Which three people would you lay off? And why would they be laid off? Roger Zelazny, the sales manager for the Southeast District of Inject Plastics, wasshaken after attending the December sales executive meeting in Louisiana.Although Inject Plastics had increased sales $12$ percent last year compared to $2$percent industry sales growth, Mr$.$ Brand, Vice President of Marketing, hadordered every district sales manager to cut staff by $30$ percent on January $16$th$!$ The notice to the fired employees would have to go out on January $2$nd$.$ Rogerwould have to determine who was going to be fired and then let them know theywere without a job. Thinking about having to notify three people on his staff thatthey were terminated and was going to make the holidays very grim indeed.Inject Plastics is a plastics molding and manufacturing company with plants inLouisiana, Texas, and New Jersey. One of the company's unique advantages is itsflexibility in manufacturing; it can shape everything from delicate medical devicesto car parts and toothbrush handles. Inject Plastics created molds, made plastic ofthe appropriate strength and flexibility out of petroleum products, and then createdthe plastic part for its buyers. The finished parts are shipped to customers, whohandle final product assembly and sales.Due to raw material needs, Inject Plastics manufacturing plants are located nearmajor oil refineries. The sales staff had to discover customers, coordinatemanufacturing and logistics needs, and service accounts. Because of the hugenumber of applications of plastic parts in the U$.$S$.$ economy, the individualsalespeople called on a wide variety of manufacturers across many industries.Last year Inject Plastics generated $$200$ million in sales, a $12$ percent increasefrom last year. The plastics molding and manufacturing industry was quite mature.Because of the huge number of plastics applications, industry sales tended tofollow the trends in the over" all U$.$S$.$ economy. Although Inject Plastics wasrelatively small for the industry, its manufacturing and sales expertise had$2$generated sales growth higher than industry averages as well as higher profitmargins over the last ten years.The plastics molding and manufacturing business was highly competitive. Saleswere generated by having the lowest unit costs along with flexible delivery. Mostlarge purchasers used just$-$in$-$time inventory systems, which meant that InjectPlastics had to have highly flexible manufacturing and logistics systems. Evensmall cost savings could shave prices, which could mean the difference betweengetting and losing an order.THE CUSTOM WEB INIATIATIVENine months ago the logistics manager suggested that Inject develop a customizedWeb strategy. Inject would build an individual, password$-$protected Web site foreach customer. An individual site was necessary to protect customer trade secrets$.$The customer could log into the site and check the status of orders and shipments.The customer would also be able to make new orders, adjust previous orders, andask questions of the manufacturing, logistics$,$ or sales staff. Each salespersonwould be responsible for answering the customer sales questions from the Website for customers in his or her territory. The manufacturing and logistics managerwould answer other questions.Inject accepted this proposal and spent $$200,000$ setting up the customizedcustomer Web strategy. Inject also hired a new technology staffer to maintain thesite, coordinate customer questions, and ensure that a prompt and accurateresponse is given to each customer question. The new technology staffer's pay is$$60,000,$ including benefits.The district sales managers were concerned that the customized Web strategywould be resisted by the sales force, if change lowered commissions. Afterthinking it through, Mr$.$ Brand decided that the $1$ percent commission would applyto both Web sales and sales processed by the salesperson for firms located in theirterritory.The salespeople were very enthusiastic about the customized Web site initiativewhen it started on July $1.$ Because a lot of routine order taking, inventorymanagement, and logistics issues would be communicated directly to the relevantInject manager, the customized Web initiative freed up a lot of salesperson time.The salespeople used this time to generate a record number of new customers.Sales to new customers were a major factor behind the $12$ percent increase insales. Existing customers were also impressed with the service improvements andincreased their orders$\mathrm{.}3$By December, approximately $25$ percent of all orders were being placed throughthe individual customer Web sites. Much of the routine communication betweencustomers and Impact no longer went through the salespeople and instead oftenwent directly to logistics and manufacturing.DECEMBER MEETING WITH MR$.$ BRANDMr. Brand started off the sales executive meeting by lavishing praise on the foursales managers. He noted that average sales per district had increased to $$50$million. Customer complaints were down and the sales growth for Inject greatlyexceeded the industry average.Mr$.$ Caine, the logistics manager, added additional good news. Raw materials andwork$-$in$-$process inventory levels were down. Turnaround on orders had improved.The number of manufacturing mistakes were also down, primarily due to cuttingdown on miscommunication between Inject and its customers.Overall, manufacturing and logistics costs per dollar of sales had declined, whichhad padded Inject's profit margins. After answering a few questions, Mr$.$ Caine leftthe meeting.Mr$.$ Brand then started a new PowerPoint presentation. The presentation focusedon salesperson efficiency. Because the customized Web program had improvedcustomer communication and handled an increasing amount of routine sales tasks,the efficiency of the sales staff had decreased. "Our new technology has improvedproductivity everywhere but the sales staff. Salespeople continue to get largecommissions, even though an ever larger proportion of sales efforts are beingautomated through the custom web initiative. I think that by this time next year $50$percent of routine orders and customer contacts will be through the Web.""We need to change our sales incentive program," Brand continued, "and make thesales force more efficient. Inject is going to do this through a number of changes.First, the commission rate for sales to existing customers would be cut from $1$percent to $0\mathrm{.}1$ percent. Second, the commission rate for the first twelve months ofsales to new customers would be $2$ percent. We really want the salespeople togenerate new business. With all of the sales time freed up with the Web program,the salespeople can concentrate on getting new customers. Third, the annual salaryof salespeople would increase from $$25,000$ to $$60,000.$ We are doing this toretain our best salespeople. Average total compensation in the industry is $$75,000$per salesperson, we want to remain competitive in retaining our best salespeople.Fourth, each district will terminate three salespeople. This would cut the totalnumber of salespeople from $40$ to $28."4$Brand went on to inform them that salespeople being laid off would be notified onJanuary $2$nd and that their last day of work would be January $16$th$.$"Before we make any final decisions and notify the salespeople," Brand stated,"each district sales manager needs to get some information to me$.$ First, identifythe three salespeople that will be laid off. I also need the criteria you used to selectthe salespeople for termination. Second, estimate the total sales costs in yourdistrict next year. I don't think that the number of new customers or salesgenerated from new customers will drop. The two$-$week salary of the firedsalespeople can also be disregarded because it is not a reoccurring cost.""Third, send a copy of your draft letter terminating each employee. I want toreview them before they are sent. Last, let me know how you are going tocommunicate the changes in the compensation plan to the salespeople we areretaining. We want to maintain a high morale level with the people who are thefuture of the company."At this point, Jeff Corwin pointed out that both he and the company had promisedthe salespeople that the custom Web site initiative would not affect sales pay."How do we know that these staffing changes will not harm the growth in sales. Ifit is not broke, why fix it$?"$Mr$.$ Brand seemed a bit taken back by Jeff's comment. Brand off$-$handedly saidthat, $"$If you think that my strategic change will hurt sales, put your objections inwriting along with specific estimates of how you think your suggestion will affectboth sales costs and revenue generation. Remember, we are in a highlycompetitive industry. We must keep striving to lower costs if we want to survive."Brand then wrapped up the meeting. He said, "Each of you has a week to get all ofthe information to me$.$ After I get your reports, I will make a final decision onInject's sales strategy. You are not to communicate any information about thispotential strategic change to anyone on your staff."Roger was in a state of shock. Since sales performance had been so good last year,he was expecting to be able to tell his salespeople that the senior executives wereproud of them and supported all of their hard work. Exhibit I provides informationon the ten people in Roger's district, along with their sales performance andcompensation last year. Instead of praise, he had to fire three salespeople and tellthe rest that their compensation package had been radically changed. Rogerwondered if the new plan would cut the pay of his remaining staff. If thathappened, he might lose his best people. He would also have to restructure thesales territories to cover the customers from the laid off salespeople. This wouldadd further turmoil to his sales staff.