Gino BurnersRoll No 11359

Problem statement

In what way can David Zou strike a balance between the current distributors and the company’s own strategic objectives in view of the offer from FEIMA for OEM status.

Key Facts

RangeAverage transfer price to distributors Market size AverageBase price Public price

Price charged to OEMS

Price OEMS want to pay

Domestic 2500 79900 30800 49280 36960 32032

Commercial 9000 20080 110880 177408 133056 115315.2

Industrial 65000 2920 800800 1281280 960960 832832

Situational AnalysisBargaining power of distributors has increased

over the years .Revenue contributions have been highDistributors providing Sales, services, Credit and

stocking servicesBargain for quotas and lower prices with Gino.Jinghua currently opposing the deal.Gino wants to build OEM accounts and

specifically for Industrial burners. Whereas current distributors already contributing a lot of margin from domestic and commercial burners

Distributor statisticsRevenues

RangeAverage transfer price to distributors Jinghua fung Wayip

Domestic 2500 10885000 7687500 8645000

Commercial 9000 7884000 3897000 5112000

Industrial 65000 2405000 3120000 3380000

Margins

Jinghua fung Wayip Total

Domestic 2177000 1537500 1729000 5443500

Commercial 1971000 974250 1278000 4223250

Industrial 721500 936000 1014000 2671500

Total 4869500 3447750 4021000

Direct OEM contractsDirect OEM contracts

Range

Price charged by distributor

Price to be charged by company

Current demand from FEMA

Demand met by distributors

possible demand at 50% contract

possible demand at 40% contract

Domestic 36960 32032 1055 350 528 422Commercial 133056 115315.2 163 50 82 65Industrial 960960 832832 71 3 36 28

Revenues TotalDomestic 12936000 16896880 13517504

Commercial 6652800 9398189 7518551

Industrial 2882880 29565536 23652429 Total 22471680 55860605 44688484

Direct OEM contracts only for Industrial range

RangePrice charged by distributor

Price to be charged by company

Current demand from FEMA

Demand met by distributors

possible demand at 50% contract

possible demand at 40% contract

Domestic 36960 32032 1055 350 0 0

Commercial 133056 115315.2 163 50 0 0

Industrial 960960 832832 71 0 36 28

Revenues

Total

Domestic 12936000 0 0

Commercial 6652800 0 0

Industrial 0 29565536 23652429 or

Total 19588800 29565536 23652429 49154336 43241229

Revenues under different optionsFEIMA demand matrix

S.no Transaction type Revenues generated

(Current Demand) (50% orders) (40% orders)

1Demand met entirely by distributors 22471680

2 Demand met by GINO 55860605 44688484

3

demand of Industrial only met by GINO and rest by distributor 49154336 43241229

Cost of A Gino warehouse

Sunk costs 200000 RMB

Operational cost 30000 RMB/Month

Value of Inventory 5000000 RMB for 1200 Units/Month

Decision OptionsOption 1- Let the distributors supply to the

OEMS directly with the consent of the company and give additional 10% discount on price

Option2- Sell Industrial burner directly to OEM and let the distributors sell domestic and commercial to the OEM’s

Option 3- Refuse to sell to the OEM

Profits gained by selling to OEMDirect OEM contracts only for Industrial range

RangePrice charged by distributor

Price to be charged by company

Current demand from FEMA

Demand met by distributors

possible demand at 50% contract

possible demand at 40% contract

Domestic 36960 32032 1055 350 0 0

Commercial 133056 115315.2 163 50 0 0

Industrial 960960 832832 71 0 36 28

Contributions

Total

Domestic 175000 0 0

Commercial 112500 0 0

Industrial 0 735986 588788.8 Profit 1 Profit 2

Total 287500 735986 588788.8 1023486 876288.8

recommendationThe company can go with option 2 wherein it sells only industrial

burners directly to the OEM and negotiates with the OEM to buy domestic and commercial range from the Distributor

The OEM will have to be convinced on this by justifying the additional discount of 10% on expensive item which is Industrial burners and hence the OEM should be convinced to buy more quantity of Commercial and domestic burners from the Distributor

The distributors can be convinced by telling them of the Lost sales in the previous quarter and also the benefit of saving Inventory carrying costs and other costs of stocking and servicing industrial burners. Moreover the Distributors can be shown the option that the OEM will buy other category of burners in large numbers if they are able to sell industrial burners at Discount.

The revenue that the company makes in selling the Burners directly to OEM can help set up a warehouse operations directly controlled by the company