Sales Force Size and Allocation

IES is next generation sales force size and allocation

• for ALL SIC codes

• for the proper object function: profit, NOT profit margin

• in concert with Marketing, necessarily

Sales Force Size and Allocation:  The current practice as described in:

• Syntex case described in Handbooks in Operations Research and Management Sciences, Volume 5, Marketing, Eliashberg and Lilien, editors, Chapter 14, “Sales Force Operations,” Vandenbosch and Weinberg, page 677: “Lodish’s general sales force sizing and deployment model has yielded a number of successful applications.  Its application at Syntex Laboratories won the 1987 Franz Edelman Award for Management Science Achievement.”

  • Syntex case details described in Interfaces, 18 (Jan-Feb, 1988), pages 5-20.

• Additional details provided in Interfaces, Zoltners and Sinha, "Sales Force Decision Models: Insights from 25 years of Implementations," May-June, 2001, Pages 9-23.

• Results and observations from the above references support the conclusion that optimal sales force size is systemically compromised.  Further, even when it's demonstrated, quantitatively, that sales effort drives sales senior management may resist. 

• Syntex sales force size  was increased by 40%

• Zoltners and Sinha

•  "That marketing investment drives sales is a fundamental principle supported by the data. Most executives believe this principle; yet they sometimes use decisions rules that  run cuter to its premise."

  • "While addressing his divisional vice presidents of sales, the CEO of Fortune stated that last year he "cut the company sales-force size and sales went up."

  • "After completing a rigorous model-based analysis, a national sales manager made the following recommendation to his divisional president : "We need more sales people; I estimate a 10% increase in sales force will increase revenue 5%."  The president's response was: "So you think you can increase sales 5%?  Do it!  Just do it by increasing productivity 10%."

  • At an internal sales force productivity workshop, a country general manager asserted he maximized profit.  When asked how, he responded: "by keeping sales forces at 11% of sales."

• "Resource allocation has a bigger impact profit than sizing.  For the 50 companies in the ZS-SRA sample, a size and resource allocation strategy was available that would, on average produce a 4.5% contribution improvement over the company's current or base-case three-year sales-force strategy. Only 29% of the incremental improvement was attributable to the size change; the rest was due to resource allocation"

• "companies were not very good at allocating sales force resources." The ratio of the largest incremental return to the smallest for the 400 products in the ZS-SRA sample was over 8.

IES Benefits, given current practice’s limitations

o   Syntex model’s object function was contribution margin; specifically, revenue less variable costs of production,  distribution and sales expense. Or, in the case of ZS Associates Interfaces article, net sales minus consolidated variable product costs, advertising and promotion costs, field-support costs and sales-force costs.

• IES model’s object function is profit

o   Syntex model was hand-crafted as with all dynamic programming models including model structure, solution and reporting.

o   IES models are built with off-the shelf modeling software with a variety of assists available

          (See http://www.insight-mss.com/data/SAILS_Product_Description1.pdf)

Quoting  Jerry Shapiro, Professor of Operations Research and Management Emeritus at MIT:

“Dynamic programming is very limited in the size and complexity of the models it can handle. Moreover, unlike MILP for which there are very powerful, off-the-shelf systems, dynamic programming requires a customized implementation for each problem”

o   Syntex-like applications are largely focused on pharmaceutical and health-care industries (See Sinha and Zoltner, “Sales-Force Decision Models: Insights from 25 Years of Implementation, Interfaces 31: 3, Part 2 of 2, May-June 2001 (pp S8-S44).

• see http://www.zsassociates.com/ 

• see http://www.imshealth.com/portal/site/imshealth)

• IES works for all SIC codes

o   Additionally, confirming the lack of the marketing science practitioners’ use of IES’s mixed integer and linear programming (MILP) techniques (not just for sales force sizing and allocation applications), two  searches were performed:

• Which math programming technique  (viz, dynamic programming, linear programming, integer programming, non-linear programming and MILP) do marketing science practitioners use

• Which of these same math programming techniques are referenced in the marketing sciences literature.  (See Marketing Sciences Schema)

o   Finally, as an example of the richness of the functionality and power of MILP model formulations, the Syntex dynamic programming model design is mapped to an equivalent IES model (see Syntex)

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