Distribution management

---Concepts & case study

Channel of distribution
A channel of distribution shall be considered to comprise a set of institution which performs all the activities (functions) utilized to move a product and its title from production to consumption.

M1

C1

M2

C2

M3

C3

Number of contacts=M*C=9

M1

C1

M2 Depot/Retailer

C2

M3

C3

Number of contacts M+C=3+3+6

Channel Functions and Flows

Members of the marketing channel perform a number of key functions: Gather information about potential and current customers, competitors. They place orders with manufacturers. Develop and disseminate persuasive communications to stimulate purchasing. Reach agreements on price and other terms so that transfer of ownership or possession can be affected.

Continued

They acquire the funds to finance inventories at different levels in the marketing channel. They provide for the successive storage and movement of physical goods. They assume risks connected with carrying out channel work. They provide for buyers payment of their bills trough banks and other financial institutions. They oversee actual transfer of ownership from one organization or person to another.

Channel design decisions.

Establishing the channel objectives & constraints. 1 Customer characteristics. (frequency of purchase) 2 Product characteristics (perishable products, bulky products, nonstandardised products, high unit value). 3 Middleman characteristics (manufacturers representatives, others). 4 Competitive characteristics 5 Company characteristics. (size of company, financial resources, product mix, marketing strategy) 6 Environmental characteristics (economic conditions, legal regulations).

Identify the major channel alternatives

Types of intermediaries Number of intermediaries (intensive distribution, exclusive distribution, selective distribution). Terms & responsibilities of channel members. (price policy, conditions of sale, distributors territorial rights, mutual services) Evaluating the major channel alternatives Economic criteria, Control criteria, Adaptive criteria (selling cost vs. level of sales)

Channel management decisions

I. Selecting channel members II. Motivating channel members ii. co-operation, partnership & distribution programming. iii. level of inventory, sales quotas,providing services to customers effectively, proper accounts-receivables management. III. Evaluating channel members.

Case analysis Nestle

FMCG : Nestle
Maggi
Milo

Nescafe

Kit Kat
Cerelac Lactogen

Nestogen

Importance..
Peter Brabeck, CEO, Nestle S.A. says one of the pillars of success is, Product Availability: Whatever, Anywhere, Anytime. In India their target is to reach all customers profitably.

Distribution Structure
Mother
Go-down

Large Customers Factory

C&F Agent Redistributor Rural retailer Distributor Retailer

C&F Agent Distributor Retailer

Distribution Details

No. of Regional Sales Office : 6 No. of towns served : 3500 No. of Mother Go-downs: 5 No. of C & F Agents: 41 No. of Distributors: 2800

Management Set-Up
Regional Sales Office Branch Manager Area Sales Manager Corporate Office

Sales Officer
Distributor Salesman

Key Issues
Cost of Distribution Service Levels Bad Goods Obsolescence Managing Sales Promotion

Competition is between networks, not companies.Winning companies will have better networks.

Relationship Management

Years of Association Benefits Provided Company resources at distributors disposal

15 Credit line, AC Vans Maintenance Assistance

Product mix in Order

Knowledge sharing

Distribution Chain

OPL Production planning- Next three months Inventory Control, etc.

Nestl's Information System

ERP BPCS ( Business Planning & Control System) C&F Agents connected by VSATs. No Connectivity up to Distributor level Indirect information flow through:

Sales Officers

Area Sales Mgr.

Branch Manager

Corporate Office

Measuring Performance

No. of towns : 3500 Distribution Cost as percentage of sales: 2.9 Service Levels: 90 % Inventory Levels: MGs 98 days ( by 15% Distributors 25 days ( from 60 days)

Distribution, especially in FMCG, is an important asset and todays networking technologies can help unlock its value.
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Product A Expected Stockiest 1 Stockies t2 Expecte d

Product B Stockies t1 Stockies t2

Turnover ratio Gross profit/sales) in %

Return on own capital(Net profit/owners capital)

Ratio of own/Total capital employed (Minimum) in %

Average stock level.

Av credit to retailers

Case analysis(Quality products)

Over trading
High sales Working capital- high debt Low inventory Price cutting Unauthorized stock movement Inadequate inventory policy Insufficient service to retailer Unhealthy borrowing 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 A Expected Stockiest 1 28.4 3.09 Stockies t2 24.5 3.12 Expecte d 10 5

Product B Stockies t1 7.2 5 Stockies t2 17.38 3.99

Turnover ratio (Sales/Working capital) Gross profit/sales) in %

25 3%

Return on own capital(Net profit/owners capital)

Ratio of own/Total capital employed (Minimum) in %

30%

10%

5.6%

30%

4.23%

10%

20%

38.46

19.57

20

28.8

18.6

Average stock level. (Av Inventory *90/sales) in days

Av credit to retailers (in days)

10 days

4.4

9.7

20

28.4

19.75

5 days

3.8

8.96

15

14.8

8.09