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Sales and Distribution Management

Company: Nestle

Project Report Part 2

Group A-7
Ankur Mathur 08P012

Manoj Reddy 08P024

Rohit Singh 08P043

Saurabh Dhiman 08P044

Gaurav Khera 08P079

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Contents
Distributor Salesman Workload ............................................................................................................... 3
Distributor Salesman Incentives............................................................................................................... 4
Poor visibility of Nestle products at certain outlets .................................................................................. 5
Complaints from retailers about expiry goods and payments................................................................... 6
Lowest Margin in the industry ................................................................................................................. 7
Details of Primary Research ..................................................................................................................... 9

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Issues and Recommendations with
Nestle’s Channel
Distributor Salesman Workload

Problem: Analyzing the workload of the Distributor Salesman (DS), the number of active Stock
Keeping Units (SKUs) in Gurgaon is 130 SKUs/outlet. Also, the average outlets in market beat
plan of a distributor salesman are 35 outlets/day with the range being between 20 and 40
depending upon the kind of market he is given. From this information, the DS workload turns
out to be around 4550 SKUs per day, which means that he has to read out 4550 SKUs from the
dealer card to the retailers.

From our market working with a Distributor Salesman, we realized that he is overloaded with
work and is unable to read out the whole SKU list to the retailers. Hence, the focus of the DS is
on the products with a pull from the market, rather than products requiring push as that would
take more effort and time, without any benefits for the salesman.

Recommendation: Company has a large number of SKUs. It may have separate salesman for
different products. It may sell Cerelac, Nescafe etc. through one distributor salesman and
Maggi, chocolates through another distributor. In this manner, the salesman will have lower
number of SKUs to cover and may concentrate more on his SKUS. The salesman may cover
more number of retailers per day. This may help to improve the efficiency of the distributor
salesman. Increased number of beats also helps in greater push.

Issues in implementation: The costs will increase for the company with two salesmen instead
of one. The increased number of salesman will squeeze the margins of the company.

Tackling of Issues: The SKUs should be divided for distribution through separate salesmen such
that the efficiency of distribution is optimized. The increase in sales should more than offset the

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increase in the costs. It is important that marginal benefit is more than the marginal cost
incurred.

Distributor Salesman Incentives

Problem: Currently, each Cash Distributor receives an input sheet from the sales officer which
specifies the incentives to be given to the Distributor salesman. Currently, Nestle has incentive
of Rs.250 for volume achievement for 4 products each month. They are not given any incentives
for the overall sales achievement or on the basis of their evaluation by the sales officer. These
incentives are presently being given in many states such as Delhi and UP. However, these
incentives are also not being presently given in Gurgaon. The only incentive in Gurgaon is only
on Eclairs. On selling 50 jars, the salesman gets Rs. 8 per jar. On selling 75 jars and 100 jars
respectively, the incentive is Rs. 10 and Rs. 12 per jar. On selling 7 kg jar, the incentive is Rs. 20.
This incentive is given in other states too.

From our market working, we realized that generally the DS are not motivated enough to push
the sales of the whole range of products of Nestle and are concentrating on the products which
have incentive in that particular month. The incentive schemes for other competing FMCG
companies had a component for the total turnover as well as number of bills generated by the
company.

Recommendation: Company should provide similar incentives in Gurgaon as in other states.


Also, there need to be incentives based on total sales and number of bills per month. A
component of incentive should also be based on the total number of outlets from which order
is taken. This will provide an incentive for all salesmen to perform better. Also, the better
salesman will be able to get higher compensation.

Issues in implementation: All territories are not same or equivalent. There may be more
opportunities in some territories for higher sales as compared to others. Therefore, incentives

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based on sales are not sufficient alone. Other important parameters need to be accounted for
such as the penetration level of salesman.

Tackling of Issues: The sales manager should also look at the penetration level of salesman and
the number of new accounts added during a period. The market share in a particular territory is
also an important parameter in judging the performance and efficiency of a salesperson. A sales
manager should also have some room for subjective analysis of the performance of salesman.

Poor visibility of Nestle products at certain outlets

Problem: From our visits in retail outlets in Sector-14 Gurgaon under Naveen Enterprises, we
realized that the displays bought by Nestle were not maintained properly and they scored low
on hygiene and adherence to planogram. As the merchandiser’s performance is not
measurable, it is not possible to make his work accountable which results in slack of work
among some merchandisers. Hence, the main challenge lies in the fact that the merchandiser’s
productivity and effectivity is currently not measured hence his performance cannot be
measured unlike Distributor Salesman whose turnover is an important input for performance
evaluation.

Recommendation: Naveen Enterprises has 3 merchandisers who are responsible for putting up
the displays and maintaining them, week-in and week-out. Merchandiser beat plan covers
around 40-50 outlets per week and generally, there are 1-3 merchandisers per distribution
point. From our market visit, we observed that the slack of work by merchandisers cannot be
gauged and there is lack of motivation among the merchandisers to excel in their work. The
recommendation for this is to have incentives for merchandisers based on their work. The
merchandiser’s productivity and efficiency can be measured by the Sales Officers by more
frequent visits and taking feedback from the distributor salesman. Incentives of Rs. 400-500
would motivate the merchandisers and put proper effort into his job.

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Issues in Implementation: The performance evaluation of merchandisers is very subjective and
incentivising on the basis of visits and feedback of Distributor Salesman may lead to discontent
for certain merchandisers and probable conflict with the Distributor Salesman.

Tackling implementation issues: To ensure that the incentives structure does not cause any
discontent among merchandisers, it should be the Sales Officer’s responsibility that he keeps
the feedback from Distributor Salesmen as private so that there is no conflict of interest and be
in constant communication with the merchandisers about their market beats and performance.

Complaints from retailers about expiry goods and payments

Problem: Retailer drives the growth for Nestle as he is the seller to the customer. This makes
focus on the retailer very critical. From our market visit and interaction with the retailers, we
realized that the retailer’s expired and damaged goods were not returned timely at various
retailers. The main reason cited by them was that low expired goods translate to a good
performance for Sales Officer, which drove them to reduce the expired goods taken back by the
salesman. Also, the merchandising display payments to retailers were delayed at several
outlets. This was mainly due to the fact that distributors’ claims were not being cleared timely
which was in effect, delaying payments to the retailers.

Recommendation: Nestle should stress on maintaining a healthy relationship with the retailer,
hence it should encourage Sales Officers to concentrate in timely return of expiry goods as well
as payments. To ensure that, a window should be provided to the retailers as well as
distributors for their inquiries, claims and complaints to the company. Also, Nestle can have
frequent audits of the certain markets each month to prevent such incidences.

Issues in Implementation: The issue with a window to retailers would be that there could be
instances of retailers complaining incessantly and for petty issues rather than for the intended
purpose of tackling genuine retailer relationship issues. Also, such system would incur a cost to
the company which affects its profitability.

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Tackling implementation issues: To ensure that the window to the retailer serves the right
purpose, the complaints can be filtered at the distributor level before being passed on the
company. This would ensure that certain petty and insignificant problems can be solved at the
distributor level only and the processing at the company is reduced.

Lowest Margin in the industry

Problem: Nestle gives out the lowest margins to the distributor in the industry.

Perfetti Cadbury Nestle Lotte Wrigley’s Colgate Reckitt


Palmolive Benckiser

Super 2.5 2 2 2.5 2 2 2


Stockist
Sub 4 4 3.8 6 5 5.62 5
Stockist
Total 6.5 6 5.8 8.5 7 7.62 7

Hence, the margins to the retailers are also reduced. If we consider the motivation of the
retailers to keep Nestle’s products, the throughput or off take of Nestle’s products is very high
and most retailers would be keen to maintain theie baskets of goods, the low margins are a
dampening factor, as mentioned by a few retailers in our interactions.

Recommendation: Considering the low motivation of the Nestle retailers, due to lower margins on
products sold by them, company should try to compensate them or give them an opportunity to
increase their profits by extending better percentage incentive schemes on purchase in bulk. Instead of
harming the profitability of the company by extending greater margins, these schemes would lead to
high volume purchase by retailer, thereby increasing the profitability of the company.

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Issues in implementation: The problem which could emerge while extending greater percentage
schemes are that once the retailers get used to higher schemes on a particular product, it becomes very
difficult for the company to change/ reduce the scheme on the product. Apart from that, profitability of
the company is definitely affected if the scheme is extended in an unplanned manner.

Tackling Implementation issues: These schemes should not be extended on the products haphazardly.
In order to implement the schemes, company needs to identify on which products is the scheme
suitable. The products which already have a very good pull effect like Maggi need not be given higher
schemes. The products which majorly require pull effect like Everyday tetra pack milk, coffee etc should
be a part of such incentive schemes. In order to have better control over the channel and prevent
retailer’s resistance while changing/reducing the scheme, company should device a strategy of rotation
of scheme among the various products in portfolio, e.g. for Jan-Mar Company could go for higher
schemes on Everyday tetra pack milk, for April- Jul it should reduce the scheme on Everyday and
increase the scheme on Coffee packs. The company can further decide upon which products it wants to
push for a particular time period.

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Details of Primary Research

Contact in Nestle:

Mr. Mayur Bhargava, Regional Sales Manager (RSM), Eastern UP

Phone no – 9717789896

Naveen Enterprises, Ramlila Ground, Gurgaon (Distributor for Nestle)

Phone no – 0124 4065910

Visit Details:

We visited retail outlets in Sector 14 and interacted with the retailers. We identified the problems which
the retailers are facing and possible suggestions for the company to resolve these issues.

We also accompanied a salesman and interacted with him to discuss the working and issues with Nestle
distribution channel.

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