theory-channel design decisions+ nestle case
TRANSCRIPT
Distribution management
---Concepts & case study---Concepts & case study
Channel of distributionA channel of distribution shall be considered to A channel of distribution shall be considered to
comprise a set of institution which performs all the comprise a set of institution which performs all the activities (functions) utilized to move a product activities (functions) utilized to move a product and its title from production to consumption.and its title from production to consumption.
M1
C2
C1
M2
M3 C3
Number of contacts=M*C=9
M1
M2
M3
Depot/Retailer
C1
C2
C3
Number of contacts M+C=3+3+6
Channel Functions and Flows
Members of the marketing channel perform a Members of the marketing channel perform a number of key functions:number of key functions:
Gather information about potential and Gather information about potential and current customers, competitors. current customers, competitors.
They place orders with manufacturers.They place orders with manufacturers. Develop and disseminate persuasive Develop and disseminate persuasive
communications to stimulate purchasing.communications to stimulate purchasing. Reach agreements on price and other terms so Reach agreements on price and other terms so
that transfer of ownership or possession can that transfer of ownership or possession can be affected.be affected.
Continued…
They acquire the funds to finance inventories at They acquire the funds to finance inventories at different levels in the marketing channel.different levels in the marketing channel.
They provide for the successive storage and They provide for the successive storage and movement of physical goods.movement of physical goods.
They assume risks connected with carrying out They assume risks connected with carrying out channel work.channel work.
They provide for buyers payment of their bills They provide for buyers payment of their bills trough banks and other financial institutions.trough banks and other financial institutions.
They oversee actual transfer of ownership from They oversee actual transfer of ownership from one organization or person to another.one organization or person to another.
Channel– design decisions. Establishing the channel objectives & constraints.Establishing the channel objectives & constraints.1 1 Customer characteristics.Customer characteristics.
(frequency of purchase)(frequency of purchase)22 Product characteristicsProduct characteristics
(perishable products, bulky products, nonstandardised (perishable products, bulky products, nonstandardised products, high unit value).products, high unit value).
33 Middleman characteristicsMiddleman characteristics(manufacturers representatives, others).(manufacturers representatives, others).
44 Competitive characteristicsCompetitive characteristics55 Company characteristics.Company characteristics.
(size of company, financial resources, product mix, (size of company, financial resources, product mix, marketing strategy)marketing strategy)
66 Environmental characteristicsEnvironmental characteristics(economic conditions, legal regulations).(economic conditions, legal regulations).
Identify the major channel alternatives
Types of intermediariesTypes of intermediaries Number of intermediariesNumber of intermediaries
(intensive distribution, exclusive (intensive distribution, exclusive distribution, selective distribution).distribution, selective distribution).
Terms & responsibilities of channel members.Terms & responsibilities of channel members.(price policy, conditions of sale, distributors (price policy, conditions of sale, distributors
territorial rights, mutual services)territorial rights, mutual services)Evaluating the major channel alternativesEvaluating the major channel alternatives Economic criteria, Control criteria, Adaptive criteria Economic criteria, Control criteria, Adaptive criteria
(selling cost vs. level of sales)(selling cost vs. level of sales)
Channel management decisionsI.I. Selecting channel membersSelecting channel membersII.II. Motivating channel members Motivating channel members
ii.ii. co-operation, partnership & distribution co-operation, partnership & distribution programming.programming.
iii.iii. level of inventory, sales quotas,providing level of inventory, sales quotas,providing services to customers effectively, proper services to customers effectively, proper accounts-receivables management.accounts-receivables management.
III.III. Evaluating channel members.Evaluating channel members.
Case analysis
NestleNestle
FMCG : Nestle
Maggi
Kit Kat
Cerelac
Nescafe
LactogenNestogen
Milo
Importance..
Peter Brabeck, CEO, Nestle S.A. says one Peter Brabeck, CEO, Nestle S.A. says one of the pillars of success is, “Product of the pillars of success is, “Product Availability: Whatever, Anywhere, Availability: Whatever, Anywhere, Anytime.”Anytime.”
In India their target is to reach all customers In India their target is to reach all customers profitably.profitably.
Distribution Structure
Factory
C&F Agent
DistributorRedistributor
Mother
Go-down
C&F Agent
Distributor
Retailer Retailer
Large Customers
Rural retailer
Distribution Details
No. of Regional Sales Office : 6 No. of Regional Sales Office : 6
No. of towns served : 3500No. of towns served : 3500
No. of Mother Go-downs: 5No. of Mother Go-downs: 5
No. of C & F Agents: 41No. of C & F Agents: 41
No. of Distributors: 2800No. of Distributors: 2800
Management Set-Up
Area Sales Manager
Branch Manager
Distributor Salesman
Sales Officer
Corporate OfficeRegional Sales Office
Key Issues
Cost of DistributionCost of Distribution Service LevelsService Levels Bad GoodsBad Goods ObsolescenceObsolescence Managing Sales PromotionManaging Sales Promotion
Competition is between networks, not companies.Winning companies will have
better networks.
Relationship Management
Years of AssociationYears of Association
Benefits ProvidedBenefits Provided
Company resources at Company resources at
distributors disposaldistributors disposal
Product mix in OrderProduct mix in Order
1515
Credit line, AC VansCredit line, AC Vans
Maintenance Maintenance
AssistanceAssistance
Knowledge sharingKnowledge sharing
Distribution Chain
OPL – Production planning- Next three months
Inventory Control, etc.
Nestlé's Information System
ERP – BPCS ( Business Planning & Control System)ERP – BPCS ( Business Planning & Control System) C&F Agents connected by VSATs.C&F Agents connected by VSATs. No Connectivity up to Distributor levelNo Connectivity up to Distributor level
Indirect information flow through:Indirect information flow through:
Sales Officers Area Sales Mgr. Branch Manager
Corporate Office
Measuring Performance
No. of towns : 3500No. of towns : 3500
Distribution Cost as percentage of sales: 2.9Distribution Cost as percentage of sales: 2.9
Service Levels: 90 %Service Levels: 90 %
Inventory Levels: MGs – 98 days (Inventory Levels: MGs – 98 days ( by 15% by 15%
Distributors – 25 days (Distributors – 25 days ( from 60 days) from 60 days)
Distribution, especially in FMCG, is an important asset
and today’s networking technologies can help unlock
its value.
---END---
Product AProduct A Product BProduct B
ExpectedExpected Stockiest Stockiest 11
StockiesStockiest 2t 2
ExpecteExpectedd
StockiesStockiest 1t 1
StockiesStockiest 2t 2
Turnover ratioTurnover ratio
Gross profit/sales) in %Gross profit/sales) in %
Return on own capital(Net Return on own capital(Net profit/owner’s capital)profit/owner’s capital)
Ratio of own/Total Ratio of own/Total capital employed capital employed (Minimum) in %(Minimum) in %
Average stock level. Average stock level.
Av credit to retailers Av credit to retailers
Case analysis(Quality products)Over tradingOver trading
High salesHigh sales
Working capital- high debtWorking capital- high debt
Low inventoryLow inventory
Price cutting Price cutting
Unauthorized stock Unauthorized stock movement movement
Inadequate inventory policyInadequate inventory policy
Insufficient service to retailerInsufficient service to retailer
Unhealthy borrowing Unhealthy borrowing practices.practices.
Under trading
Low sales
High inventory
Not tapping the potential
Inefficiency in operation
May not make enough money to stay in the business very long.
Product AProduct A Product BProduct B
ExpectedExpected Stockiest Stockiest 11
StockiesStockiest 2t 2
ExpecteExpectedd
StockiesStockiest 1t 1
StockiesStockiest 2t 2
Turnover ratioTurnover ratio
(Sales/Working capital)(Sales/Working capital)
2525 28.428.4 24.524.5 1010 7.27.2 17.3817.38
Gross profit/sales) in %Gross profit/sales) in % 3%3% 3.093.09 3.123.12 55 55 3.993.99
Return on own capital(Net Return on own capital(Net profit/owner’s capital)profit/owner’s capital)
30%30% 10%10% 5.6%5.6% 30%30% 4.23%4.23% 10%10%
Ratio of own/Total Ratio of own/Total capital employed capital employed (Minimum) in %(Minimum) in %
20%20% 38.4638.46 19.5719.57 2020 28.828.8 18.618.6
Average stock level. (Av Average stock level. (Av Inventory *90/sales) in Inventory *90/sales) in daysdays
10 days10 days 4.44.4 9.79.7 2020 28.428.4 19.7519.75
Av credit to retailers (in Av credit to retailers (in days)days)
5 days5 days 3.83.8 8.968.96 1515 14.814.8 8.098.09