Reference no: EM132201964
Allocating Sales Rep Time Case
Efficient Computing Systems (ECU) sells two product groups: System I and System II. The average price of a System I is $400K, while the average price of a System II is $120K. Potential customers are identified by screening a market research data base to identify good prospects. Formal sales calls, i.e., sales presentations, are then made to those with the highest potential to purchase. ECS’s marketing planners divide its potential customers into two types, single-site and multi-site. Sales reps report that a single-site sales presentation requires an average of two days of sales rep time counting preparation and a multi-site presentation requires four days of sales rep time counting preparation. [A sales presentation can result in a sale of a System I or a System II or possibly both at either type of site.] Over the past two years, 5500 single-site presentations have been made nationwide, and 4500 multi-site presentations have been made by a sales force of 75 sales reps, with the following sales results.
Systems Sales for Two Years
System I System II
Single Site Customers 110 660
Multi-site Customers 360 450
The System I product line reported a total contribution margin of $29 Million and the System II line reported $33.3 Million for the two year period. For the coming year, ECS plans to hire an additional 25 sales reps and set quotas at 300 System I's and 700 System II's nationwide.
1. Set up a spreadsheet that determines the unit profitability for each system and the number of units sold per sales call of each type for the previous two years. Use this as a starting point for formulating the decision problem for next year.
2. What simplifications and/or assumptions need to be made in projecting the results from the previous two years to next year? What important considerations may be left out?
3. Formulate a linear program for maximizing next year’s projected contribution margin by defining the decision variables, objective function and constraints. Run it in Excel.
4. Interpret your solution in a short write-up. Include a graph of the Total Profit Contribution versus the number of Sales Reps for the range 100 to 300 Reps.
5. Discuss the managerial insights that are obtained from this analysis. [Hint: LP Answers are 4333 single site and 2667 multi-site calls for 100 Sales Reps]