Study of the Distribution Network and Sales Force

Management of Akzo Nobel India

Management Development Institute

Gurgaon 122 001
Date: 15th July, 2014

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Table of Contents
List of Figures and Tables....................................................................................... 3
List of Abbreviations.............................................................................................. 4
Chapter 1: Introduction.......................................................................................... 5
1.1 About AkzoNobel.......................................................................................... 5
1.2 About AkzoNobel India.................................................................................. 5
1.3 AkzoNobels Products................................................................................... 5
Chapter 2: Distribution Network............................................................................6
2.1 Overview...................................................................................................... 6
2.2 TRADE Channel............................................................................................. 7
2.3 PRO Channel................................................................................................. 8
2.4 BHARAT Channel........................................................................................... 9
2.5 Concept of OTIF: On Time In Full.................................................................10
2.6 Channel Economics.................................................................................... 10
TRADE Channel.............................................................................................. 10
PRO Channel.................................................................................................. 12
BHARAT Channel............................................................................................ 12
2.7 Penetration Levels with respect to Competition.........................................13
Chapter 3: Sales Force Management...................................................................14
3.1 Akzo Nobels Sales Structure......................................................................14
3.2 Challenges for the Sales Managers.............................................................14
3.3 Evaluation Methods.................................................................................... 15
3.4 Motivation................................................................................................... 15
3.5 Sales Officers.............................................................................................. 15
3.6 Problems faced by Sales Officers................................................................16
Chapter 4: Major Challenges in the Channel........................................................17
Chapter 5: Sources.............................................................................................. 19
Chapter 6: Appendix............................................................................................ 20

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List of Figures and Tables

Figure 1: Distribution Network....................................................................6

Figure 2: Distribution in the Trade Channel.................................................7
Figure 3: Distribution in the PRO Channel...................................................8
Figure 4: Sources of Projects.......................................................................9
Figure 5: Distribution in the BHARAT Channel.............................................9
Figure 6: Consequences of Defaulting on Payment by Retailers...............11
Figure 7: Penetration Levels with respect to competition (Rough and not
actual figures)...........................................................................................13
Figure 8: Structure of the Sales Force.......................................................14

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List of Abbreviations
ANI Akzo Nobel India
CD Cash Discount
SLA Service Level Agreement
DPL Dealer Price List
SSPL Suggested Sellers Price List
SKU Stock Keeping Units
OTIF On Time In Full
CP Credit Period
AOP Annual Operating Plan
OD Overdue Account
PDR Performance and Development Review
KPI Key Performance Indicators
NSM National Sales Manager
RM Regional Manager
ZM Zonal Manager
ASM Area Sales Manager
SO Sales Officer

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Chapter 1: Introduction
1.1 About AkzoNobel
Akzo Nobel N.V., trading as AkzoNobel, is a Dutch multinational, active in the fields of
decorative paints, performance coatings and specialty chemicals. Headquartered in
Amsterdam, the company has activities in more than 80 countries, and employs
approximately 50,000 people. Sales in 2013 were EUR 14.6 billion. Following the
acquisition of ICI, the company has restructured in 2 January 2008, and rebranded itself in 25
April of the same year.

1.2 About AkzoNobel India

AkzoNobel India manufactures and markets a wide range of coatings and specialty
chemicals. Around 1,780 people work in the six production facilities, two state-of-the-art
research laboratories and 75 warehouses across India; its retailers are an impressive 8500.

1.3 AkzoNobels Products

The Company has 6 product lines:

Premium Interior Emulsions

Premium Exterior Emulsions
Mass Market
Under Coats
Wood
Others Distempers, Tinters, etc

Combining all the above product lines, the company provides about 2800 SKUs for their
customers.

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Chapter 2: Distribution Network

2.1 Overview

AkzoNobels Distribution network consists of Warehouses, Distributors and Dealers. The

figure below gives an overview of the Distribution Network.

Plant

Warehous
e

Retailers

Sites

Distributo
rs

Retailers

Figure 1: Distribution Network

The Company has 4 plants in India in Mumbai, Gwalior, Hyderabad and Mohali. It has 75
warehouses and an impressive retailer network of around 8500. They consist of around 80%
Multi- Brand Retailers and 20 % Exclusive Retailers.
The Distribution Network consists of 3 channels:

The TRADE Channel

The PRO Channel
The BHARAT Channel

2.2 TRADE Channel

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TRADE

Figure 2: Distribution in the Trade Channel

The TRADE Channel is used in important markets like Delhi/NCR region where Retailers
are able to provide big volume businesses.
Rational behind not having a distributor member
As compared to FMCG Company, paint industry has got fluctuating demands of different
shades with multiple SKUs. Forecasting becomes a challenge as different retailers would
require different levels of replenishments. Due to the recent technology of tinters (White + 7
basics), paints are supplied as unprepared potions. Hence stocking becomes a problem.
Thus distributers are avoided and there is a direct supply to retailers from the warehouse.
Retailers
ANI has got some internal segmentation of its retailers (company specific confidential
information), but on a broader basis it has got 5 classes based on the value turnover per
annum:

Rising Turnover >Rs.60,00,000

Shining Turnover >Rs.90,00,000
Prestige Turnover >Rs.1,50,00,000
Dream Turnover >Rs.2,50,00,000
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Dream Premium Turnover >Rs.3,20,00,000

In the Delhi/NCR Region, they have 2 warehouses in Delhi, 2 in Haryana and 1 in Faridabad.
Gurgaon is divided into two sales territories:

DLF Region
Other Regions of Gurgaon

2.3 PRO Channel

PRO

Figure 3: Distribution in the PRO Channel

This channel comprises direct supply from depots to nearly 1000 commercial sites, serving
corporate businesses, commercial centres, et al.

Rational behind the Direct Supply to the Sites

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The business on the sites is won on pricing. Retailers add up to the cost. Thus eliminating the
costs associated with the retailers and directly supplying to the sites ensure competitive
pricing to earn the business.
Sourcing of the Projects

As Company

Contracters

Channel relations

20%

30%
50%

Figure 4: Sources of Projects

2.4 BHARAT Channel

BHARAT

Figure 5: Distribution in the BHARAT Channel

This channel was recently set up to serve the remote geographies with lower population and
lower pull for AkzoNobels products.
Rational for having this Structure
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The rationale behind having a distributor here is to ensure the reach. The cost of servicing
from the warehouses (travelling costs) is much more than the margins expected at the
retailers end.

2.5 Concept of OTIF: On Time In Full

There are different SLAs (Service Level Agreements) with retailers in different geographies.
For example, Gurgaon might have an SLA of 4 hours and Outskirts may have 8 hours. This is
the time taken for the company to deliver the order to the dealer from their Warehouses. This
is the On Time Concept.
In Full Concept implies that the order is considered full only if all the SKUs ordered by the
dealer are delivered by the Company. That is, an order is considered to be In Full, if all the
SKUs demanded have been satisfied even if the volume demanded for each SKU have not
been satisfied in full.

2.6 Channel Economics

TRADE Channel
The Net landing price for the retailer, i.e, the money paid by the retailer to the company is
calculated by the following formula:
Net Landing Price for Retailer = Invoice Landing Schemes Discount
Invoice Landing = Dealer Price List Cash Discount Inbill Discount + Tax (@ 13.25%)
In Bill Discounts have a monthly variance and are given to capture monthly demand trends
and patterns.
Scheme Discounts are provided on the volume of order given by the retailers.

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Cash Discounts are incentives given to the retailers to pay the money within the defined
credit period. The company provides 3 different credit periods depending on the volume of
business provided by the retailer:

14 Days @ 5% Cash Discount

21 Days @ 5 % Cash Discount
28 Days @ 5 % Cash Discount

Credit Policy of a Market Leader Asian Paints is only 2 days.

Consequences of Defaulting on the Payment
Let us take the example of a retailer falling in the 14 Days Category. The following
progression follows in case a retailer fails to pay by the credit period..

14
D ays @
5% CD

21
D ays @
4% CD

28
D ays @
3% CD

35
D ays @
0 % CD

O ve rd u
e
A cco u n
t

Figure 6: Consequences of Defaulting on Payment by Retailers

Overdue Account
This is a retailer who has not been able to pay back the money in the maximum possible time
that can be given by the Company. At this point, the Company ceases all further business
with the retailer and starts legal proceedings.
PRO Channel

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In the PRO Channel the company directly deals with the project sites. However, due to legal
restrictions, the company is not able to supply directly to the Project Site. They have to route
it through the retailers. The process is explained below.

WAREHO

RETAILER

The Company
generates the
Invoice in the name
of the Retailer

The Retailer generates the Bill

in the name of the Project after
adding his own margin. The
Truck does not unload at
Retailers point

PROJECT

The Truck unloads at

the Project Site and the
Payment is made by
the Contractor to the
Retailer

A Crucial part in this entire process is to ensure that the price at which the company wins the
bid is maintained by the retailer.
BHARAT Channel

The Company does not deal with the retailers in this channel. They deal only with the
Distributors. The Distributor is given the following benefits:

5% Margin
Reimbursement of Re. 1/Litre on Freight Charges
Reimbursement of 50 % of the Distributors Sales Force

2.7 Penetration Levels with respect to Competition

Asian
Paints
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Berger
Paints

Nerolac
Paints

AkzoNobel
India

Turnover

12000 Cr

3000 Cr

2500 Cr

2000 Cr

Retailers

35000

18000

11000

8500

Warehouses

140

108

98

75

Distributors

10

34

56 %

17 %

14 %

11 %

Market
Share

Figure 7: Penetration Levels with respect to competition (Rough and

not actual figures)

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Chapter 3: Sales Force Management

3.1 Akzo Nobels Sales Structure
AkzoNobels sales structure consists of 5 levels - the National Sales Manager, Regional
Managers, Zonal Managers, Area Sales Managers and Sales Officers.

1 National Sales
Manager
4 Regional Managers

29 Zonal Managers
96 Area Sales
Managers
648 Sales Officers

Figure 8: Structure of the Sales Force

3.2 Challenges for the Sales Managers

Geography Ensuring greater geographical coverage with respect to terrain and
distance
Market Share Have to effect a push process in areas having low market share
ROI Ensuring higher return on investments for the retailers
Sales force Management - Getting the Sales force to respond to the challenges and
motivating them to follow company objectives
Reassignment and deployment of Sales force Reassignment of Sales force to
different territories is challenging due to disturbance in channel relationships

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3.3 Evaluation Methods

Annual Operating Plan (AOP) Month-wise volume targets, distribution targets and
OD targets. OD targets are typically not more than 0.25% of the sales. The targets are
laid out at the beginning of the year.
Monthly Performance and Development Review (PDR) These reviews are
conducted by the ASM with the Sales Officers. These monthly meetings are held to
discuss sales performances, targets, areas of concern and focus areas of the company.

3.4 Motivation

According to our Source, sales officers are only motivated by the incentive schemes.
Hence, incentives are designed with great care depending on the objectives the

company wants to achieve.

Incentive schemes for the Sales Officers are paid out quarterly.
Incentive targets are set annually using the following KPIs Value of sales, Volume
of sales, Margins and Over-due payments percentage

3.5 Sales Officers

A Sales Officer typically handles around 30 -35 dealers

Geographical Spread - Geographically it could range from a third of a city to about 5

districts
Basic Costs incurred by the Company on the Sales Officers per Month Salary and incentives Rs 25000
Travel and Food Reimbursements Rs 7000 to 8000
Training Rs 2000

3.6 Problems faced by Sales Officers

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Incorrect Billing Due to legal requirements dealers are required to be

intermediaries even during direct selling to contractors. Therefore the billed amount
and margins charged by them are critical to the contractors receiving the product at
the pre-decided prices
Handling of customer complaints
Lack of Data Availability: Sometimes, the dealers might want to know about their
financial performances or the amount of business they are providing to the company.
The Sales Officers

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Chapter 4: Major Challenges in the Channel

Availability of entire Range of products/ On time in full(OTIF) for its customers:

Demand forecasting is extremely difficult in the paint industry

Maintaining Profitability of Channel Members: As Akzo Nobel has very low pull in
the market, ensuring appropriate sales for the retailers so that the business becomes

viable for them is extremely crucial.

Availability of colour collaterals: The Selling tools such as shade cards, brochures,

code cards are not available at every retail outlet.

Distributor Acumen in Selling Process: In the Bharat Channel, the company has no
control on the retailers. Sales are driven by the distributor. Hence ensuring that the

distributor will follow the company objectives is a major challenge

Inefficient Supply System to the Retail Outlets: Retailers say that Akzo Nobel is

not able to supply their demands in an efficient manner

Dispute Settlement between Retailers and Contractors: In some cases, the
contractor does not make the payment to the retailers and hence the retailer defaults in
his payment as well. The Company does not take any initiative to resolve these

disputes.
Diminishing Benefits for Exclusive Dealers: Over the years, the benefits offered by
the company to the exclusive retailers have been reducing, forcing them to stock other

brands that have greater pull in the market.

Dealing with Spurious and Counterfeit Products: Local made products are being

sold in Branded Containers

Channel members not satisfied with the Promotional Activities undertaken by the

Company especially with respect to Asian Paints in Mass Media

Visit to the outlets is about once a month by the Sales Officers and ASMs
No Computerised Sales Records: No point of sales IT data recording. Sales records
are kept in manual format.

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Chapter 5: Sources
Date

Name &
Address

Designation

Time

Contact No

E Mail

11.07.2014 Apratim Saha,

MDI Gurgaon

Summer
Intern, Akzo
Nobel India

4 PM

8527764214

pg13apratim_s@m
andevian.com

11.07.2014 OM Traders, MG
Road, Gurgaon

Multi Brand
Retailer

6 PM

9873153490

12.07.201
4

Omkar
Parnandiwar

Product
Manager
Pre Deco &
Duwel, Akzo
Nobel India

11 AM

9711118772

14.07.201
4

Mohan Jha, Shree Dulux

Ram Enterprises, Decorator
Sec 49, Gurgaon Center

6 PM

9212235562

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omkar.parnandiwa
r@akzonobel.com

Chapter 6: Appendix

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Photograph of Dulux Color Palette at Dulux Decorator Centre, Shree Ram

Enterprises, Gurgaon

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