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Objectives
To develop value-added processes that deliver innovative, high-quality, low cost products on
time with shorter development cycles and greater responsiveness than before, and simultaneously
reducing inventory and operating costs.
Issues
There are several problems that eventually led to NGL market share nose dive of 21% in the last
decade. The foremost issue is the disintegration of supply. There are the differences of priorities
among various sections of supply chain. NGL is in an extensively competitive environment
developed by “brown baggers” who are stealing market share from NGL. This situation got
worse when the average sale price of hybrid seeds market decreased sharply last year. The root
cause of the entire dilemma faced by supply chain is wrong demand forecasting that leads to
either high inventory cost or stock outs. These stock outs cause heavy financial losses to the
company. The higher inventory cost and transportation cost are due to remote location of
production site. There is also a concern of task conflict among different departments which result
in an inefficient system. Another concern is the relationship with vendors and sales force that is
decreasing productivity. The last, but not the least, is the dealing with Nokalb Seeds Shops. Thus
it is within such factors that NGL is striving to regain its balance as a profitable company.
Assumptions
The revised forecast and winter production forecast is done by marketing manager in
coordination with general manager. The price per ton is taken as an average of Rs.700. Nokalb
seeds shops keeps a minimum of 3 days inventory.
Analysis
NGL lost its large market share to “brown baggers” in the past few years. These brown baggers
are small farmers who produce seeds by planting Nokalb seeds and selling them as generic
hybrid seeds. Their production cost is very low as they are not producing a standardized product.
Their packaging cost is also low due to no branding. They can price their product very low
because of these specific advantages. This price war has an adverse effect on NGL as it had to
decrease the prices of products to capture the market share. This step eventually put pressure on
the supply chain department to increase its productivity.
A lack of cross-functional cooperation and communication is a result of the nature of conflicting
objectives and the presence of counterproductive measures. Initiatives are tied directly and
immediately to the individual’s incentives and profit-and-loss statements of the company. People
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are acting as a barrier to information because of their functional perspective. The goals, decision
making priorities and measure to achieve those goals are remarkably departed among functions
as shown in Exhibit-1. This misalignment is a big hindrance in the path of integrating the whole
supply chain.
The major concern for Nokalb is demand forecasting of cotton seeds as this is affecting the
whole supply chain of the product. The main predicament in forecasting is the variability in
sales. This variability is due to the factors like infestation the year before, financial condition of
farmers, expected crop prices, performance of our sales team, efforts of the franchises, and
timing of rainfall. NGL is also offering large number of products (21 in 44 SKUs) that also
further complicate the forecasting as shown in Exhibit-4 & 5. Sales forecast starts eighteen
months before the actual sale and contains systematic and random fluctuations. The information
flow during the forecasting process along with risks involved is shown in Exhibit-2. The overall
forecasting model at marketing manager level is adequate. He takes inputs from area mangers’
estimates, farmers’ feedback, competitor prices, and general manager insights. He also reduces
the targets by 5-10% of the forecast. But the forecasting process in the company at lower levels
is not taken seriously. The regional sales managers ask the warehouse in-charges to do the
forecast instead of doing it themselves and involving the territory sales in charges (TSI) in the
process. TSI are at direct contact with the customers so they have the better understanding of
demand. The warehouse in-charges’ forecast is not reliable due to their scant knowledge and lack
of enthusiasm shown by regional managers. Thus, this makes the chain neither customer driven,
nor supplier driven. The improper forecasting results in significant cost in production phase and a
high supply-demand mismatch cost. Exhibit-7
NGL post harvest production plant is located in Multan in the proximity of clusters of seed
growing fields. The cotton growing fields are dense in Multan and Bahawalpur. This strategic
location of plant gives advantage to save in finished goods inventory. NGL keeps two days (3000
tons) of inventory in its warehouse shown in Exhibit-2. NGL have 443 franchises outlets and
86% of those are located in Punjab as shown in Exhibit-5. The transportation cost of those 14%
outlets is very high due to their distant location far away till Hyderabad. NGL should revise their
marketing strategy as they are concentrating their outlets in Punjab but about 30% market of
cotton growing fields exist in Sind as evident from Exhibit 3 of case. In this way, NGL is giving
competitors opportunity to capture the market by limiting their own presence in that market.

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Minor changes in product design cause adversely in production. Moreover, the hybrid seeds can
expire as their shelf life is two years. NGL have significant obsolescence cost as their product
return at the end of the season. Also they cannot sell left over product in the next season due to
change in packaging design and customer preferences about the product.
Historically, NGL’s attitude towards vendors has been very cooperative. They helped their
vendors in mutually benefiting activities such as reducing defect rates, investing money for twin
packing machinery, helping give quality training and sending inspectors to their plant frequently
to optimize their processes. They categorized the vendors on their performance and awarded
business on their performance. Quality improvement drives and joint sessions with vendors
enhanced two-way communication at that part of supply chain. But even with this sort of
extensive communication, the problem of placing above capacity orders to them by NGL is still
present. Moreover, the shift of ordering decision to vendors from production to purchasing
department within NGL creates problems. The dealing with vendors at dual level hurts
productivity as lot. Purchasing department’s goal of cost reduction is different from production
department’s goal of quality. This creates task conflict between purchasing and production
departments as shown in Exhibit-1. The purchasing department’s goal helps in reducing overall
packaging cost but hurts NGL’s long term relationship with vendors. This also results in bad
quality of product which increases defect rates, late deliveries and stock outs. All these issues
result in high supply demand mismatch cost.
The incentives given to Territory Sales In-charges (TSI) are also creating problems. Their 70% of
annual compensation is fixed salary. While the remaining 30% of annual compensation, is
divided between sales targets and promotional activities i.e. 60% and 40% respectively. That
represents 18% of their annual compensation is tied up with achieving sales targets and 12% with
promotional activities. This clearly depicts very little motivation for TSI to achieve sales targets.
They have no motivation to high performance as they never try to sell above 10-15% their
targets.
The Nokalb Seeds Shops (NSS) are categorized in four groups by NGL on their sales. Almost
50% of the shops fall in category C and D which depicts that half of the NSS performing below
average as shown in Exhibit-5. There is also an issue of payment to franchises by the company.
There is no clear demarcation between high-performers and low-performers as NGL is paying
fixed and uniform rates to NSS. The ineffectiveness of this part of supply chain is inherent in the

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system. The major portion of their payment is tied up with their orders instead of their sales. This
gives NSS very much motivation of stocking piles with them.
Recommendations
Efforts should be made to align objectives and share resources within and across companies to
deliver greater value.
• The responsibility of providing the best possible customer demand information should
fall on the Seed shops closest to the end customers (Exhibit-2).Forecast should start from
the seed shop owners in Q I of previous year as they can estimate the sales this year with
an accuracy of 20%. The forecast revisions should be made in Q IV as seed owners can
estimate the sales with an accuracy of 10% in December.
• In order to ensure cross-functional communication and cooperation, value added bridges
should be built between the companies. Focus must be on the collaborative efforts on
building tighter relationships with supply chain partners. A cross-functional inter-
organizational team is the best solution. Top management must commit to collaboration
by investing in the creation of a team oriented culture. Team must cultivate common
vision, an understanding of individual roles, an ability to work together, and a willingness
to adjust and adapt in order to create superior value.
• TSI compensation should have four components2, a fixed amount, a variable amount,
expense allowances and benefits. The structure of pay should be Base Salary, Variable
sales targets (Exhibit-10), Periodic incentives tied to short-term goals, Annual Incentives
tied to longer-term sales activities, Commission-based incentives and Perquisites like
forecasting to facilitate sales efforts. A Sales performance dimension (Exhibit-11), must
be included for the evaluation of the TSI.
• Nokalb needs to build agility, adaptability and alignment with suppliers within its system.
The changes in product design, etc that can have a major impact on customer’s perception
or product itself should be made after coordination with the supplier and vendor. The
suppliers can give important feedback that whether the changes can result in more sales
or lost sales and it would also build their trust on the company.
• Long term Contracts should be made with ‘A’ Category Franchises. Extra efforts should
be made to create value by frequent communication across multiple levels, inter-firm
teams, integrated information systems, aligned performance measures and collaborative

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training. Efforts should also be made to convert ‘B’ category franchises into ‘A’ category
franchises. (Exhibit 8 & 9)
• An accurate response system approach should be used for the forecasting process which
provides a way to figure out what forecasters can and cannot predict well, and then
making supply chain fast and flexible so that managers can postpone decisions about
their most unpredictable items until they have some market signals. Accurate response
system takes into account two new elements in forecasting process: missed sales
opportunities plus the distinction of predictable and unpredictable products. It requires
being more resourceful in using demand indicators to improve forecasts and having a
system for tracking forecasting errors.
• A new Post-Harvest Production Plant should be built in the southern areas of Pakistan as
presently the Multan Plant is running on Full capacity, i-e running 24 hours a day and 7
days a week. A backup is needed as any accident in the plant can restrict the production
which would result in lost sales. The transportation cost builds up as the product moves
from Multan to Karachi. The plant also has one warehouse with a limited capacity of
3,000 tons which can store only 2 days production. They should also increase their
franchise outlets in that vicinity. (Exhibit 6)
• The inventory holding cost and stock out cost can be minimized by changing the
invoicing and payment structure across franchises. The commission should not be on
invoice value but on actual sales. In this way the franchises would only order what they
can sell.
•

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Exhibit-1: Conflicting Objectives and Counterproductive Measures

Exhibit-2: Product Flow

Location: Multan
- Products: 21
7 Warehouses
- SKUS: 44 443 Shops
located all over
- Storage: 3,000
Pakistan
Trucks & containers Rented Vans
tons Warehouses
Production Seed shops Customers
Plant

Exhibit-3: Forecasting Information Flow

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Information
Flow Jan'98 March'98 April May June~Nov Dec Jan'99 Feb March Apr May~June
Post Post Post Post
Start Field Field Field Field Field Field
Activites Harvest+Winter Harvest+Winter Harvest+Winter Harvest+Winter Distribution +
Forecasting Planning Planning Planning Prod. Prod. Prod. Prod. Prod. Prod. Prod Prod Prod Prod Winter Prod Shipping
Distribution + Distribution +
-Forecast not taken Seriously Shipping Shipping
WareHouse -W/Hincharge make the
forecast

Risks: 1) Unreliable because of

Regional Mgr low estimates. 2) Scant
kowledge
Available Information: 1) Performance in
Area Mgr field. 2) Competitors. 3) Availibility of - Revised forecast
parent inbreds. 4) seed field yield history. because of more
5) current seed supplies. information available
(Infestation level)
- Targets<
Marketing Mgr (5~10) %of of - Winter production
product Decision based on revised
forecast - SKU forecast
Dec forecast
(Product category)
Product Mgr
- Feed back from Farmers
(perception surverys)
-Competitor Prices
General Mgr

Acreage - Risk: 1) Seeds field Marketing Forecast

Allocation Area Manager Decision
Production Mgr (After
Isolation.2) Infestation.
3) Weather Condition Managers March'98 May'98
Agreement) Regional
March'98
Managers
Agronomists Jan'98
=Risks Warehouse
Incharges
Contract Seed =Information Jan'98
Growers

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Exhibit-4: Product related Characteristics

Category Wheat Seeds Cotton Seeds

Demand More Predictable Less Predictable
Sold October-January June-August

Exhibit-5: Categorizing Franchises

Franchise Category No. of Franchises

A 96
B 128
C 215
D 4
Total Franchises 443
=443
*2.6=1,151,800,00
Total Sales 0
Punjab Sales(Total 99
*0.86) 0,548,000
Other 16
Sales(Total*0.14) 1,252,000

Exhibit-6: Warehouse Capacity

Warehouse
Production Days Inventory
1411.2
1
2 2822.4
3 4233.6

Exhibit-7: Lost Revenue

Year Title Tons Loss (Rs.)

2000 Stockouts 350 245,000
2000 Lost Sales 200 140,000
2001- 200x Subsequent Year Loss =(350+200)*3 =550 385,000
2000 Inventory Cost =14-15 %(600 million) 84,000,000
Approximate Total Loss 84,385,000

Exhibit-8
Solutions for Relationship and Task Conflicts:
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[Vendors, Nokalb, Contactors, Franchises]
4 1

Smoothing Mediation/
Negotiation
3 2

Avoiding Confrontation

Hi

Exhibit-9
Low
Solutions for Relationship
Low TASK and Task Conflicts
Hi

4 1
Hi
Win-Lose Win-Win

3 2
No-Win Win-Lose

Self Concerns Hi

Low
Low Exhibit-10
Sales Performance

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Exhibit-11
Sales Performance1
Sales Performance = Readiness x Productivity x Efficiency x Effectiveness

Common Metrics
• Turnover • Revenue per TSI• Time Utilization• Win/Loss
• Training • Margin per TSI • Sales Cycle Time• Customer
• Sales Capacity • Revenue/Expense• Expense Satisfaction
• Employee • Average Deal Size
Satisfaction
References • Headcount

http:// kguru.blogspot.com/
2http://salesforcecompensation.blogspot.com/

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