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National sales organization and local pricing responsibility

6. Pricing capability in the corrugated packaging industry

6.5 Delta

6.5.3 National sales organization and local pricing responsibility

The management team meets once a week to evaluate the profitability of the product portfolio based actual post-calculated costs. Once a month actual post-calculated costs are compiled per order and customer and compared to budget in a more extensive report. Hence, one key element in the weekly and monthly budget follow-ups is the post-cost calculation system. This system allows Delta to evaluate the profitabil-ity of the individual customer and products based on reliable and actual costs rather than relying on pre-calculated costs.

6.5.3 National sales organization and local pricing

total turnover of the acquired plants, and one traditional plant-based sales organization.

The relationship between the individual plants and SSO is that of sepa-rate organizations. The local plant is responsible for prices while SSO, and the external sales reps, are responsible for turnover. The sales man-ager at Delta, who is responsible for pricing, does not report to the sales director, but to the general manager of the plant. This establishes a split in responsibility that, according to the sales manager, compels individ-ual plants to balance the ambition of the external sales force to increase sales with the individual plant’s ambition to gain a satisfactory price.

Hence, the interaction between the external sales force, which is volume focused, and the internal plant organization, which is margin focused, creates a balance between different interests that is a vital part of Delta’s market approach. The split in responsibility between SSO and the plant-based internal sales organization, illustrated above, also shows it-self in employee incentives. A large part of the external sales rep’s salary is based on a sales provision governed by turnover targets. The internal sales reps, on the other hand, receive a fixed salary.

The SSO system is mainly a customer focused organization that en-hances the ability to offer, especially large customers or key accounts, a complete packaging solution. In contrast, the traditional plant-based organization is more product and efficiency oriented. However, the fact that SSO exists alongside plant organized external sales, significantly reduces the benefits of one sales organization. Further, the SSO does not fully seem to solve the coordination problem between plants with regard to larger accounts where more than one plant is involved. The main problem, according to the sales manager, is that different SCAP plants apply radically different pricing policies for exactly the same product. This is not a significant problem for more specialized prod-ucts, for example displays or high quality pre-print, but for more con-ventional products that are made by many plants, this is seen as a seri-ous credibility problem.

The sales manager at Delta is responsible for the internal sales depart-ment (including invoicing, cost-calculations and dispatch). The internal sales department contains approximately 20 sales reps and a special unit with two employees who are responsible for doing the cost calculation.

The set-up with two “costing specialists” who do all the cost

calcula-tions is built on the notion that the cost calculacalcula-tions cannot be pro-duced in a mechanical way if they are to result in a competitive and profitable offer. Thus, the challenge or main task is not only to produce a standard calculation, but to optimize the settings around the calcula-tion so that the solucalcula-tion that is produced is competitive and profitable.

After the calculation department has produced the cost calculation, it is handed over to the internal sales rep responsible for the specific account who prices the order according to their own judgment and the cost pa-rameters. The internal sales reps are organized into groups covering dif-ferent geographical regions. The internal sales reps work in pairs, where one of them has the main commercial responsibility (pricing, etc.) and the other carries out the more practical tasks (like an assistant). This divide is underlined as an important characteristic of the sales organiza-tion at Delta as it relieves the person responsible for pricing from less important or administrative tasks.

There are certain established rules that dictate the freedom the internal sales reps have in making the pricing decision. According to the sales manager, the limit is 15% below calculated full costs. According to an internal sales rep, he can get three different calculated prices from the cost calculation department: low (variable cost), medium and high (full cost). There seems to be some uncertainty about the lowest price to which an internal sales rep can go, as it depends on what is usual for the particular customer. As stated above, according to the sales manager, the limit is full cost minus 15%. However according to an internal sales rep, this limit is (at least for his main accounts) full cost minus 20%.

Even though the external sales reps are not directly involved in the pric-ing decision, they play an important role in the interaction with the customer. The external sales rep might for example communicate back a target from the customer or have knowledge about competitor prices.

One of the most important tasks of the external sales rep is to commu-nicate the value of the product to the customer; this directly affects the customer’s willingness-to-pay, and thus the price. Another role of the external sales rep is to read the reaction of the customer when he sees the product and the price, which can play an important role when de-ciding how to counter subsequent demands or requests.

Figure 6.7 show the different organizational levels involved in the pric-ing decision at Delta.

Sales manager/

management team

Internal sales rep

• Responsible for pricing and managing other commercial issues for his/her accounts

• Pricing decision is made according to cost parameters and own commercial judgment

• Each internal sales rep has an assistant who manages administrative issues (allows the internal sales rep to focus on commercial issues)

• Commercial issues at Delta are managed from an internal sales department headed by a sales manager who is responsible managing the work of the internal sales reps and the day to day pricing at the plant (and pricing of larger/strategic accounts)

External sales organization (SSO)

• Delta operates with an independent national external sales organization that sells the products of several SCAP plants (SSO)

• Operating with a national external sales organization makes it possible to offer customers a complete product portfolio independent of manufacturing site (increases customer orientation)

• External sales organization is responsible for turnover but has no formal input on price

Cost calculation unit

• A special cost calculation unit consisting of two costing specialists does all product costing

• Main task is to optimize the pre-calculation to produce a good routing and a competitive price and to manage the post-cost calculation

Figure 6.7 Organizational levels involved in sales, costing and pricing at Delta.

6.5.4 Pricing based on inflated costs and assessment of