Distribution and Sales ManagementDistribution and Sales Management – Gokaldas Trading Company– Gokaldas Trading Company

A report

submitted to

Prof. Prathap Oburai

In partial fulfilment of the requirements of the course

Marketing - IIOn

28th January, 2009

By

Group 9Section D

PGP 2008-2010

INDIAN INSTITUTE OF MANAGEMENTAHMEDABAD

TABLE OF CONTENTS

TABLE OF CONTENTS.............................................................................ii

GOKALDAS TRADING COMPANY.......................................................iii

DISTRIBUTION CHANNEL OF CADBURY: ........................................iii

THE FUNCTIONING OF THE DISTRIBUTION CHANNEL (GTC).......v

MUTUAL EXPECTATIONS OF EACH STAKEHOLDER...................vii

From the point of view of the distributor, it is very important that the

company gets its pricing and promotion strategies right. He has very little

control over these factors, but is very strongly affected by these because all

his products are commoditised to the extent that brand loyalty is not strong.

All the brand promotions carried out by the company also help the

distributor. Though he expects timely delivery from the company, he has

up to one month’s inventory to take care of emergencies. ........................vii

ANALYSIS OF THE CURRENT SYSTEM.............................................vii

SUGGESTIONS........................................................................................viii

GOKALDAS TRADING COMPANYGokaldas Trading Company (GTC) is a local distributor in Ahmedabad. He

is a distributor for Cadbury and sells their confectionary as well as milk

beverages products. He is also a distributor for Reckitt-Benckiser’s non-

medical products like Dettol soap and for the dairy products of Britannia.

He services the Ashram Road and nearby areas.

For the purpose of this assignment, we have studied the operations related

to Cadbury in more detail. Operations related to Britannia and Reckitt-

Benckiser are very similar in most aspects.

For Cadbury, the city of Ahmedabad has been divided into four

geographical regions which are catered to by four different distributors.

Larger stores like Big Bazaar have direct sourcing from the company

warehouse in Ahmedabad.

DISTRIBUTION CHANNEL OF CADBURY:

• Cadbury Factory: Cadbury India is the wholly owned subsidiary of Cadbury PLC, world’s leading confectionary company. Cadbury India has five factories in India at Bangalore, Pune, Thane, Himachal Pradesh and Gwalior. It has regional Sales offices in the four major metros. Pricing is done at the national level. Most advertising campaigns are also executed at the national level. But regions carry out seasonal trade and consumer promotions.

• Regional Warehouses: Cadbury has regional warehouse in every state. Depending on market size, a warehouse caters to 3-10 neighbouring cities. This has helped the company to keep intermediaries at the minimum. Warehouses act as storage and supply point for the factory. Inventory system and marketing is all done at the warehouse and region level.Large retail chains like Big Bazaar are serviced through a separate channel referred to as ‘modern trade’. These stores order directly from the closest warehouse.

• Wholesalers: In case the nearest warehouse is not close enough, a wholesaler enters the chain in between the warehouse and distributor. The wholesalers play an important role in smaller towns and rural areas.

• Local Distributors: Distributors supply to all the local retailers. Distributors are responsible for data collection and reporting the same to the company.

• Retail Stores: This is the last link in the distribution chain and the front end for the customer. The retailer is responsible for displaying the merchandise properly. In all, Cadbury products are available at more than 5 lakh retailers all over India.

THE FUNCTIONING OF THE DISTRIBUTION CHANNEL (GTC)

• Scope and magnitude of operations: GTC has 20 salespersons for Cadbury. Each is dedicated to 25-30 stores. Thus, GTC has close to 500 stores under him. There are separate teams for Cadbury, Reckitt-Benckiser and Britannia. The monthly sales are close to Rs. 70 lakh.

• Method of operation: Every salesperson has 25-30 stores under him. The salesperson visits stores once a week. He collects last week’s dues and gets the order for current week. The order is delivered within 2 working days. The company warehouse delivers order every 2-3 days to the GTC godown. GTC has dedicated godown operations and holds inventory of one month at any given time.

• Credit terms and financial transactions: The company decides the pricing strategy and discounts. Distributors get 5% margin. Final retailers get up to 10-15% margin. The retailers’ margin is decided jointly by the company, distributor and retailers.

In case of GTC, the retailer effectively gets a 7 day credit from the distributor. The distributor however has cash dealings with the company.

• Physical distribution: The city of Ahmedabad has been divided into 4 regions by Cadbury. One distributor services one region. There are strict rules to ensure adherence to the boundaries. Salespersons visit their allocated store once a week and collect orders, submit current week’s billing and collect last week’s payment. Thereafter, 2-3 tempos deliver the order to the stores free of cost within 2 days of placing the order. In case of a stock-out at the store level, the company can restock within a day. The company delivers to the distributors in large trucks twice a week. The distributor maintains a godown with up to one month’s stock in inventory.

• Sales incentive and marketing decisions: The company sets monthly sales targets for the distributors. The incentive system was not divulged for the purpose of the project. The distributor, however, pays a fixed salary to his employees. The distributor rarely sets targets for individual stores, except perhaps during festive seasons. He may adjust the margin to retailers as incentive. As mentioned earlier, the distributor plays a very minimal role in pricing and promotion decisions. This is also true in the case of Reckitt-Benckiser and Britannia.

• Information flow: The retailer is expected to maintain weekly record of item-wise sales. The information from the retailers reaches the company through the salesperson in charge of the store. This is then fed to an online system supplied by the company along with information regarding every order processed. Thus the company has real-time information of demand and supply. This information is then collated and analysed at the regional and national level by the company. Through this sophisticated system, every individual box of confectionary can be traced from the factory to the retail store through all the intermediate steps. Same procedure is followed for Reckitt-Benckiser and Britannia. Each company has provided its own software to all its distributors.

MUTUAL EXPECTATIONS OF EACH STAKEHOLDER

From the point of view of the distributor, it is very important that the company gets its pricing and promotion strategies right. He has very little control over these factors, but is very strongly affected by these because all his products are commoditised to the extent that brand loyalty is not strong. All the brand promotions carried out by the company also help the distributor. Though he expects timely delivery from the company, he has up to one month’s inventory to take care of emergencies.

The company (in this case Cadbury) expects the distributor to maintain the information flow meticulously so that the company can track trends closely. It wants the distributor to promote its product to the retailers over rival products. The monthly and quarterly sales targets are expected to be met. The retailers expect timely delivery from the distributor. Any problem regarding quality that the retailers have goes to the company through the distributor.

ANALYSIS OF THE CURRENT SYSTEMThe distinct advantages that the current system has for all the players:

° Distinct territories ensure that there is no cannibalisation of sales by various distributors. At the same time, it also gives maximum coverage to the company to cater to every part of the city.

° A lean distribution system with few intermediaries ensures that there are fewer losses and profit distribution is also among lesser stake holders. The tracking and monitoring becomes easier.

° Cadbury as well as its distributors follow a very efficient inventory control system by virtue of detailed data available about sales at all retail shops.

° The software used by the company and also by the distributors (Omkar in the case of Cadbury, Zoom for Reckitt-Benckiser) allows the companies to gauge market trends effectively. It also gives them the capability of tracking a given merchandise through all the intermediaries to the final retailer in case of problems.

The system has evolved over years and through efficient management has overcome many anticipated problems. Nevertheless, it has its share of inefficiencies:° Distributors have no scope to expand into new areas° Distributors cannot take pricing decisions – no scope for promoting

Cadbury’s products° Sales force works on a fixed salary system

SUGGESTIONSOne area of concern we found was that the territories are so rigidly allotted by the company that the distributor has no scope for growth except when new retailer come up in his area. This problem is especially true for distributors in the interiors of large cities. Another point is that the distributors have no control over margins paid to retailers. As a result they have no way of incentivising the retailers to help them meet the sales targets set by the company. The distributor can be effectively utilised to device seasonal promotional campaigns during festivals especially at the local level.