cost Inventory carrying costs can be classified into four basic
categories. (i) Capital costs (ii) Inventory service costs (iii) Storage space costs (iv) Inventory risk
costs
Capital Costs To build up inventory sufficient capital has to be tied up for a considerable length of
time. The capital cost of inventory is the cost of the capital tied up in the inventory. It is estimated
that on an average this constitutes about 80% of the entire inventory carrying costs.
Inventory Service Costs - Inventory service costs mostly consist of insurance and taxes. Storage
Space Costs - These costs relate to the charges for the warehouse including the rent, maintenance
charges, etc.
Inventory Risk Costs - Often inventory stored for a longer period of time might lose its value
because of shrinkage, obsolescence, deterioration, etc. In the case of perishable items, the time
period involved is very short. It is often necessary that someone bears this cost. Often the owner of
the inventory bears this cost. However, the manufacturer takes responsibility for the expired stock
from the retailers.
Out of Stock Costs - Out of stock costs are incurred when an order is placed but cannot be filled
from the inventory to which the order is normally assigned. The two types of out of stock costs are
(i) cost of lost sales and (ii) back order costs. The cost of lost sales occurs when the customer
withdraws the purchase order in case the product is not supplied within the tolerable waiting time.
Back order costs occur when the purchase is delayed and not lost. Back orders create additional
burden on the system with greater clerical time and associated costs in order processing and delivery.

Inventory Level Decisions

Push & pull systems
The push and pull systems are distinguished by the way a company's production systems are
managed. In push strategy, the inventory management is centralized and decisions about the
inventory levels are forecast at the central level.
The push method is considered to be appropriate where the production quantities exceed the short-
term requirements of the inventories. The pull system of inventory planning is a typical bottom up
approach where the inventory levels are decided in a decentralized manner with the warehouses and
the other storage points calculating their inventory requirements on a periodic basis and receiving
them from the production facility.
A pull system, if implemented properly, can significantly reduce the inventory in the total logistical
system, as the production is demand driven so that it is coordinated with actual customer demand
rather than a forecast. However, to implement a pull-based system effectively, a highly reliable
information system is required that can transfer information about customer demand to the
production facility.

Risk Pooling - Bullwhip effect

One of the major reasons for greater inventory investments is to store up the safety stocks at various
storage points. As the number of storage points increases, the safety stock component also increases
proportionately. An alternative to this is to reduce the number of storage points. When the storage
points are reduced, it has been observed that the total variability in demand is reduced considerably.
This phenomenon is called risk pooling. Risk pooling happens because of the possibility of higher
than average demand from one point being offset by the lower than average demand from another
point, assuming that the demand occurs randomly at different points at short periods. The total
average demand at the centralized warehouse will thus witness less variation leading to a lesser
provision of safety stock. This phenomenon therefore supports the argument for a centralized system
rather than a decentralized system. The benefit of risk pooling is possible only when there is
insignificant positive correlation in the demand between customer points. This means that the
demand from two points should not generally increase or decrease together.

Echelon Inventory
A distribution system will consist of tens of large warehouses, hundreds of small warehouses, and
thousands of retailers. Hence, it is often impossible to manage inventory by looking at individual
points one at a time as we were trying in the earlier examples. The echelon inventory concept is a
viable solution to this. In a distribution system, each stage or level is called an echelon and the
echelon inventory is the inventory at the echelon and the entire inventory in the downstream
echelons. Hence, a distribution system consists of stockists in every state supplying to the retail
network in those state. The echelon inventory at the stockist level can be defined as the inventory at
the warehouse of the stockist plus the entire inventory in transit or on stock at the retailers' end.
When the inventory is managed in this way, typically the echelon inventory reorder point is
calculated at the stockist level, which takes into consideration the entire echelon inventory
comprising the inventory at the stockist's and at the retailer's level. The idea is to maintain sufficient
inventory below each level in the distribution system.

TRANSPORTATION DECISIONS The transportation activity moves products to markets that are
geographically disparate and provides added value to the customers when the products arrive on
time, undamaged, and in quantities required. The utility provided by the transportation function is
called place utility, while time utility is created by the storage function.

Transportation is thus a critical logistics activity. It has been found that apart from the cost of goods
sold, which is reflected in the inventory carrying costs, the transportation cost is the largest
component of the logistical costs. The major decision areas in transportation include (i) mode
selection, (ii) vehicle routing and scheduling, and (iii) shipment consolidation.

Mode selection Generally,

five modes of transportation are used in moving goods from one point to the other, viz., air, rail,
road, water, and through pipeline. In reality, however, intermodal combinations are always resorted
to.
Vehicle Routing and Scheduling While one of the major objectives of logistics is to reduce the
inventory storage time, the transportation efficiency also plays a major part in achieving this
objective. The vehicle routing problem is related to this aspect. It tries to find out the best path a
vehicle should travel through a network of roads, rail lines, shipping lines, etc. so that the time and
distance traveled is minimized to the maximum. The methods of routing a vehicle through a network
has been solved by methods designed specifically for it. Most of these methods are highly analytical
in nature and require powerful computers to solve practical problems. Some of these methods are the
shortest route method, which tries to work out the best route from a single origin through an iterative
solution methodology, the transportation method where problems with multiple origin and
destination points are solved, etc. Vehicle scheduling problems are extensions of vehicle routing
problems. In vehicle scheduling more realistic restrictions are included like restrictions on the
number of stops on the route where goods have to be picked up/or delivered, the use of multiple
vehicles with different capacity limitations of both weight and volume, restrictions on maximum
driving time, etc

Freight Consolidation
Freight consolidation activity is mainly intended to reduce the cost of transportation through
bringing together smaller quantities of inventory in order to create a bigger quantity for
transportation. This principle ensures the optimum sharing of fIxed costs of transportation.
Consolidation is achieved by: (i) consolidating the inventories which involves grouping different
items together so that these items are transported together and not one or a few items together, (ii)
vehicle consolidation where vehicles with less than truckload inventory are not allowed and
consolidation of inventory into full truckload is preferred, (ill) warehouse consolidation where
warehouses are located in such a way that large quantities of inventory are transported through large
distances and smaller quantities are transported through smaller distances, or (iv) temporal
consolidation where orders from the downstream are held so that larger orders are accumulated for
transportation.

Factors affecting Transportation costs

Transportation costs are affected by a variety of factors. These factors can be divided into product-
related factors and market-related factors.

The product related factors include: (i) the density of the product, (ii) stow ability, (iii) the ease or
difficulty in handling, and (iv) liability. The weight to volume ratio or density has a major part to
play in deciding the transportation costs.
Products which are heavy will usually require costlier transportation alternatives. The stow ability
refers to the extent to which a product can fill in the available area. For instance, liquids like
petroleum or food grains can completely fill the volume of the area available while machinery or
automobiles will not fill the area to that extent. Products with greater stow ability will thus require
relatively less transportation space. Ease or difficulty in handling is also associated with stow ability.
Products that are uniform in their physical characteristics or that can be manipulated with material
handling equipment require less handling expenses and are therefore less costly to transport. Often,
products which have high value to weight, like electronic gadgets, crockery, etc. are easily damaged
and cost more for transport.

Some of the market-related factors that affect transportation costs are: degree of intermode or
intramode competition, location of the markets, balance or imbalance of infreight traffic in and out of
the market, seasonability of the product movements, etc. If the degree of competition between two
types of transportation modes or between operators of the same mode is higher, it is possible to get
transportation services at a lesser price. Location of the market will greatly affect transportation
costs, as far-flung locations will usually incur greater transportation costs. In any geographical
location there will be some freight being transported in and some freight being transported out. The
freight being transported in is used for consumption while the freight transported out is for sale
outside the geographical region. If the freight is transported in is more than that transported out,
trucks or other transport vehicles will have to return back empty, which is inherently inefficient and
will affect the transportation cost. Instead, if the vehicles can go back fully loaded, the costs of
transportation will come down. If there is high seasonal variation in the demand and the consequent
product movement, the transportation cost will be reduced since the bulk of the demand will be
transported in fewer trips.

Chap 12,13 Compensation plan for sales force

Management must determine the amount of compensation a salesperson should receive on the
average. Although the compensation level might be set through individual bargaining, or on an
arbitrary judgment basis, neither expedient is recommended. Management should ascertain whether
the caliber of the present sales force measures up to what the company would like to have.
Management should determine the market value of sales personnel of the desired grade. Management
weighs the worth of individual persons through estimating the sales and profit that would be lost if
particular salespeople resigned. Another consideration is the compensation amount the company can
afford to pay. The result of examining these and other factors pertinent to the situation is a series of
estimates for the total cost of salespeople's compensation.
A sales compensation plan has as many as four basic elements: (1) a fixed element, either a salary or
a drawing account, to provide some stability of income; (2) a variable element (for example, a
commission, bonus, or profit-sharing arrangement), to serve as an incentive; (3) an element covering
the fringe or "plus factor," such as paid vacations, sickness and accident benefits, life insurance,
pensions, and the like; and (4) an element providing for reimbursement of expenses or payment of
expense allowances. Not every company includes all four elements. Management selects the
combination of elements that best fits the selling situation

Objectives of compensation
Correlate efforts, results, and rewards
Control activities
Ensure proper treatment of customers
Attract and keep good salespeople

Effective compensation plan should

Address fair wage of compensation
Should be linked to directly efforts and performance of sales person
Based on principles of equity
Should be economical to company

Types of compensation plan

Financial Compensation
 Straight-Salary Plan
 Straight Commission Plan
Drawing Accounts
 Combination of Salary-and-Incentive Plan
 Use of Bonuses
 Allied Methods
Profit Sharing Plan
Special Remuneration Plan
Expense Allowance Plan

Financial Compensation

Sales organizations follow different types of compensation plans. One of the popular components is
the financial compensation plan. The financial compensation plan includes a fixed component, a
variable component linked to the salesperson's productivity, expenses, and fringe benefits. The fixed
component helps in providing basic support for the family of the salesperson. The variable
component in the form of commission, profit sharing, or bonus helps the sales manager in
stimulating higher productivity from the salespeople. Reimbursements of expenses help the
salespeople to cover up travel and other incidental expenses incurred while closing a sale for the
organization. Majority of the traditional public sector companies in India like HPCL, BPCL, ONGC,
and HMT follow a straight salary plan, where the salesperson is paid a fixed salary structure
irrespective of his sales
performance. The commission system is preferred by the majority of private sector companies
operating at the lower end of the brand and market dynamics. Many of the pharmaceutical companies
follow such a plan. The four elements of compensation are combined into hundreds of different
plans, each more or less unique. But if we disregard the "fringe benefit" and "expense
reimbursement" elements, since they are never used alone, there are only three basic types of
compensation plans: straight salary, straight commission, and a combination of salary and variable
elements.
Straight-Salary Plan
The straight salary is the simplest compensation plan. Under it, salespersons receive fixed sums at
regular intervals. The payments can be weekly, monthly, or fortnightly, representing total payments
for their services

Sometimes the straight-salary plan is the logical compensation plan when the selling job requires ex
tensive missionary or educational work, when salespeople service the product or give technical and
engineering advice to prospects or users, or when salespeople do considerable sales promotion
work. From management's standpoint, the straight-salary plan has important advantages. It
provides strong financial control over sales personnel, and management can direct their activities
along the most productive lines. If sales personnel prepare detailed reports, follow up leads, or
perform other time

consuming tasks, they cooperate more fully if paid straight salaries rather than
commissions.Straight salary plans are economical to administer, because of their basic simplicity,
and compared with straight-commission plans, accounting costs are lower. The main attraction of
the straight-salary plan is that stability of income provides freedom from financial uncertainties
inherent in other plans.
The straight-salary plan, however, has weaknesses. Since there are no direct monetary incentives,
many salespeople do only an average rather than an outstanding job. They pass up opportunities for
increased business, until management becomes aware of them and orders the required actions.
There is a tendency to under compensate productive salespeople and to overcompensate poor
performers. If pay inequities exist for long, the turnover rate rises; and it is often the most productive
people who leave first, resulting in increased costs for recruiting, selecting, and training.

Straight-Commission Plan
The theory supporting the straight-commission plan is that individual sales personnel should be paid
according to productivity. The assumption underlying this plan is that sales volume is the best
productivity measure and can, therefore, be used as the sole measure. This is a questionable
assumption.
The straight-commission plan, in its purest form is almost as simple as the straight-salary plan, but
many commission systems develop into complex arrangements. Some provide for progressive or
regressive changes in commission rates as sales volume rises to different levels. Others provide for
differential commission rates for sales of different products, to different categories of customers, or
during given selling seasons. These refinements make straight-commission plans more complex
than straight-salary plans.

The straight-commission plan has several advantages. The greatest is that it provides maximum
direct monetary incentive for the salesperson to strive for high-level volume. The star salesperson is
paid more than he or she would be under most salary plans, and low producers are not likely to be
overcompensated.

However, the straight-commission method has weaknesses. It provides little financial control over
salespeople's activities, a weakness further compounded when they pay their own expenses.
Salespersons on straight commission often feel that they are discharging their full responsibilities by
continuing to send in customers' orders. They are careless about transmitting reports, neglect to
follow up leads, resist reduction in the size of sales territories, consider individual accounts private
property, shade prices to make sales, and may use high-pressure tactics with consequent loss
of customer goodwill Moreover, unless differential commission rates are used, sales personnel push
the easiest-to sell low-margin items and neglect harder-to-sell high-margin items. Under any
straightcommission plan, in fact, the costs of checking and auditing salespeople's reports and of
calculating payrolls are higher than under the straight-salary method
Use of Bonuses
Bonuses are different from commissions. A bonus is an amount paid for accomplishing a specific
sales task; a commission varies in amount with sales volume or other commission base. Bonuses
are paid for reaching a sales quota, performing promotional activities, obtaining new accounts,
following up leads, setting up displays, or carrying out other assigned tasks. The bonus, in other
words, is an additional financial reward to the salesperson for achieving results beyond a
predetermined minimum.
Certain administrative actions are crucial when a -bonus is included in the compensation plan. At
the
outset, the bonus conditions require thorough explanation, as all sales personnel must understand
them.
If used with the straight commission, the result is a commission plan to which an element of
managerial control and direction has been added. If used with the combination salary and
commission plan, the bonus becomes a portion of the incentive income that is calculated differently
from the commission.

Strengths and weaknesses of combination plans. A well-designed and administered combination

plan provides significant benefits. Sales personnel have both the security of stable incomes and the
stimulus of direct financial incentive. Management has both financial control over sales activities
and the apparatus to motivate sales efforts. Selling costs are composed of fixed and variable
elements; thus, greater flexibility for adjustment to changing conditions exists than under the
commission method. There are beneficial effects upon sales force morale.

The combination plan, however, has disadvantages. Clerical costs are higher than for either a
salary or a commission system. More records are maintained and in greater detail. Sometimes a
company
seeking both to provide adequate salaries and to keep selling costs down uses commission rates so
low that the incentive feature is insufficient to elicit needed sales effort.

Allied Method

One of the popular methods followed in Indian industries is the 'profit sharing plans'. In this method,
the company shares a part of the profit with its sales staff and sometimes distributes the equity
holding of the company in the form of earned share to increase the stake of the salespeople in the
organization. This method helps to establish a sense of ownership and cordial relationship with the
salespeople.

Non-financial Compensation
Sales organizations also provide non-financial compensation for the salespeople to motivate them
and keep them in the organization to contribute towards the long-term goals of the organization. The
nonfinancial rewards include promotions, recognition programmes, fringe benefits, expense
accounts, and sales contests. Though these compensation methods are treated as non-financial,
these are directly or indirectly related to financial gain for the salespeople.

Promotions
Salespeople working in organizations for a longer period of time always look for higher job
responsibility. Majority of the salespeople need recognition in the form of promotion for their
continued success and commitment to the organization. Since there are fewer openings as one
moves higher on the ladder, the management has to plan the promotion programme in such a way
that the higher positions seem worth aspiring and achievable to the salespeople. The promotion
policy should be open and clear so that it serves as a motivational tool for the salespeople. Job
enrichment and additional responsibilities across the departments also enrich a salesperson's
career and motivate him for higher goals.

Recognition Programmes
These are programmes designed to honour individual salespersons' contributions and recognize the
excellent performance. These programmes are organized in most organizations. The salespeople
who excel are awarded medallions for their outstanding contributions. These awards are presented
in the annual conferences and published in the company newsletters and websites. These
programmes can be either formal or informal programmes.

The success of an informal recognition programme largely depends on the sales manager who
recognizes quality work of the subordinate salespeople and provides praise for them. An
encouraging word by the boss, a pat in the social gathering, and recognition and thanks-giving
letters
serve the purpose of non-financial recognition for the salespeople. Informal recognition needs
minimal efforts, yet the results are extremely positive because everyone likes to be told in public
that he or she is doing an appreciable work.

Fringe Benefits

These are employment benefits in addition to the salary and wages paid to the sales staff. These
include medical benefits, retirement benefits, life insurance, and other forms of employee motivation
tools like stock options and profit sharing. The medical benefits include reimbursement of all the
running medical expenses and in many organizations also the cost of hospitalization in case of any
emergency. Companies also pay for the mediclaim policies of their employees. The retirement plans
in the Indian context include the retirement pension provisions, gratuity, and provident funds. The
gratuity amount is now linked to job as well as pension. The employee receives some amount of
gratuity money for the number of years he completes in the organization and it contributes towards
the pension. Sometimes, a percentage of the organization's profits are paid to the employees if the
organization makes significant profit in a certain year. In this case the employees have the option to
buy the company shares at a discounted price. This is a successful option for companies having
fast growth in the industry. Companies like Infosys and Wipro give stock options to its employees.
The other fringe benefits include the leave travel concessions (LTC), paid vacations, sick leave, and
maternity or paternity leave. The amount and nature of the leave varies from company to company
but most of them practice such compensation methods in some other form.

Perks
Perks are a special category of compensation available to employees with some special status or
expertise in the company. There are a number of perks, which are considered part of the
compensation plan by the company. They include the provisions for a car, housing, driver,
gardener, club membership, and educational opportunities.
Perks are classified as status perks, financial perks, and personal growth perks. The status perks
include office location, job title, parking space, and other visible company contributions which reflect
the status of the salesperson. They are based on the performance and have a higher motivational
power than other categories of perks in the sales organization. The financial perks include the use
of the company vehicle, expenses of their support staff, such as drivers and gardeners, and club
memberships. Many companies also pay for the vehicle fuel and the insurance and maintenance
cost for the salespeople. The personal growth perks include paying for additional education or
sending the salespeople for motivational or training programmes. Companies like Infosys, Patni
Computers, Bharat Heavy Electricals, and Marico Industries in India give the perk of additional
education to their salespeople to upgrade their skills.

Sales Contests
Sales organizations organize sales contests for the salespeople to stimulate sales. They are part of
the sales force promotion programme. These programmes are organized to counter the competitive
moves in the market, to offload the inventory in the off-season, to gain sales force commitment for
an additional product launched, and of course to gain support of the salespeople during the maturity
stage of a product life cycle. It is a temporary incentive programme that offers monetary and non-
monetary rewards, and is not a part of the regular compensation plan. Contests have multiple
purposes, besides one single goal for the salespeople, i.e., to enhance their morale and motivate
them for higher sales in the short term. Non-financial compensation in isolation is also an important
motivator for the salespeople. It is observed that non-financial compensation methods are always
accompanied by financial compensation methods.
Chap 11 Sales Force recruitment and training

Training
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