Academic journal article Management : Journal of Contemporary Management Issues

Organizing Commission Sale: Conceptual Model of the Corresponding Information System/organiziranje Provizijske Prodaje: Konceptualni Model Odgovarajuceg Informacijskog Sustava

Academic journal article Management : Journal of Contemporary Management Issues

Organizing Commission Sale: Conceptual Model of the Corresponding Information System/organiziranje Provizijske Prodaje: Konceptualni Model Odgovarajuceg Informacijskog Sustava

Article excerpt

1. INTRODUCTION

Acting as business systems in the competitive market, the suppliers and buyers of goods intended for further sale have been trying to define and operationalize different types of business cooperation in which all participants would be given a chance to make a profit by sharing between themselves the difference between the real buying price and the selling price effected in the market. The common traditional model of cooperation is characterized by rebates and deferred payments for the buyers of goods intended for further sale. But, in the time of recession and the chain debt crisis, this model becomes weak and it slows down the activities related to the supply and demand because it involves a number of business risks. However, it is possible to introduce some new conditions in the system of the so-called "commission sale" or "sale on commission" that would be favorable and acceptable to both sides.

According to the definition (Rocco, 1993), commission sale is a type of sale which involves a commission agent and his principal. Commission agent is a company acting as an intermediary and it operates on its own behalf, but for the account of the principal as manufacturer or owner of goods. The commission agent sees his interest in such cooperation primarily in the fee or commission, which he receives in return for a successful sale of the principal's goods. As the contemporary economics-based approach, agency theory (Ghosh and John, 2000; Caers et al., 2006) considers the interaction between the two companies (or persons), where first of them (principal), mainly for the reason of lower costs, hires another firm to perform a specific task or service on their behalf. Principal-agent relationship in such an arrangement involves certain delegating of authority in decision making to the firm-agent (Jensen and Meckling, 1976).

A specific feature of the commission sale lies in the fact that the goods stored in the commission agent's warehouse or at his points of sale are in fact owned by the principal until the moment they are sold. A commission deal is closed by concluding a commission sale agreement, which determines the selling rights, the timeframe, the amount of commission, and other important issues such as those cited in a simple example (Commission Sales Agreement, Biztree, 2014). Agency theory based models emphasizes contracts that contain explicit incentives for performance of the agents (e.g. in Casadesus-Masanell and Spulber, 2010). Regarding the basic design of contract, with the aim of reducing the conflict of interests of both sides, it is noteworthy that the main principles of contract design were identified and formulated by Milgrom and Roberts (1992).

The paper examines general requirements for successful organizational integration into the commission sale (principal - commission agent) system and conditions for its effective functioning: the interoperability levels, possible risks and specific opportunities. The main and complex problem related to the optimization of the sales commission system lies in finding design solutions for organizational links and information systems (IS) in two enterprises that are teamed up to satisfy their interests. To that end, the authors have created a conceptual design and proposed a model for their interaction at the organizational, processing and information system level, based on the proven capabilities of the ICT and ERP (enterprise resource planning) systems developed so far. The paper discusses and uses the experiences of practical implementation of the model designed and presented here. The design and implementation of the system is a step further from the classical options of the commission sale based on the enterprise (Principal) - individual (Agent) relationship in that it introduces practical functioning of the enterprise (Principal) - enterprise (Agent) commission sale model.

2. POSITIONING OF THE COMISSION SALE PROCESSES

Traditionally, the commission sale model refers to a company that engages individuals outside the organization, most often for the purpose of selling insurance, cosmetics, food products and additives, real estates and the like. …

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