Cleaning Supply Distributor to Reorganize Salesforce

Case Type: improve profitability; human resources, organizational behavior.
Consulting Firm: Mercer final round full time job interview.
Industry Coverage: household goods, consumer products.

Case Interview Question #01153: Our client, So Fresh and So Clean Co., is a major cleaning supply distributor in the United States. As the clear industry leader, the client operates a national distribution network. Over the past 5 years the company has acquired several small regional players and has experienced decreasing profit margins. In fiscal year 2009, the company’s net margin was 3.1% and since the net margin has dwindled to 2.4% at the end of 2013.

The CEO of So Fresh and So Clean Co. is worried about long-term longevity of the company. He hired our consulting firm to conduct an extensive diagnostic of the company’s health. How would you approach this problem? What would you recommend the client do?

Possible Answers:

1. Case Overview

This is intended to be an overarching case, which requires candidates to analyze the overall market and diagnose a specific company issue. The crux of the case is an ineffective sales force. However, the candidate is not expected to discover this right away.

The candidate should first probe about market health. Once they realize the overall market is stagnant and the company’s
profitability is aligned with competitors they should push towards a profitability tree.

This case is intended to follow a structured path. The case intentionally begins high level and then quickly narrows upon a specific problem, a bloated sales force. Each of the 4 prompts is meant to spur creativity and challenge the candidate’s problem solving. Ensure the candidate holistically assesses each prompt and identifies potential risks to the end solution.

2. Information Gathering

Clarifying questions the candidate could ask:

* What products do we sell? Our client provides chemicals, cleaning supplies, uniforms, and equipment to restaurants,
hospitals, schools, and other food service providers. Distribution network is located within the United States.
* Questions about the industry: Market has averaged 2% growth over the past five years. So Fresh and So Clean is the industry leader with 20% market share, followed by Competitor A at 15%, Competitor B at 8%, Competitor C at 5%, and others make up the rest.
* Questions about recent acquisitons: The client company acquired a $3.3B revenue competitor in 2010 and $3.1B revenue competitor in 2012.

3. Detailed Analysis

Prompt #1: Our consulting team has recently conducted a market analysis and reviewed the company’s audited financial statements. Please review the following Exhibits (1 & 2).

Exhibit 1. Market analysis and competitor benchmark

A. Cleaning Supply Distribution Market Size

B. Industry Benchmark

Exhibit 2. Five Year Financial Performance (FY. 2009-2013)

Insights from Exhibits:

Exhibit 1 — The candidate should quickly recognize the market is mature and the client’s profitability is aligned with competitors. As a result, they should assess the company’s internal operations.

Exhibit 2 – The candidate should discover SG&A costs have skyrocketed with the company’s acquisitions in 2010 and 2012.

At this point, ask the candidate to brainstorm reasons how to lower sales costs (e.g., reductions, organization structure redesign, technology)

Prompt #2: After each acquisition, the client did not fully rationalize its salesforce and as a result SG&A costs have skyrocketed. The team has conducted 20 field surveys with sales reps to benchmark their monthly activity to the competition. Based on Exhibit 3 what would you recommend to the client?

Exhibit 3. Breakdown of typical sales person monthly activity in 2013

Insights from Exhibit:

Once the candidate identifies competitors spend 2x the amount of time selling, then the candidate needs to brainstorm specific ways to increase this percentage.

Prompt #3: Our consulting team has recommended a new selling model to the client to increase the amount of time sales representative spend working with customers. Under the new model, the client would hire entry level account coordinators to perform administrative tasks and help sales rep service the customers. This position would then allow the client to increase sales reps’ customer account coverage and reduce the workforce. The client wants to know how much this model would save them a year.

a. Required additional information for calculation:

* Number of new account coordinators – 148
* Salary of account coordinators – $55K
* Amount of time saved for Sales Reps – 16 orders per week, each order takes 25 minutes
* Total time worked by sales reps in a week: 40 hours
* Sales Reps salary – $120,000
* Total Sales Reps – 1,500

b. Calculation:

* Investment
148 sales reps (~150) x $55,000 = $8,250,000

* Time saved
16 orders x 25 minutes each = 400 minutes
40 hours x 60 minutes/hour = 2,400 minutes
400/2,400 = 1/6 = 17% reduction in time spent

* Benefit
$120,000 x 1,500 sales reps = $180,000,000

* Total Savings
(1/6) * $180,000,000 = $30,000,000

Net Saving = $30MM – $8.25MM = $21.75MM

Prompt #4: The CEO of So Fresh and So Clean Co. is coming in for a quick update in a minute. Please prepare a recommendation.

Answers will vary.

4. Performance Evaluation

This case tests a candidate’s ability to diagnose a specific problem with initially vague information. Each of the 4 prompts is suppose to test the candidates ability to brainstorm potential solutions to a problem.

Strong candidates will drive the case through each prompt and solve the cost-benefit analysis.

Exceptional candidates will also come up with innovative solutions to solve the company’s profitability issue and highlight the challenges a 17% reduction in salesforce would create for the customer base. The Salesforce reorganization only saves $21MM which is a 2.1% improvement to 2013 operating income. Small in the grand scheme of enterprise.