Sales-force incentives and inventory management

Sales-force incentives and inventory management

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Article ID: iaor20011643
Country: United States
Volume: 2
Issue: 2
Start Page Number: 186
End Page Number: 202
Publication Date: Mar 2000
Journal: Manufacturing & Service Operations Management
Authors:
Keywords: incentives
Abstract:

This article studies the problem of sales-force compensation by considering the impact of sales-force behavior on a firm's production and inventory system. The sales force's compensation package affects how the salespeople are going to exert their effort, which in turn determines the sales pattern for the firm's product and ultimately drives the performance of the firm's production and inventory system. In general, a smooth demand process facilitates production/inventory planning. Therefore, it is beneficial for a firm to induce its salespeople to exert effort in a way that actually smoothes the demand process. The article proposes a compensation package to induce such behavior. It evaluates and compensates the sales force on a moving-time-window basis, where the length of the time window is determined by the production lead time. Numerical examples show that the proposed package is beneficial to the first relative to a widely used compensation plan based on annual quotas.

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