Morris Machine Works, Baldwinsville, New York, was established in 1864 and was the first American company to manufacture centrifugal pumps. Morris pumps were sold to industrial users throughout the United States by thirty-two manufacturers representatives, each of whom operated in an exclusive territory. Three representatives in Canada handled sales in that country, but all other foreign sales were made through export houses. The majority of Morris products were manufactured to users’ specifications, and the company required its representatives to be technically trained. Consequently, most representatives either were engineers or included engineers on their staffs. The turnover among representatives was low, but the arrangement for splitting commissions on inter-territorial sales had been a continuing source of friction. Although the sales manager did not consider this problem of major importance, he decided to review the entire situation.
Every Morris agent was required to sign an agreement governing his relations with the company (see Exhibit 1). This agreement included a general statement of company policy on the splitting of commissions. This statement did not provide specific rules for handling every situation that might arise. Consequently, the statement was not useful in handling many disputes among the manufacturer’s agents.
The initiation, negotiation, and final installation involved with one contract occurred in three separate territories, illustrating the difficulties of reaching an agreement on the division of commissions. A large aluminum producer, whose main office was in Richmond, Virginia, was planning to build a plant in Corpus Christi, Texas, and a San Francisco firm was the contractor-engineer. Thus, three agents were involved: the Richmond agent who made the sale, the San Francisco agent who did the engineering, and the Corpus Christi agent who was responsible for installation and service. All three representatives incurred costs in connection with this sale; therefore, each should have received some compensation. The out-of-pocket costs of the Richmond agent were the lowest, but his influence was the deciding factor in the sale. The agent in Corpus Christi stood to profit from this installation in the future, since he would receive commissions on all repair parts. The commission split could have posed a problem for the sales manager, had not the three parties reached a mutual agreement independent of the home office.
Such problems were not always so easily solved, since disputing parties customarily looked to the Morris sales manager for a final decision. It was difficult to work out compromises satisfactory to all parties. Because representatives were not employees but independent business people, it also was difficult to enforce such decisions.
Two solutions had been suggested. One was to pay the entire commission to the representative into whose territory shipment was made, regardless of who originated, negotiated, or closed the sale. The second suggestion called for a fixed schedule of payments as follows:
10 percent for first quotation
10 percent for second quotation
15 percent to the territory in which equipment was installed
25 percent to the agent completing the purchase order
40 percent for influence on the sale
Thus far, the sales manager had rejected both proposals.
EXHIBIT 1 Standard Form used for Agreements with Manufacturers’ Agents
This Agreement has been adopted for governing the relations between the MORRIS MACHINE WORKS and it Agents, and between the different Agents of the MORRIS MACHINE WORKS in order to promote efficiency and cooperation. It is realized that absolute and fast rules cannot be formulated to govern all conditions, but that fairness and justice must supplement all rules. All questions as to interpretation of these rules or questions as to points not covered are to be passed upon by the Home Office, and its decisions are to be considered final.
In accepting the MORRIS MACHINE WORKS account, the Agent agrees to the provisions of these rules.
Definition of Agent
The term AGENT (Representative or District Manager) as employed herein is used to designate such individuals, partnerships, or firms who are regularly accredited MORRIS MACHINE WORKS representatives, who have a definite exclusive territory, who have prices and discounts covering a full line of MORRIS MACHINE WORKS equipment, or in some cases one complete line only of MORRIS MACHINE WORKS manufacture, who do not handle any competing product, and who are active in promoting the sale of MORRIS MACHINE WORKS equipment.
Definition of Territory
The term TERRITORY as used herein will designate only the area in which the Agent has exclusive rights to sell MORRIS MACHINE WORKS products, subject to such limitations and exceptions as are hereinafter specified. Only such an area will be assigned to an Agent as exclusive territory as he can actually cover; that is, in which the Agent can, and will, personally solicit business. Such territory as is not included in any Agent’s exclusive territory will be open to all agents and to the Home Office; but to avoid complications, the Agents should communicate with the Home Office before quoting in the open territory.
Agents will not solicit in another Agent’s territory except with that Agent’s permission.
Prices, Price Lists, and Data
MORRIS MACHINE WORKS will quote the Agents its best agent’s prices and discounts in all cases, and will furnish price lists, data sheets, drawings, and catalogues as required, and will assist the Agent in every way with information and data. Price lists, drawings, etc., are the property of MORRIS MACHINE WORKS and subject to return upon request. Detailed drawings will not be furnished except in special cases, and when furnished must not be allowed to pass out of the Agent’s hands, and must be returned to the Home Office when their purpose has been accomplished.
Allocation of Inquiries and Orders
An Agent has exclusive rights to solicit and sell MORRIS equipment within his territory, and all inquiries and orders originating in that territory will be referred to, and credited to, that Agent except as provided hereinafter. An inquiry received by an Agent from another Agent’s territory is to be referred by him either to the Home Office or direct to the Agent for that territory. Inquiries from dealers or from purchasing and engineering departments within an Agent’s territory, for equipment destined to go into another Agent’s territory, may be quoted on by that Agent, particularly if purchases are expected to be made in his territory; but a division must be made of the commission with the Agent into whose territory the equipment will go, as provided hereinafter.
Direct Quotations by the Home Office
The right is reserved by MORRIS MACHINE WORKS to quote and to deal directly, without commission, for any agent in the following cases:
- On federal and state work that is publicly advertised and covered completely by the specifications.
- To export houses, for shipment outside the United States or Canada.
- To manufacturers, for resale as a component part of that manufacturer’s equipment, to enable that manufacturer to quote competitive prices without the ultimate consumer having to pay two commissions.
- On repair and replacement parts for equipment originally sold through other Agents or direct from the Home Office.
The Agent’s compensation will be entirely through commissions on sales. The Agent will be credited the difference between the sales price and the Agent’s prices. Commissions will be paid the Agent as payments are received from the customer except as may be agreed.
Acceptance of orders is subject to approval by the Home Office.
The Agent, knowing his trade, is given the privilege to fix his commission and add same to the Agent’s price. The right is reserved, however, by the Home Office to fix the amount of an Agent’s commission in special cases in accordance with the price lists and discounts.
- The full amount of commission will be paid the Agent on all sales made by him for shipment within his territory.
- If the sale is made by one Agent for shipment into another Agent’s territory, two-thirds of the commission will be paid to the Agent making the sale, and one-third to the territorial Agent.
- If inquiry originates and is preliminarily negotiated in the Agent’s territory into which shipment will go, but must be further negotiated and sale closed in another Agent’s territory, commission will be equally divided.
- If necessary to make a sale by the Home Office for shipment into an Agent’s territory, that Agent is to receive one half of the Agent’s commission.
- No credit or commission will be given an Agent on orders placed in his territory but destined for shipment elsewhere, and which did not originate or were not negotiated in his territory.
Service and Cooperation
In accepting the MORRIS MACHINE WORKS account, the Agent is considered as having assumed an obligation to cooperate with other Agents and with the Home Office in promoting the sale of MORRIS equipment.
The Agent is to give assistance to prospective customers, regardless of what territory they may come from, in obtaining the required information, in making selections of equipment, in installing and operating MORRIS equipment, etc.
Duration of Contract
The duration of the contract is for one year, and it is self-perpetuating unless three months’ notice to terminate is given by either party.
Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.