Effectiveness and Efficiency of Distribution Channels in FMCG

8/12/2019 Effectiveness and Efficiency of Distribution Channels in FMCG

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Effectiveness and Efficiency ofDistribution Channels In FMCGFast Moving Consumer Goods popularly known FMCG is as the name

suggests is the most demanded products in the market. It includes everythingfrom food items like flour, biscuits, ice creams, etc to body products soaps,face creams to cigarettes to beverages, etc. consumers need these things intheir everyday life so they investsa good portion of there income in these things. There are so many companieswhich are dealing in FMCG products like HUL, Dabur, Cavin Care, AMULdealing in dairy products, etc. By the vary nature of the product the companiesare seeing this as a great source of income. As large number of companiesare looking this sector as a profitable venture, so for sustaining there positionand gain new market they have to bring some thing unique in their products or

services to gain position in the market or to sustain there.In modern business distribution network has a great impact on the success ofany business. In the FMCG segment the role of a excellent distributionchannel becomes even more crucial because the delivery of FMCG Product isconfined to day to day basic. Hence in order to survive and thrive in a highlycompetitive market you have to have a distribution channel which has noproblem at any point of the distribution channel.The factor which is of crucial importance to survive in any business is theunderstanding of the mind of the individual consumers. What are maincharacteristics which consumer consider while making a purchasing decision

regarding FMCG Product.In order to make right decision regarding all these aspects the companyrequires a complete knowledge of the problems faced in distribution channeland what should be done in order to overcome all these problems.Better infrastructure facilities will improve their supply chain. FMCG sector isalso likely to benefit from growing demand in the market. Because of the lowper capita consumption for almost all the products in the country, FMCGcompanies have immense possibilities for growth. And if the companies areable to change the mindset of the consumers, i.e. if they are able to take theconsumers to branded products and offer new generation products, they

would be able to generate higher growth in the near future.

Table of ContentsIntroduction

A Distribution Channel is a set of interdependent organizations(intermediaries) involved in the process of making a product or serviceavailable for use or consumption by the consumer or business user.


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Channel decisions are among the most important decisions that managementfaces and will directly affect every other marketing decision.Functions of Distribution Channel

All Use Up Scarce ResourcesAll May Often Be Performed Better Through Specialization

All Can Often Be Shifted Among Channel Members

Types of Distribution ChannelA channel of distribution or trade channel is the path or route along whichgoods move from producers to ultimate consumers or industrial users. In otherwords, it is the distribution network through which a producer puts his productin the hands of actual users. The channel of distribution includes the originalproducer, the final buyer and any middlemen-either wholesaler or retailer. Theterm middleman refers to any institution or individual in the channel whicheither acquires title to the goods or negotiates or sells in the capacity of an

agent or broker. But facilitating agencies that perform or assist in marketingfunction are not included as middlemen in the channel of distribution.

This is because they neither acquire title to the goods nor negotiate purchaseor sale. Such facilitating agencies include banks, railways, roadways,warehouses, insurance companies, advertising agencies, etc.The following diagram (chart) is illustrative of the channel of distribution whichmay exist in a market:The above chart indicates that the number of middlemen may vary. If there isdirect sale by the produce to the consumers then there is no middleman. Butthat is very rare. As the chart shows the producer may sell goods to retailerwho may then sell the same to consumers. The producer may sell goods towholesalers who may inturn sell to retailers and the retailer may sell toconsumers. The fourth alternative channel of distribution is when any

agent/dealer intervenes between the producer and retailers and acts as amiddlemen. The agent is appointed by the producer for the sale of goods tothe retailers. Another alternative channel is there when producers agent sellsgoods to wholesalers who sell to retailers. Agent/dealer is an independentperson/firm buyinggoods and selling them to retailers. Agent/dealer may also sell to wholesalerswho may then sell to retailers and goods are thus made available to
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consumers. In the channel of distribution there may be more than oneagent/dealer and wholesaler.

A brief explanation of different channels of distribution is given below:Manufacturer Customer: This is also known as direct selling because nomiddlemen are involved. A producer may sell directly through his own retailstores, for example, Bata. This is the simplest and the shortest channel. It isfast and economical. Small producers and producers of perishablecommodities also sell directly to the local consumers. Big firms adopt directselling in order to cut distribution cost and because they have sufficientfacilities to sell directly to the consumers. The producer or the entrepreneurhimself performs all the marketing activities.Manufacturer RetailerCustomer: This is one stage distribution channelhaving one middleman, i.e., retailer. In this channel, the producer sells to bigretailers like departmental stores and chain stores who in turn sell to

customer. This channel is very popular in the distribution of consumerdurables such as refrigerators, T V sets, washing machines, typewriters, etc.This channel of distribution is very popular these days because of emergenceof departmental stores, super markets and other big retail stores. The retailerspurchase in large quantities from the producer and perform certain marketingactivities in order to sell the product to the ultimate consumers.Manufacturer WholesalerRetailerCustomer: This is the traditional channelof distribution. There are two middlemen in this channel of distribution,namely, wholesaler and retailer. This channel is most suitable for the productswith widely scattered market. It is used in the distribution of consumer

products like groceries, drugs, cosmetics, etc. It is quite suitable for smallscale producers whose product line is narrow and who require the expertservices and promotional support of wholesalers.

Selection Criteria of a Distribution ChannelWhile selecting a distribution channel, the entrepreneur should compare thecosts, sales volume and profits expected from alternative channels ofdistribution. In order to select the right channel for distributing his product, asmall-scale manufacturer should keep in mind the following considerations:


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Market Considerations: The nature of the market is a key factor influencingthe choice of channels of distribution. The following features of the marketshould be considered to determine the channels:Consumer or Industrial Market: If the product is meant for industrial users, thechannel of distribution will be a short one. This is because industrial users buy

in a large quantity and the producer can easily establish a direct contact withthem. But in case for goods meant for consumers, retailers may have to beincluded in the channels of distribution.Number and location of buyers: When the number of potential customers issmall or the market is geographically located in a limited area, direct selling iseasy and economical. In case of large number of customers, use ofwholesalers and retailers becomes necessary.Size of order: Direct selling is convenient and economical where customersplace order in big lots as in case of industrial goods. But where the product issold in small quantities, middlemen are used to distribute such products. Amanufacturer may use different channels for different types of buyers. He maysell directly to big retail stores and may use wholesalers to sell to smallretailers.Customers buying habits: The customer buying habits like the time he iswilling to spend, the desire for credit, the preference of personal attention andone stop shopping significantly affect the choice of distribution channels.Product Considerations: The type and nature of the product influence thenumber and type of middlemen to be chosen for distributing the product. Theimportant factors with respect to the product are as follows:

Unit value: Products of low unit value and common use are generally soldthrough middlemen, as they cannot bear the cost of direct selling. On theother hand, expensive consumer goods and industrial products are solddirectly by the producers.Perishability: Perishable products like vegetables, fruits and bakery itemshave relatively short channels, as they cannot withstand repeated handling.Goods, which are subject to frequent changes in fashion and style, aregenerally distributed through short channels, as the producer has to maintainclose and continuous touch with the market.Bulk and weight: Heavy and bulky products are distributed directly to minimize

handling costs. Coal, bricks, stones, etc., are some examples.Standardisation: Custom-made and non-standardised products usually passthrough short channels due to the need for direct contact between theproducer and the consumers. Standardized and mass-made goods can bedistributed through middlemen.


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Technical nature: Industrial products requiring demonstration, installation andaftersale service are often sold directly. The consumer products of technicalnature are generally sold through retailers.Product line: An entrepreneur producing a wide range of products may find iteconomical to set up its own retail outlets. On the other hand, firms with one

or two products find it profitable to distribute through wholesalers and retailers.Age of the product: A new product needs greater promotional effort and fewmiddlemen may like to handle it. As the product gains acceptance in themarket, more middlemen may be employed for its distribution.

Middlemen Considerations: The cost and efficiency of distribution dependlargely upon the nature and type of middlemen as given in the followingfactors:

Availability: When middlemen as desired are not available, an entrepreneurmay have to establish his own distribution network. Non-availability ofmiddlemen may arise when they are handling competitive products, as theydo not like to handle more brands.

Attitudes: Middlemen who do not like a firms marketing policies may refuse tohandle its products. For instance, some wholesalers and retailers demand

sole selling rights or a guarantee against fall in prices.Services: Use of those middlemen is profitable who provide financing,storage, promotion and aftersale services.Sale Potential: An entrepreneur generally prefers a dealer who offers thegreatest potential volume of sales.Costs: Choice of a channel should be made after comparing the costs ofdistribution through alternative channels.Company Considerations: The nature, size and objectives of the business firmalso play an important role in the selection of distribution channel. It includesfinancial resources, market

standing, volume of production, desire for control of channel, servicesprovided by manufacturers', etc. For example a company with substantialfinancial resources need not rely too much on the middlemen and can affordto reduce the levels of distribution. Similarly a company desiring to exercisegreater control over channel will prefer a shorter channel.

After deciding the number of middlemen, an entrepreneur has to select theparticular dealers through whom he will distribute his products. While selecting


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a particular wholesaler or retailer, the following factors should be taken intoconsideration:a. Location of dealers business premises;b. Financial position and credit standing of the dealer;c. Knowledge and experience of the dealer;

d. Storage and showroom facilities of the dealere. Ability of the dealer to secure adequate business and to cover the market;f. Capacity of the dealer to provide aftersale service;g. General reputation of the dealer and his sales force;h. Willingness of the dealer to handle the entrepreneurs products;i. Degree of co-operation and promotion service he is willing to provide;

j. Nature of other products, if any handled by the dealer.

Need for Distribution ChannelWhy are all these layers needed in distribution ? Why cant a producer simply

sell to a retailer, who sells to a consumer? Its a fair question, and in somecases, that is exactly how it happens. But the fact is that many producers areeither too small or too large to handle all the necessary functions themselvesto gettheir products to market.Consider the small, specialty manufacturer who is terrific at making fineleather handbags but may not have the expertise to market its products aswell as it makes them, or they may not have the money to hire a team of full-time salespeople to court the customers and secure the orders. Anintermediary

who works for several small, noncompeting firms can easily handle thosefunctions cost-effectively. An intermediary who specializes in importing andexporting can handle the intricacies of customs paperwork, overseas shipping,and foreign markets, too.

Conversely, large companies need intermediaries because they are also inthe business of manufacturing, not marketing. Turning out tens of thousandsof cases of soft drinks, for instance, do you think Pepsi has time to take and fillindividual orders from households? Channel members like wholesalers andretailers


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are useful because they are best at specific aspects of sales in their markets,leaving the manufacturers to do what they do bestwhich is turn out the bestpossible product.Having a distribution channel breaks the whole buying and selling processand all its related negotiations into manageable tasks, each performed by

companies that specialize in certain skills. Using an import wholesaler, forexample, can be handy because they know the laws and customs of thesuppliers nations; and they generally offer their own lines of credit so theretailer wont have to deal with currency exchange or negotiate payment termswith a bank in another country.

Another advantage of the distribution channel is its ability to even out thenatural ebbs and flows of a supply chain. This comes from the ability of somechannel members to store excess goods until they are needed, and tostockpile goods in anticipation of seasonal sales peaks. Depending on howclose their relationships, channel members may also work together topurchase goods or services in greater quantity at discounts, passing thesavings on to customers.Even for consumers, the distribution chain is handybeyond handy, in fact! Ithas become a necessity in our society. What if there were no supermarkets,for instance? Can you imagine how much more time and money you wouldspend having to buy every item at its source? How practical would it be to runout to the nearest farm to pick up a quart of milk and some salad ingredientson your way home from work?FMCG Sector

OverviewFMCG is an acronym for Fast Moving Consumer Goods, which refer to thingsthat we buy from local supermarkets on daily basis, the things that have highturnover and are relatively cheaper. Products which have a quick turnover,and relatively low cost are known as Fast Moving Consumer Goods (FMCG).FMCG products are those that get replaced within a year. Examples of FMCGgenerally include a wide range of frequently purchased consumer productssuch as toiletries, soap, cosmetics, tooth cleaning products, shaving productsand detergents, as well as other non-durables such as glassware, bulbs,batteries, paper products, and plastic goods. FMCG may also include

pharmaceuticals, consumer electronics, packaged food products, soft drinks,tissue paper, and chocolate bars.

A subset of FMCGs is Fast Moving Consumer Electronics which includeinnovative electronic products such as mobile phones, MP3 players, digitalcameras, GPS Systems and Laptops. These are replaced more frequentlythan other electronic products.


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White goods in FMCG refer to household electronic items such asRefrigerators, T.Vs, Music Systems, etc.These types of goods are required frequently by consumers and so a largepart of the monthly salary or income will be spent on buying all the goodslisted on the consumers shopping list. New players keep joining the FMCG

circles but find the going tough unless they have a well planned strategy alongwith large cash reserves for their product promotion. A particular FMCGcompany might be a strong urban market leader, but will still find it tough toenter the rural markets or a new Indian state or area.

Although FMCG companies generate a large volume of sales and money,they are always under pressure as they keep facing a lot of competition fromtheir fellow competitors. Due to this, the FMCG companies try to do their levelbest in maintaining a fine balance in their profits and the product price. Thusthey keep facing new challenges on their margins month after month.One of the key factors for an FMCG company to do well is a properdistribution network. If a distribution network of a particular FMCG company iswell oiled, then that particular FMCG Company will definitely find the goingmuch easier in the market. But companies have to allot a large chunk of their

finances in developing and fine tuning their distribution networks.The promotion of a product of an FMCG company too is considered verycrucial for its success. The market has many players. Every FMCG companyhas to fight for its space and audience in the Indian market. Thus, when amultinational company enters the Indian market, it creates an even biggerchallenge to the existing players on the FMCG scene. If the promotion is donewell, then the manufacturing of the product can even be outsourced. This cansave valuable finance for a company. This in turn will help the company toutilize their energies on other aspects of their product. Some of the top playerson the FMCG scene in India are Hindustan Unilever Ltd., ITC (Indian Tobacco

Company), Nestl India and Dabur India.So, we can say that FMCG are the products which are:Sold quickly at relatively low costSold in large quantitiesHave low absolute profit but high cumulative profit

Sector Performance


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FMCG is one of the few sectors that has been unscratched and has shownconsistent growth despite economic recession and this can be proved bysome of the leading magazines articles like:

According to Business StandardFMCG resilient to the economic slowdownand dip in consumer sentiment.

According to Economic times it is one of the very few sectors undergoing M&Ain recent times.Economic times also comment that Indian rural market in untapped andunpenetrated.The growth in this sector is also evident from the fact that many FMCGcompanies are planning to foray into West Asia, South Africa and Egypt.FMCG industry provides a wide range of consumables and accordingly theamount of money circulated against FMCG products is also very high. Thecompetition among FMCG manufacturers is also growing and as a result ofthis, investment in FMCG industry is also increasing, specifically in India,where FMCG industry is regarded as the fourth largest sector with totalmarket size of US$13.1 billion. FMCG Sector in India is estimated to grow60% by 2010. FMCG industry is regarded as the largest sector in NewZealand which accounts for 5% of Gross Domestic Product (GDP).Some of the merits of FMCG industry, which made this industry as a potentialone are low operational cost, strong distribution networks, presence ofrenowned FMCG companies. Population growth is another factor which isresponsible behind the success of this industry.

Some of the well known FMCG companies are :Sara LeeNestlReckitt BenckiserUnilever

Procter & GambleCoca-ColaCarlsbergKleenexGeneral MillsPepsiMars etc.


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FMCG industry creates a wide range of job opportunities. This industry is astable, diverse, challenging and high profile industry providing a wide range of

job categories like sales, supply chain, finance, marketing, operations,purchasing, human resources, product development, and generalmanagement.

Indian FMCG SectorFMCG is the fourth largest sector in the Indian Economy with a total marketsize of Rs. 60,000 crores. FMCG sector generates 5% of total factoryemployment in the country and is creating employment for three millionpeople, especially in small towns and rural India.The FMCG sector in India is a sector which is dominated by a high levelcompetition between all the players. This particular sector includes MNCs aswell as local Indian companies. Certain companies are leaders in a particularstate or area. While some of the companies are very strong in the rural areas

compared to the urban areas. Some of the most powerful companies in theFMCG sector are: Hindustan Unilever Ltd., ITC (Indian Tobacco Company),Nestl India, GCMMF (AMUL), Dabur India, Asian Paints (India), CadburyIndia, Britannia Industries, Procter & Gamble Hygiene and Health Care andMarico Industries. All these companies have a proper distribution networkalong with proper product promotion tools which have helped them toregularly increase their sales and visibility on the Indian scene.Well-established distribution networks, as well as intense competition betweenthe organised and unorganised segments are the characteristics of thissector. FMCG in India has a strong and competitive MNC presence across the

entire value chain. It has been predicted that the FMCG market will reach toUS$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The middle class andthe rural segments of the Indian population are the most promising market forFMCG, and give brand makers the opportunity to convert them to brandedproducts. Most of the product categories like jams, toothpaste, skin care,shampoos, etc, in India, have low per capita consumption as well as lowpenetration level, but the potential for growth is huge.The Indian Economy is surging ahead by leaps and bounds, keeping pacewith rapid urbanization, increased literacy levels, and rising per capita income.The big firms are growing bigger and small-time companies are catching up

as well. According to the study conducted by AC Nielsen, 62 of the top 100brands are owned by MNCs, and the balance by Indian companies. Fifteencompanies own these 62 brands, and 27 of these are owned by HindustanLever. Pepsi is at number three followed by Thums Up. Britannia takes thefifth place, followed by Colgate (6), Nirma (7), Coca-Cola (8) and Parle (9).These are figures the soft drink and cigarette companies have always shiedaway from revealing. Personal care, cigarettes, and soft drinks are the three


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biggest categories in FMCG. Between them, they account for 35 of the top100 brands.

Hindustan Unilever Limited has been operating in India from a long time. Theyare Indias largest FMCG Company and are also one of Indias largestexporters. The list of their popular products is a very large one. Some of theirpopular products are Lifebuoy, Rexona, Lux, Liril, Lipton Tea, Brooke BondTea, Bru Coffee, Pepsodent, Surf, Rin, Wheel Laundry Detergent and Kissan.The company has an excellent research centre which was established in 1958

and has a strong team of highly qualified scientists. Recently they havelaunched new projects like Ayush Ayurvedic Products & Services and PureitWater Purifiers.ITC which was set up in 1910 in India was earlier known as Imperial TobaccoCompany of India Limited. ITC has a vast presence in wide array of productsand some of them are greeting cards, cigarettes, paperboards, packaging,branded apparel, foods & confectionery and FMCG products. ITC has provedits worth by being one of Indias biggest foreign exchange earners. Although italready has many leading products from a long time, it is recently wooing oversuccessfully new customers in its businesses of branded apparel, packaged

foods & confectionery and greeting cards & stationery.Nestl first made its presence in India in 1912. It has always managed to getitself listed in India's 'Most Respected Companies'. This has been possibledue to its practice of producing products of a global standard in India. It hasalso been able to provide customer satisfaction to the consumers of itsproducts.The success of Gujarat Cooperative Milk Marketing Federation (GCMMF) hasproved that a cooperative too can grow into a top class company if it is backedby proper vision, hard work and a quality product. This has helped it tobecome the largest food product marketing organization in India. Some of its

popular products are Amul Ice cream, Amul Milk, Amul Butter, AmulShrikhand, Amul Milk Powder, Amul Ghee and Amul Cheese.Thus the above four examples show a variety of factors which are responsiblefor turning a company into a leading FMCG company.The top 10 companies in India are as follows:The FMCG sector can be sub classified into:


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Personal Care: The personal care category has the largest number of brands,i.e., 21, inclusive of Lux, Lifebuoy, Fair and Lovely, Vicks, and Ponds. Thereare 11 HLL brands in the 21, aggregating Rs. 3,799 crore or 54% of thepersonal care category. Cigarettes account for 17% of the top 100 FMCGsales, and just below the personal care category. ITC alone accounts for 60%

volume market share and 70% by value of all filter cigarettes in India.Foods: The foods category in FMCG is gaining popularity with a swing oflaunches by HLL, ITC, Godrej, and others. This category has 18 majorbrands, aggregating Rs. 4,637 crore. Nestle and Amul slug it out in thepowders segment. The food category has also seen innovations like softies inice creams, chapattis by HLL, ready to eat rice by HLL and pizzas by bothGCMMF and Godrej Pillsbury. This category seems to have fasterdevelopment than the stagnating personal care category. Amul, India's largestfoods company, has a good presence in the food category with its ice-creams,curd, milk, butter, cheese, and so on. Britannia also ranks in the top 100FMCG brands, dominates the biscuits category and has launched a series ofproducts at various prices.

Household care: In the household care category (like mosquito repellents),

Godrej and Reckitt are two players. Goodknight from Godrej, is worth aboveRs 217 crore, followed by Reckitt's Mortein at Rs 149 crore. In the shampoocategory, HLL's Clinic and Sunsilk make it to the top 100, although P&G'sHead and Shoulders and Pantene are also trying hard to be positioned on top.Clinic is nearly double the size of Sunsilk.Herbal care: Dabur is among the top five FMCG companies in India and is aherbal specialist. With a turnover of Rs. 19 billion (approx. US$ 420 million) in2005-2006, Dabur has brands like Dabur Amla, Dabur Chyawanprash, Vatika,Hajmola and Real.Paint: Asian Paints is enjoying a formidable presence in the Indian sub-

continent, Southeast Asia, Far East, Middle East, South Pacific, Caribbean,Africa and Europe. Asian Paints is India's largest paint company, with aturnover of Rs.22.6 billion (around USD 513 million). Forbes Global magazine,USA, ranked Asian Paints among the 200 Best Small Companies in the WorldChocolates/Confectionary: Cadbury India is the market leader in the chocolateconfectionery market with a 70% market share and is ranked number two inthe total food drinks market. Its popular brands include Cadbury's Dairy Milk, 5


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Star, Eclairs, and Gems. The Rs.15.6 billion (USD 380 Million) Marico is aleading Indian group in consumer products and services in the Global Beautyand Wellness space.

Outlook for FMCG Sector:

There is a huge growth potential for all the FMCG companies as the percapita consumption of almost all products in the country is amongst the lowestin the world. Again the demand or prospect could be increased further if thesecompanies can change the consumer's mindset and offer new generationproducts. Earlier, Indian consumers were using non-branded apparel, buttoday, clothes of different brands are available and the same consumers arewilling to pay more for branded quality clothes. It's the quality, promotion andinnovation of products, which can drive many sectors.Methodology

Exploratory research:The exploratory research design is appropriate for any any problems in whicha very little knowledge is available. An Exploratory study is in the nature of apreliminary phase and is absolutely essential in order to obtain a properdefinition of problem in hand. So it is helpful in breaking broad and vagueproblems into smaller, more precise sub problem statements, hopefully, in theform of specific hypothesis.In this study the exploratory research has been used to frame structurequestionnaires, individuals with knowledge and ideas have been interviewedto get the idea to frame structure questionnaire. A part from books and

journals has been used to gather information about the insurance and the

insurance industry.

Data Collection:In this study internal and external source for data collection had been used. Inthe internal and external sources of data collection these two types of datacomes into picture:Primary DataSecondary DataPrimary Data

All the primary data for the purpose of the study were obtained by interviewing

the retailers with the help of a questionnaire. Questionnaires were framed onthe basis of product & its competition. The questions were designed in such away as to elicit maximum information and data.


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Secondary DataSecondary data has been collected from books and websites.Internet websites:www.google.com,www.Coca-Cola.com,www.wikipedia.com,www.coca-colaindia.comMagazines - Business World Management and Technology

QuestionnaireThere can be two types of questionnaire.

Questionnaire for Whole sellers:Name: ...................................................... Age: ..........................

Area: .......................................................... Years in the Business:. .....Date...................................................................http://2.bp.blogspot.com/_STNJ3qjC9Nk/SX30qf_Ve3I/AAAAAAAAAcU/P3nV5aXUBdY/s320/Coca-Cola_logo5.jpgQ1. Which coca cola cold drink brand sells the most?

Coke b. ThumsUp c.Limca d. Sprite e. Fanta f. Maaza g.OthersQ2. Which mineral water sells the most?Kinley b. Aquafina c. Bisleri d. Local brandsQ3. What type of package cold drinks sells the most?300ml bottle b. 600 ml pet bottle c.1.5L family pack d. OthersQ4. What is the replacement time on an average?Within 2-3 days b. Weekly c. 15 days d. MonthlyQ5. How many times you lose sales in case of non availability in a day?2-5 times b. 5-10 times c. More than 10Q6. Do customers ask specifically coke or any other brand?

Yes NoQ7. What is the margin on the cost price that you earn on a bottle/crate??5-10% b.10-15% c. 15-20% d. 20-25%Q8. What is the cost price of a bottle/crate??..........................Q9. What incentives do you get from the company for selling largequantities??Cash Incentives b. Other Please specify...................................


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Q10. How many bottles break in a crate on an average??1-2 b. 3-4 c. More than 5Q11. What happens to the bottles that are broken?Company takes it back b. Sells it to Kabariwala c.OtherQ12. Who bears the loss of the broken bottles?

Retailer b. Company c. Sharing between Retailer and CompanyQ13.How much do the sales increase in peak season?Double b. 3 times c. 4 times d. 5 times e. HigherQ14. Is the supply sufficient to meet demands in peak season?Yes NoQ15. What extra does company does in peak sale season?Increase in stocks b. More frequent replacements c. OthersQ16. Does any company representative comes and meet you?Yes NoQ17. If yes then how frequently do they come?Weekly b. Monthly c. In 6months d. Yearly f. NeverQ18. Is there any complaint/feedback mechanism?Yes NoQ19. Do you have any complaints/feedback towards the company?...........................................................................................................................................................

Questionnaire for Company Representatives:Name: ...................................................... Age: ..........................Designation: ............................................

Date.................................http://2.bp.blogspot.com/_STNJ3qjC9Nk/SX30qf_Ve3I/AAAAAAAAAcU/P3nV5aXUBdY/s320/Coca-Cola_logo5.jpgQ1. Which coca cola cold drink brand has the maximum sales?Coke b. ThumsUp c.Limca d. Sprite e. Fanta f. Maaza g.OthersQ2. Which type of packing sells the most?300ml bottle b. 600 ml pet bottle c.1.5L family pack d. OthersQ3. What is the annual supply of cold drinks? ...................................Q4. What are the annual regional sales in Delhi/NCR region?.........................................Q5. What is the seasonal effect on the sales and what does company do to

tackle the problem?

.

.


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Q6. What percentage of bottling is done by the company vis-a vissubsidiaries?Company.. b. SubsidiariesQ7. What are the major bottling companies of the company?..........................................................

...Q8. What is the revenue sharing model that the company adopts with thebottling plants owned by franchisees?

Q9. What incentives that the company fives to distributors and large retailers?

..Q10. What is the margin given to the following on an average:Distributors..Retailers..Q11. What happens to the bottles that break during transportation?Company takes it back b. Sells it to Kabariwala c.OtherQ12. Who bears the loss of the broken bottles?Retailer b. Company c. Sharing between Retailer and CompanyQ13.How much does the sales increase in peak season?Double b. 3 times c. 4 times d. 5 times e. HigherQ14. What does company do to meet the demands in peak season?

Q15. Is there any complaint/feedback mechanism for the distributor andretailers?Yes NoQ16. What is the process for reverse logistics of bottles?


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Case Study: Study of Distribution Channel of Coca-Cola

Distribution Network of Coca Cola:HCCBPL has a wide and well managed network of salesmen appointed fortaking up the responsibility of distribution of products to diverse parts of thecities. The distribution channels are constructed in such a way that thedemand of customers is fulfilled at the right place and the right time when it isneeded by them.

A typical distribution chain at HCCBPL would be:Production --- Plant Warehouse --- Depot Warehouse --- DistributionWarehouse --- Retail Stock --- Retail Shelf --- Consumer The customers of the

Company are divided into different categories and different routes, and everysalesman is assigned to one particular route, which is to be followed by himon a daily basis. A detailed and well organized distribution system contributesto the efficiency of the salesmen. It also leads to low costs, higher sales andhigher efficiency thereby leading to higher profits to the firm.DISTRIBUTION ROUTES The various routes formulated by HCCBPL fordistribution of products are as follows:Key Accounts: The customers in this category collectively contribute a largechunk of the total sales of the Company. It basically consists of organizationsthat buy large quantities of a product in one single transaction. The Company

provides goods to these customers on credit, payments being made by themafter a certain period of time i.e. either a month of half a month.Examples: Clubs, fine dine restaurants, hotels, Corporate houses etc.Future Consumption: This route consists of outlets of Coca-Cola products,wherein a considerable amount of stock is kept in order to use for futureconsumption. The stock does not exhaust within a day or two, instead as andwhen required stocks are stacked up by them so as to avoid shortage or non-availability of the product.Examples: Departmental stores, Super markets etc.Immediate Consumption: The outlets in this route are those which require

stocks on a daily basis. The stocks of products in these outlets are not storedfor future use instead, are exhausted on the same day and might run a littleinto the next day i.e. the products are consumed at a fast pace.Examples: Small sized bars and restaurants, educational institutions etc.General: Under this route, all the outlets that come in a particular area or anarea along with its neighbouring areas are catered to. The consumption periodis not taken into consideration in this particular route.


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DISTRIBUTION SYSTEMDirect distribution: In direct distribution, the bottling unit or the bottler partnerhas direct control over the activities of sales, delivery, and merchandising andlocal account management at the store level.Indirect distribution: In indirect distribution, an organization which is not part ofthe Coca-Cola system has control on one or more of the distribution elements(Sales, delivery, merchandising and local account management)Merchandising: Merchandising means communication with the consumer at

the point of purchase to convey product benefit, value and Quality. Salespeople and delivery personnel both have this responsibility. In certainlocations special teams who go into business locations to specificallymerchandise our products.

DEPARTMENTS INVOLVED IN THEDISTRIBUTION PROCESS:The Distribution process mainly consists of three departments:Distribution Department: It appoints distributors and establishes a distributionnetwork, processes approved sale orders and prepares invoices, arranges

logistics and ship products, co-ordinates with distributors for collections andmonitors distribution stocks and their set-up.Finance Department: It checks credit limits and approves sales orders incompliance with the credit policy followed by the firm, records collections fromdistributors, periodically reconciles outstanding balances from distributors,obtains balance confirmation from distributors and follows up outstandingbalances.Shipping or Warehousing Department: It dispatches goods as per approvedby order, ensures that stocks are dispatched on a FIFO basis, ensuresphysical control over load out area and updates warehouse stock records in a

timely manner.Data Analysis and InterpretationOn the basis of the survey done the inferences can be drawn as follows:

Packaging and sales:From the survey it can be easily found that the maximum sales happen for the300ml bottles and then come the 600ml packaging. When coming to family


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pack and cans their sales are very less in numbers and it is driven mainly bythe region. It means that the sales of can will be higher in ares near theschools/college that is the area in the youth vicinity whereas the sales offamily pack is in residential areas.For the pictorial representation, considering only 2 types of packing i.e. 300ml

and 600ml.Their sales can be represented as:This shows that the sales of the company is driven mainly by the 300mlfollowed by 600ml and the rest packaging styles are just an add on for thecompany.Replacement Time: Most of the retailers were happy with the replacement ofthe stock. The average time came out to be within 1 to 2 days that is a goodsign for the company. This helps the company to interact more frequently withthe retailers and ensures that no sales are lost due to unavailability of thestock.Customer Behavior: Customer behavior is also on the company side as mostof the customers specifically ask for the companys product.This data can be show as:This is a good sign for the company as in such times of competition havingbrand loyalty is not only important but it also helps the company to introducenew products much easily.Incentives for high Sales: From the survey it is clear that the company doesnot have a proper policy in place to reward the distributors and retailershaving high sales. This is an area of concern for the company as giving

incentives to the retailers would help in increase in sales and brand visibility ofthe company.

At present the company is only giving cash incentives to the retailers but itshould also start looking at awarding these retailers in some kind of annual

meet of the company so that the retailers feel of being a part of the company.Peak Season Demand and Supply: It is pretty evident from the survey that thecompany is unable to meet the demands in peak times of sales and thecompetitor is cashing on this weakness of the company.Most of the retailers say that the company is unable to meet the demand insummers and peak seasons and in times when the supply should be


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increased, the company cuts the supply causing loss of sales to the retailer aswell as the company.In peak season the increase in sales can be depicted as:From the graph it is clear that most of the retailers feel that the sales almostquadruples in peak season and there is no measure from the company to

meet this huge demand as the company changes nothing to meet thisdemand. The company has the same distribution strategy even in peakseason that leads to loss of sales for the retailers and making them unhappy.Reverse Logistics: The company has a proper channel in place for reverselogistics as follows:Coca ColaCOBO/FOBODistributorRetailersCustomersThe reverse logistics start from the customer and ends back to the company.The retailers are imposed monetary fines if they do not return the bottlesallotted to them.Core Issues and Parameters in supply of goods to the whole sellers:

Minimizing Order Processing Wait timesWait times occur in many places and are often a key determinant of thequality of logistics service (airlines wait times: pre, through, and post flightinspections; depot repair time; defect trouble shooting and repair time)For Coca-Cola the wait times of the products resulted in the supply chain

delivery system as seen in the figure below:Predicting the scheduling wait times for the delivery of the products andpaymentsWe perform a scheduling simulation using the predicted runtimes as the runtimes of the applications. This provides predictions of when applications willstart to execute.We simulate the FCFS, LWF, and back_ll scheduling algorithms and predictthe wait time for each application when the application is submitted to thescheduler

Demand ForecastingDemand is the desire of a customer to purchase your products or services.Demand is mainly affected by:Exogenous Factors:Economic ProsperityCompeting ProductsWeatherSeasonality


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Internal FactorsPromotionsNew Product IntroductionsReaction to competitors activitiesPricing Decisions

AdvertisingService LevelsDemand Management includes ALL decisions that a company makes thataffect demand.Need for Demand Forecasting:Need to make production/procurement/capacity decisions in advance of actualdemandIn a pure make-to-order environment or if lead times were 0, forecastingwould not be necessaryIncrease customer satisfactionReduce stock-outsSchedule production more efficientlyLower safety stock requirementsReduce product obsolescence costsManage shipments betterImprove pricing and promotion managementNegotiating superior terms with suppliersMaking more informed pricing decisionsSteps in the Forecasting Process

Establish objectives for the forecast.Determine what to forecast.Specify the time period for the forecast.Gather and analyze data.Select a forecasting method.Make the forecast.Present the forecast results.Monitor and control the forecast.Considerations in selecting a Forecasting Method:Type and amount of data available.

Underlying pattern of the past data.Forecast time horizon.Technical ability of the forecaster.Use of the forecast.

Attitude of the end user toward specific methods.Forecasting Methods:Judgment Methods:


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Nave ExtrapolationSales Force Composite: Each salesperson projects their sales. It is combinedat district and national levels.Jury of Executive Opinion: It involves group of high-level managers. Thegroup estimates demand working together. They combine managerial

experience with statistical models.Delphi Technique: It is an iterative group method.Forecasting Methods:Counting Methods:Market TestingConsumer Market Survey: Asking consumers about their purchasing plansIndustrial Market SurveyTime Series Methods:Moving AveragesExponential SmoothingTime Series ExtrapolationTime Series DecompositionBox-Jenkins MethodCausal MethodsCorrelation MethodsRegression MethodsEconometric Methods

Recommendation:Aggressive Marketing

Regular visit to distributorsSales promotion and advertising to be made more frequent for brand building .Communications should be improved. Fulfil the Demand of product bycompany. In the fields sales situation. Sales persons work independently andaway from the office .Good communication requires interaction between those preparing and thosereceiving reports. A good sales reporting system provides both forcommunication from the field to office and form office to the field.Sales reports provide data for evaluating performance.Company should make plans for better performance to the sales man.

Company should be implementing the customers suggestions and complaintsabout products, service policies, price changes, advertising companies etc.Company should gather information of competitors activities. Transportationconfers time utility and place utility to the product. It determines the companyscustomer service; it has also crucial bearing on the other elements of physicaldistribution and marketing.Conclusion


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To conclude we can say that the company should do the following to maintainan increase its sales:Increase in supply in peak seasonsMore incentives to retailers and distributorsFeedback mechanism for retailers

More consumer centric approach

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Effectiveness and Efficiency of Distribution Channels in FMCG