Introduction :

Soumitra Ganguly was heading the Internal Audit function at Robust Chemicals Ltd. (RCL). RCL was manufacturing chemicals for a wide range of industrial applications including rubber, paper, textiles and other products. Soumitra had been a career Internal Auditor and was a great campaigner for co-sourcing. In his opinion, the organisation benefits the most in co-sourcing, as it frees the company audit team from routine mundane jobs and also allows it to introduce selective expertise as required. In the process, he was able to demonstrate good ‘returns’ from the function. The Internal Audit Team was at the centre of all major improvement initiatives in the organisation. It had already participated in Business Process Re-engineering, Cost Reduction and Risk Management.

In recent times, the organisation was buffeted between cheaper imports and an aggressive local competition. The challenge for the management was retention and growth of market share. The monthly review meetings were very hot-tempered. During one such review meeting where ‘marketing’ was highlighting the need for further lower prices, ‘finance’ and in turn ‘procurement and manufacturing’ were highlighting the rising input costs and import duties preventing any further reduction in costs.

Retaining the market share being the primary objective of the Managing Director, he proposed that a consulting review be carried out by the Internal Auditor and his team to identify ways of increasing sales and profitability in the organisation. The MD’s proposal was unanimously accepted given their past contributions.Audit objectives :

Soumitra started off with the main objective of ‘Identifying Ways of Increasing Sales and Profitability’ by focusing on the key source of both — ‘Customer’. He had already in the past looked at the cost dimension and a system of ongoing cost-saving project identification existed.

Methodology :

An analysis of industry performance was carried out based on data available from the Centre for Monitoring Indian Economy (CMIE). Inputs on the industry trends were also obtained from resources available on the Internet. The Sales Budget for the last three years with actual data was obtained for analysis. Given that the ‘customer’ was to be the core focus of the team, a number of field visits were planned. Detailed questionnaires were prepared to obtain the Dealer (primary customer) feedback. Interviews were also planned with ‘Sales Personnel’ at various levels and different offices.

Soumitra was personally involved in this review and he included an Audit Manager (CA) in his team for this exercise.

Gist of observations :

Total sales data for different periods is as under :

Period	East	North	South	West	Total
2005-06	823	1640	2294	162	4919
2004-05	913	1760	3970	251	6894
2003-04	1060	1720	3312	182	6274

Overall, the Sales have dipped in the year 2005-06. Further, a regional analysis shows that the Southern region is the largest contributor to the top line. Sales in South had dipped in the last year more than all other regions. The Western region followed south in this downward shift.

Variance from Budgetary Profitability for 2005-06 for the Southern region is -18%, whereas the same for customers in the Northern region was -32.2%. General reasons were mentioned by Sales personnel in interactions, however, detailed customerwise reasons were not available. Further, the CMIE data showed that the organisation’s share was also lower in the year 2005-06. The total market size however had shown an increase. The growth in the customer industry segments was also high. This had however not translated into more business for RCL.

Discussions with Sales personnel clearly brought out that the company was losing out to local players due to their lower costs, particularly in ‘D’ and ‘W’ chemicals.

• In ‘Finishing’, the company does not have any major presence and mainly ‘Expert’ seems to have the market share in Delhi.

• In Kolkata — competition from China — a group of 10 customers had started direct imports and that had significantly affected the market share of ‘D’ chemicals.

• In Delhi again the ‘D’ chemical market share had been affected due to availability of cheaper local materials.

• In some customers like Jalandhar Chemicals and Carrera International for Delhi market, the fall is drastic. It needs to be looked at seriously by the SBU Head and the Regional Head.

• Market share is lost to Fantastic group and local suppliers.

• ‘D’ sales need to be streamlined with better co-ordination in terms of availability of materials — Sales to two customers in Delhi were affected due to non-availability of materials.

• There exists no clear-cut strategy or formal plan of action to hold road shows/exhibitions/training programmes for customers, distributors and sales personnel with definite time frame across the country.

• There exists a gap in technical support to customers, which is a major strength of the competition.

K.K.R & Co. :

"Systems are good, but had degenerated to a mere form-filling exercise with no real analysis or any output in terms of understanding of what is being filled. The company needs to ensure that the data collected and filled is really analysed and put to use.

"The market will further come down. It is difficult to predict the monthly sales performance. The company needs to gear up its efforts to be close to the customer."

Bharti Rasayan :

"A lot of data is being sent to the company and sometimes the same data is called for a number of times on fax and e-mail. There is a need to structure its MIS properly and ensure that it does not duplicate."

"People at the company are good, but policies of the company to extract maximum from distributor will not work in the long term in today’s market situation. People at the company do not treat the distributor as a partner, though he should be treated as a partner." Change in attitude is required.

DCS (I) Pvt. Ltd. :

"Hopefully the information collected is being utilised by the company at Head Office and other places."

Though the feedback from the above distributors may be perceived to be biased, as they are also scaling down operations, it is valuable feedback and the company needs to take up their comments seriously.

Further, there is a strong feeling that action is not taken to support them when required in terms of pricing, samples, timely delivery, etc.

It was observed that only 3 customers out of 20 in the accessories section and 3 out of 20 in the apparels section are direct customers. The Top 10 customers in the year 2004-05 had lifted lower quantities than in the previous year. A number of new customers were introduced in the current year, but their lifting was not of much consequence. The dependence of the organisation on 3 dealers was very high. There is a risk of lower sales on account of discontinuance of distributor — M/s. Jay En Trading Corpn.

The Kolkata market has few big customers and large number of small customers. Number of sales personnel is high — 5 including two on distributor rolls, compared to other regions where all marketing is by ‘company’s own staff’.

The Chemicals Division is headquartered in Kolkata. The analysis of the sales activity as shown in the table above is largely south- and north-based. Given this skewness, senior officials frequently needed to travel.

An analysis of the travel and communication costs carried out showed that nearly 40% of the cost was on account of travel to and fro Chennai.

A review of the data submitted by Sales personnel indicated a number of errors in totalling and in balances brought forward from earlier reports. These were never questioned for incorrectness. The feedback loop was therefore not complete.

Guidelines on how to fill data and the objectives of the report are not available in writing. A review of the induction training process and material indicates that it is explained, but the same is not available as a document for review.

The Business Intelligence Software being rolled out at all centers was also reviewed. The Conceptual Framework included a data repository and analysis reports. The software contains all data and reports, reduces a lot of manual time spent in entering, collecting and analysing data.

Gist of recommendations :

Changes in strategy :

A strategic plan including matching prices ( increase total cost of use), improving quality, increasing availability of the required product mix in all regions and increased innovative solutions to customer requirements resulting in better yields and thus better profits for them.

Roadshows need to be planned immediately for the next three months for customers in different regions. This needs to be a biennially planned feature along with other promotional acitivites like exhibitions, training programmes, etc.

Multiple testing for product complaints from customers at Chennai, Mumbai and Kolkata and that too with different results at Chennai and Mumbai — to be tested only at one place, say Chennai (since next to customer) and to be accepted by company.

Controllable factors such as distributor problem with customers, distributor problems with company need to be resolved fast and with constant visits and pressure/talks by senior officials to ensure that supplies resume. Need for one more technician at Jalandhar to be explored for further development of market.

An effort to develop smaller clients; sales personnel are emphasising on visits by top management to develop better relations with new or prestigious clients — not necessarily large clients. SBU Head may look into this aspect of visting the clients jointly with sales personnel.

Increased penetration of the market was identified as a key strategic push to improve the customer profile.

A closer monitoring of the customers introduced and the performance of those existing was instituted. Joint meetings and interactions between the team members were scheduled. Senior persons’ visits to customer’s offices were also scheduled and frequency increased.

HR to institute a system to track persons working under contract or through distributors. Induction procedures and also roles and responsibilities to be laid down for such persons as they work for the company and their performance impacts company’s performance. Sanction of HR for manpower increase was made mandatory.

Shifting the division headquarters to Chennai from Kolkata needs to be planned.

Other than higher expenditure, it is important for the SBU Head to be in the main markets to be close to the customers.

Technical improvements :

There is a need to have a separate two/three-member Process Improvement Technical team (other than technical persons at laboratories presently) which will work in co-ordination with Sales in improving processes and providing solutions. The team needs to be based at Chennai and move all over the country. In the present environment when Units are unorganised and also facing challenges from China, Thailand and other developing countries, this team will interface with customers in developing customer loyalty.

We are suggesting this in spite of unfavourable responses from the operating personnel in chemicals that the team would not get any access to customer locations, etc. We feel that a start needs to be made and with persuasion and other developments taking place in the chemicals industry — younger generation getting in, company will reap benefits of such a move.

Software improvements :

There is need to enhance the software effectiveness through the introduction of an early warning system in BIS. Decision rules need to be spelt on how data is analysed manually — e.g., if customer satisfaction changes from high to medium, there should be a trigger for both sales personnel and Business Support with action plan to be made for that. Similarly, if attitude becomes pro some other company, which was pro "our" organisation earlier, the information should be triggered in the form of e-mails to concerned officials.

Conclusion :

In addition to the report, the Internal Auditor also set a monthly monitoring mechanism to review the implementation of the recommendations. The consistent implementation of the measures identified paid off for the organisation.

A greater focus on the customer needs and an alignment of the internal technical and reporting processes to their needs led to newer product innovations and product delivery systems. These changes gave a definite competitive edge in the market to the company products and the downward trend was reversed.