Structure, control and transparency – actively counteracting compliance issues

The Indian subsidiary of a leading global manufacturer of industrial machinery and accessories found itself in a critical phase when its managing director, who was also head of sales, suddenly resigned. An interim sales manager was needed at short notice, as urgent problems had to be solved and the company had to get back on track.

The company therefore turned to the Dr. Wamser + Batra Group.

Our first superficial assessment already revealed a complex web of financial irregularities and compliance violations at the subsidiary.

The results of the internal audit we conducted confirmed our initial impression, but went far beyond that: one of the “directors” was not only secretly channeling commission payments via intermediaries to personal accounts. He had also simultaneously founded a competing company with a parallel product line. The extensive irregularities and covert “financial maneuvers” of this manager severely compromised the financial integrity of the company and made it imperative to take immediate remedial action.

• Sales targets not achievable

The subsidiary’s sales policy lacked any professional structure. For example, sales forecasts were set without taking into account the necessary parameters such as market potential, product range, competition mapping, product pricing, customer expectations and dealer potential as well as the company’s own financial situation. The targets forecast in this way were simply utopian.

• Cash flow not in view

Deliveries to customers/dealers were continued without outstanding payments being collected. This lack of focus on cash flow meant that outgoing invoices amounting to 3.1% of sales were not paid for more than 45 days. In addition to the recoverable receivables, 0.5% of them were uncollectible, e.g. due to legal disputes, write-offs, reconciliation differences, etc.

• Overlapping of sales territories

Sales territories were not divided up and overlapped, which meant that sales opportunities could not be realized. In addition, several potential sales territories were simply overlooked. The result was the demoralization of the sales team.

However, clearly defined sales territories are essential for targeted marketing and understanding local customer needs. They improve market penetration by allowing corporate strategies to be tailored to regional characteristics and individual customer needs to be better taken into account.

• Unclear team structures

The disorganized structure of the sales team inevitably led to frictional losses and inefficiency. Employees at the engineering level, for example, reported directly to the managing director. This unfavorable reporting system meant that the managing director was simply overwhelmed by the amount of information he received in addition to his actual tasks.

• Contradictory sales policies

The clauses of the sales policy contradicted each other in several places. There were no clear incentive structures for achieving sales targets and if such incentives existed, they were contradictory. This led to great ambiguity within the workforce and further demoralized them.

• Lack of analysis of market potential and complicated sales structure

A comprehensive assessment of the market potential had not been carried out for years, which is why the company had no up-to-date, well-founded insights into the market. The export of consumables to Bangladesh, for example, was carried out via an Indian distributor, followed by a sales representative. This multi-level distribution structure led to higher product prices, which in turn resulted in a loss of sales as competing suppliers were cheaper. Moreover, such an approach naturally restricted the company’s entry into other SAARC markets.

• Arbitrary inventory planning

Like so many things, inventory planning was arbitrary. The inevitable result was bottlenecks and excess stock. For example, the planning of machine and consumable stocks was irregular, which led to shortages of the required goods and overstocks of other goods. This problem in turn had a direct and significant impact on the supply chain and therefore naturally had a negative impact on the company’s relationship with its customers.

• Pricing strategy not market-oriented

In addition to the incentive policies, the sales guidelines were also vaguely formulated and led to misinterpretations. Furthermore, the pricing strategy for the sale of machines (one of the vertical product groups) was controversial, particularly with regard to the sales commission for dealers.

• Restructuring of the team and definition of sales territories

Based on the parameters of location, market potential and accessibility, the sales team was restructured and the respective sales territories were reorganized.

The roles and responsibilities of the reporting managers were also optimized as part of the “Sales” budget planning for 2023-24.

A lean sales structure with centralized control improves flexibility and adaptability in the global industrial machinery market. For this reason, we have reduced the sales department to 6 teams and placed it under central management.

• Definition of a new sales budget

Only professional planning of the sales budget, taking into account the intricacies of international markets, guarantees realistic and achievable sales targets. This is why we have taken market conditions, potential territories, competition, dealer network, etc. into account when planning the sales budget and setting realistic targets.

• Development of a special “funnel system”

We have developed a “sales funnel system” tailored to this subsidiary on a monthly rolling basis to track machine requests in order to obtain a correct overview of expected orders. The implementation of such a system, in which sales opportunities are specifically tracked, is a crucial tool for anticipating and satisfying demand on the international market.

• Reorganization of exports

As a further central measure, we first streamlined the export structures and separated them from the Indian (intermediate) dealers. In addition, we have created a separate sales structure for Eastern India within the sales team in order to be able to successfully expand into the SAARC countries. The simplification of export structures opens up market expansion opportunities for companies, allowing them to tap into new markets and exploit global opportunities.

• Creation of a new receivables management system

It was also important to implement a close-knit receivables management system to significantly reduce overdue receivables. Such debtor management ensures a healthy cash flow, which is of course essential for the sustainable growth of international business.

• Revision of the sales policies

We revised the sales guidelines with regard to both the personnel incentive regulations and the sales guidelines for dealers. The aim was to replace the unclear and ambiguous clauses of the previous guidelines with clearly defined regulations. The resulting transparency creates trust among (international) customers and thus promotes long-term business relationships.

• Introduction of new discount guidelines and calculation sheets

We defined a standardized discount structure for sales and created a calculation scheme that contains all relevant components of the cost structure. These measures will also contribute to the transparency of transactions in the future, which is essential for international business.

• Inventory planning

In order to be able to meet the dynamic requirements of international markets in the future, we have created an efficient inventory planning system for machines and consumables based on a management-based approach.