Boc Ohmeda free essay sample

Ohmeda’s current distribution system and sales organization is not well suited to implement Rountree’s new business strategy. The new corporate strategy calls for growth in high technology product lines and the current dealership channel is more suited to goods that require less education and information. In summary, the market trends combined with our changing corporate strategy will require Ohmeda to change the distribution channel and structure of the sales force. In the short run, this will require a transition period and an investment to reorganize Ohmeda’s sales force for long term growth. In the long run, we believe this consolidating market will be heavily specialist orientated. Due to these facts we recommend a dedicated sales force of specialists to address large accounts. The dealer network will be progressively scaled back to where their primary focus will be on the low technology markets where education is not important. Current Structure Sales people are given two weeks of training and few of the sales generalists have mastered the entire product line. We will write a custom essay sample on Boc Ohmeda or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page This has led the salespeople to focus on the products that they did understand such as low technology, and the mature segments of the market. This is not the high technology segment of the market Ohmeda wants to focus on in the future. In fact, these are the areas where salespeople should not be spending much time due to the products being mature and generally understood by the marketplace. This is an extreme misalignment. Historically we had mixed products but limited focus on high technology due to misaligned incentives. There are certain facts which show the need to change Ohmeda’s current sales force strategy. The first revealing trend appears to be in the anesthesia equipment market where Ohmeda has been the market leader with a share of greater than 65% historically. However, recently a West German medical maker has capitalized on selling the story of their technology to medical specialists. This has resulted in them stealing market share from Ohmeda. Unfortunately this appears to be because we are relying upon our dealer network in this area too much. This company uses an exclusive dealer network that would be very knowledgeable about the product. In order to combat this and recapture market share, our salespeople will have to be extremely knowledgeable about the products. A second important indication of our inadequacy of our current structure was revealed in a study done by HCI. This study showed that Ohmeda reps were less effective selling into large accounts. Seemingly this would be an area where a â€Å"generalist† would have large cross selling opportunities. This does not appear to be occurring. Additionally, one would expect that this would be the hospitals where more decisions would be made by the medical specialists and larger hospitals would attract the most sophisticated specialist. Given the fact that we are trying to sell higher value and specialized equipment, a realistic conclusion would be that we should move towards a model of sales product specialist rather than generalist. In addition, Ohmeda will be launching new products that will be in the introductory phase of the product life cycle. These are respiratory ventilators and infant care. Educational needs will be higher arguing for a specialist sales force that is able to educate their customer. Market Trends The market trends appear to be shifting towards medical specialists controlling more decision making, especially in the market we are attempting to focus on. These individuals will be our primary customers. There are 5,789 hospitals in the US with a fairly large number of them in rural areas. In the past, this likely would have argued for the salesforce to be organized by geographical region to assure intensive coverage. However, the industry appears to be evolving due to consolidation. Ohmeda has 14 national accounts and sales to these customers have grown by 30% over the past 5 years. By re-organizing into a sales force defined by specialists, Ohmeda should be able to intensively cover these national accounts with knowledgeable sales reps. This is where the money is and the growth is. Their consolidation will in essence allow us to lessen the breadth of our dealer coverage and allow us to focus our sales effort in this high growth area. Restructuring Recommendation and Evaluation In the short term we calculate that the change to a specialist model will likely result in upfront costs in the form of training and hiring new reps. This will be a transition period that will ultimately lead to our long term vision: Ohmeda’s sales specialist selling to medical specialist in the high technology segment. We are not recommending that Ohmeda discontinue relationships with all dealers. We recommend that Ohmeda should keep some dealers to operate in the low technology suction market. This is a $24M market and we have a 60% market share. This $14. 3M in sales represents 15% of our 1985 medical equipment sales. We project this to grow 3. 27% per year. This market appears to be a cash cow segment where having dealer intensity is important. Over the past few years, a competing company focused on price has made some in-roads in this market and Ohmeda fears that terminating the dealers will harm this segment. Given that this is a price sensitive, low technology market we think the dealer network will be able to help fend off the competitor. History has proven this to be the case. To compare the efficiencies of the dealer network and Ohmeda’s sales force we looked at the relative efficiencies of the different mixes of the sales force. The current efficiency of the sales force was calculated at 310 $/hr. If they kept the dealer network in place but migrated to having all specialists in our sales force, the efficiency falls to 232 $/hr. If they eliminated all the dealers and then augmented their sales force to compensate for the loss of the dealers, the efficiency goes up to 379 $/hr. These efficiency figures demonstrate that eliminating the dealers while keeping the sales force as generalists makes commercial sense. With no dealers though, Ohmeda will need to hire thirty nine more sales representatives at a cost of $3. 4m per year. Offsetting this cost however is the savings of approximately $3. 6m that would be gained by eliminating the discounts paid to dealers (21% versus 6%). The scenario of eliminating the dealer network and then transitioning the sales force from generalist to specialist would require hiring 44 new personnel at a cost of $3. m. A more specialized sales force and lower number of dealers focused only on the low technology segment of the market will eliminate the current horizontal channel conflicts and the overlapping sales. These are additional assumptions we made in our calculations above and are sources of longer term value. We would like to finalize that utilizing the push strategy for the dealers that we currently propose will be benefic ial to Ohmeda. The pull strategy is appropriate to utilize with the direct sales strategy capitalizing on how we see the market in the future.