Large Brazilian durable goods retailer

Streamlining compensation program with IBM WebSphere ILOG JRules BRMS

Published on 26-Jan-2012

Validated on 20 Feb 2014

"ILOG JRules is helping us refine the compensation rules and see what rules are too difficult to achieve or perhaps not difficult enough. Sales administration is working on being able to do fine-tuning of the rules themselves. And that is a very powerful benefit for us." - IT Manager of Corporate Systems, large Brazilian durable goods retailer

Customer:
Large Brazilian durable goods retailer

Industry:
Retail

Deployment country:
Brazil

Solution:
Business Process Management (BPM)

Overview

By tapping the spending potential of all levels of society, including the very poor, a Brazilian retailer has grown to be one of Brazil’s largest durable goods retail chains with 613 stores nationwide. With gross revenues of R$5.7 billion and EBITDA of R$320 million in 2010, the retailer has 21 thousand employees serving 23 million customers. The retail outlets are catalog stores, where sales representatives use computers to display and sell the company’s goods.

Business need:
Business-critical incentive compensation system had 60 rules for calculating bonuses, and provided little flexibility in product promotion. Monthly processing time took 12 - 18 hours causing a rush to meet the payroll deadline.

Solution:
The company implemented IBM® WebSphere® ILOG® JRules business rule management system to create a flexible, easy-to-manage incentive compensation system.

Benefits:
Improved employee morale with quick resolution to compensation adjustments; Zero downtime for system versus frequent breakdowns previously; Broke up the monthly 12 - 18 hour processing run into daily 55 minute runs.

Case Study

By tapping the spending potential of all levels of society, including the very poor, a Brazilian retailer has grown to be one of Brazil’s largest durable goods retail chains with 613 stores nationwide. With gross revenues of R$5.7 billion and EBITDA of R$320 million in 2010, the retailer has 21 thousand employees serving 23 million customers. The retail outlets are catalog stores, where sales representatives use computers to display and sell the company’s goods.

Sixty rules for calculating commissions and bonuses

The company’s sales representatives assist most of its sales. About 30 percent of sales representatives’ monthly paycheck is flat salary, and the other 70 percent is commission and bonuses. Commissions are a straightforward computation, for example, a percentage over the value of the sale, multiplied by the margin of profit.

Bonus calculations are more involved and there are different types of bonuses, subject to different variables. Every month the company offers special bonuses and higher commissions for certain products. Some calculations include percentage of specific item sales and fixed flat sums when exceeding a particular revenue target. More complex ones depend on multiple variables where exceeding the targets in one category would increase percentage points in many others. Altogether there are 60 rules for calculating commissions and bonuses.

Until recently, however, the compensation system was a 15-year-old COBOL program with very little documentation that depended on a single systems analyst to keep it running. There was a two-day window at the end of each month to collect and process all store transactions in order to determine incentive compensation. Processing time for the compensation program took 12 to 18 hours, making the calculation process very tight. If a problem appeared, such as an unexpected or erroneous transaction volume or money value, the IT team would work around the clock to make adjustments and reprocess batches. Making timely updates to the compensation plan to meet constantly changing business needs was a challenge.

As HR was making decisions based on the past months data, they would frequently request changes and reprocessing midway through the two day closing as results started to become available. However, changes could not be made under the old system. In addition, employees had no insight into their variable sales compensation until the end of the month—too late for them to make changes and sell more.

“It was impossible to maintain this approach because there was no flexibility or visibility,” says the IT manager of corporate systems. “We couldn’t raise a bonus level to see if it fit the budget and if not, roll it back. And we couldn’t keep depending on one systems analyst for support. There were many instances when it did break down and we would have to call this person in—sometimes in the middle of the night.”

Streamlining and modernizing the system

At the recommendation of an IBM Business Partner, the retail chain implemented IBM WebSphere ILOG JRules BRMS. The ILOG JRules solution processes all the transactions for each day and the previous days, running all 60 business rules, to keep a running total of commissions and to determine how bonuses are progressing against monthly goals. The processing for each day takes only 55 minutes, and there’s no longer any rush at the end of the month to meet a two-day window, because the work has been broken up into 30 daily parts. The JRules solution brings unprecedented transparency to the compensation program, saves time, boosts satisfaction for employees and reassures management that written policies are being observed across the board.

Bringing transparency into compensation rules

A temporary database stores all the intermediate information during the month for each salesperson. Analysts can see which commissions the salesperson is entitled to and how far along the employee is with the bonus goals. This information is provided to employees through a local intranet that they can access at any time. The salesperson can log in to the intranet and monitor how much he or she has already achieved from the sales made up to the previous day.

“It’s a very transparent process,” says the IT manager. “The salespeople are constantly monitoring their information and informing us if there is anything strange or unexpected. They are very aware of how much they are making and how they are making it, and this ability gives them a lot of involvement and drive.”

Fine-tuning the rules

The IT team is in the process of developing new testing and simulation methods to use with ILOG JRules, a possibility that didn’t exist with the previous solution. The next step is to develop a simulation application with the BRMS that retrieves all the transaction data from the previous month and shows how new changes in the rules would have affected the previous month or any given month that is on the database.

“Right now we can see for each salesperson what rules were achieved and what the basis for the variable compensation is,” says the IT manager “ILOG JRules is helping us refine the compensation rules and see what rules are too difficult to achieve or perhaps not difficult enough. Sales administration is working on being able to do fine-tuning of the rules themselves. And that is a very powerful benefit for us.”

The company also has a more stable application today. “With the ILOG JRules solution, it no longer happens that someone has to be called at three o’clock in the morning for support,” says the IT manager. “Nowadays, we have more people involved in support, not just a single employee. So we have eliminated all that risk.”

For more information

Contact your IBM sales representative or IBM Business Partner, or visit us at: ibm.com/brms

Products and services used

IBM products and services that were used in this case study.

Software:
WebSphere ILOG JRules

Legal Information

© Copyright IBM Corporation 2012 IBM Corporation Software Group Route 100 Somers, New York 10589 U.S.A. Produced in the United States of America January 2012 IBM, the IBM logo, ibm.com, ILOG, and WebSphere are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol (® or ™), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the web at “Copyright and trademark information” at ibm.com/legal/copytrade.shtml Other product, company or service names may be trademarks or service marks of others. This case study is an example of how one customer uses IBM products. There is no guarantee of comparable results. References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates. WSC14383-USEN-00