The Role of Wholesale-Salespersons and Incentive Plans in Promoting Supply Chain Performance

Almost all research into the operations and behavior of salespeople has focused on sales at the retail level. But in many supply chains, manufacturers use a sales force to promote sales and improve coordination with retailers. In this note, we add an important piece to the science of sales operations by investigating the impact of two primary tasks performed by wholesale-salespersons: (1) enhancing retail demand, and (2) convincing the retailer to order more stock (i.e., enhancing wholesale demand). We show how the sales force can play an important role in supply chain coordination, even when it does not directly promote retail level demand. We also examine the relative effectiveness of the following compensation schemes in salesperson performance: (1) a salary plan in which the salesperson’s effort is observable (first-best salary), and (2) a commission plan based on retailer order quantity. We find that although the commission plan is less efficient than the first-best salary plan in motivating the salesperson, it is more robust to uncertainty in performance and motivation parameters. Finally, we compare a wholesale-salesperson with a traditional retail-salesperson and conclude that although a retail-salesperson is more efficient at increasing supply chain profit than is a wholesale-salesperson, the wholesale-salesperson raises manufacturer profit more than does a retailsalesperson (even if both promote the same retail demand). Furthermore, we show that wholesalesalespersons promote higher wholesale and retail prices than do retail-salespersons.