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Distributionnetworkofnestlekitkat 091110020450 Phpapp02
Distributionnetworkofnestlekitkat 091110020450 Phpapp02
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Details
Distribution Structure Of Nestle India - Structure - Ownership transfer - Transportation - Policies Selection of distributors Incentives to the distributors Motivation of Channel Partners Evaluation Distribution in Practice (DIP) Training Forecasting and target setting Channel Conflicts - Distributor - Sales Officer Distributor survey Ghaziabad Retailer Survey Delhi Observations Annexure A Annexure B
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Annexure C
End Consumer
Note: Wholesalers are not a part of the formal structure of Nestle Indias distribution network for NCR .They make bulk purchases from the distributors directly thereby leveraging on the margins.
FACTORY
Transfer Challan
MOTHER GODOWN
Transfer D.A
C&S AGENTS
C&S AGENTS
C&S AGENTS
C.D
C.D
C.D
STOCKISTS
OWNERSHIP TRANSFER
Stocks manufactured at the factories and co-packers reach the C&S through mother Godowns. The stocks stored at C&S are the property of Nestle. Encashment of stocks are done through Invoicing to Cash Distributors C&S as per the guidelines given to them. They
also receive and store support materials like give aways, stickers and complementary items etc.
Transportation
From the factory to the distributor stage the company ensures that there is availability of cool chain for transportation. At the mother godown (Located at Sahibabad) there is temperature control by hired cold storage. For the purpose of transporting chocolates from the mother godown to the Cash Distributor Dedicated Air Conditioned Vans are used (especially for the summer seasons) The following is the transportation system followed by the company:
Moga Factory
By Rail
Direct Sahibabad Mother Godown
By Road
Trucks
Indore
C&S
Patna/ Calcutta
Guwahati
By trucks
C&S
C&S
C.D.
C.D.
C.D.
C.D.
C.D.
C.D.
C.D.
TRANSPORTATION SYSTEM
Selection of distributors
Criteria are:
1) Capital investmentThis is dependent not only on the present required turnovers but also on the estimated future capital investments that will be required by the distributor (based on companys growth plans in the area). Amounts required vary from area to area and markets to markets.
2)Relevant experienceIt is imperative that the distributor has had some prior experience as a channel member in the FMCG sector so that no training is required to be imparted to him on aspects of the business. The distributor should not be dealing in competitors products and should be able to function as a dedicated channel for Nestle. For example, while deciding on a distributor for chocolates, an obvious preference would be an existing distributor for other products of Nestle This is because he will pay attention to the entire range of the chocolates and not focus on any particular SKU only.
3) InfrastructureAppropriate infrastructure(depending on the market served and overall volumes ) Should be therea) Godowns / storage space. For chocolates, air conditioned godown space (with wooden padding will be required). b) Delivery vehicles c) Salesmen However there are no written guidelines that are fixed for the above criteria and the company exercises its discretion based on markets to be served. Distributors Record Card (Annexure A) is attached which mentions the relevant details about the distributor for their records.
Company
5.8 %
Distributor
11.5 %
Flexible
Retailers
Wholesalers
Negotiable
Retailers
2) Schemes spread over 2-3 months . These schemes encourage specific target
achievements. Targets are given as indexed growth rates based on weights. For example the meaning of 10% growth for a distributor having slaes of Rs.20000 will have a different meaning from one having sales of Rs. 1 lacs. The prizes in the schemes can be monetary- for example additional 2% margin on turnover
Or non monetary for example free T.V. sets on achievement of targets. It is attempted to keep in mind the monetary benefit to distributor in case he sells the gift given in kind ( for example T.V.)
3) CertificatesCertificates of acknowledgement for achieving the targets for a name like Nestle are priced by the distributors. They frame them and display them in their offices.
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The winning team comprises of: All SOs in the ASM team Two top ranked CDs in each SO Zone (Index = %RD growth * absolute turnover increase) Two distributor salesmen in each of the top two CD One Merchandiser in each of the top two points ( performance will be assessed by S.O. on quality of merchandising achieved)
The top ranked ASMs (Nos. as fixed by the Branch) and their teams take home the following prizes: RDBM T/O growth achieved 20% + 15-19.99% 10-14.99% 5500 4500 3500 3500 2500 1800 2300 1800 1300 2000 1500 1000 1200 1100 1000 SO CD PS DS Merchandisers
The Top ranked ASM team also wins a TEAM TROPHEY and certificates.
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Evaluation
Once a distributor is appointed the company generally does not take away business from him, except when the underperformance has been observed over long periods. While evaluating his performance, his targets performance is studied relative to that of other distributors in the nearby area (because growth patterns may by regions)
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Nestle Quality System Good Warehousing Practices (GWP) Good Distribution Practices.
Major aspects of the program include: 1. Stacking as per norms: FIFO basis of Inventory management is used. Stocks are kept in pallets away from the walls. Godown. Stacking is done in an orderly fashion and the different batches are visible. There must be moving space between various stacks.
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Proper Loading / unloading: The labours have been properly trained to ensure that no damage to the goods take place at the time of loading / unloading. Remittance: Timely deposits of remittances are ensured. Proper records are maintained with regard to Sales tax and exemption certificates.
3. Accounting
A stock register is maintained to record receipts and dispatches with detail of accompanying documents. Shortages (if any) are accounted for separately. Sales tax and Octroi are handled by C&S.. A separate register is maintained for materials which are meant for free distribution. All the related expenses that are incurred are paid by C&S and are subsequently reimbursed by the company.
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Channel Conflicts
Earlier large areas used to be assigned to the distributors and there used to be some scope for confusion or conflict due to overlapping. However, now the number of distributors have increased and there is clear earmarking of the areas as well as markets for each distributor by the company and there is hardly any scope for conflicts based on areas. There are a few sources of channels conflicts like-
A)
WHOLE SELLERS
As discussed above, these are not a part of the formal structure of Nestle Indias distribution network for NCR .They make bulk purchases from the distributors directly thereby leveraging on the margins. Typically the wholesaler gets a margin of about 2%-3% from the distributor , of this he retains 1 % and passes on the remaining 2% as discount to the retailer. It is this discount which induces the retailers to buy from wholesalers in areas like sadar bazaar in old Delhi etc. Such sales based on undercutting can be a source of irritation to the distributors who are not supplying to the retailers but are suffering due to selling by the whole seller in their areas. RETAILER AND DISTRIBUTORS SURVEY KAROL BAGH, DELHI Out of the 5 retailers covered, only 2 bought from the company distributor. These 2 retailers are: Bhasin Bakery Shop and Frontier Bakery. The other 3 retail outlets namely Cool Palace, Ashoka Stores and Sindhi Corner are purchasing from the wholesalers in their market.
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The distributor for the area is Duggal Enterprises, who also looks after Patel Nagar, Rajinder Nagar & Nariana. The main issue in this area of survey has been the prominent presence of wholesalers who sell Kit Kat to the other 3 retailers. It is important to note that these wholesalers buys the chocolates in bulk from the distributor and sells to these retailers at a better margin as compared to the former.
Distributors provide these people with good service, replacement of spoilt products, occasional credit and maintain good cordial relations with them. Since these people buy in good quantities (2-3 cartons), they usually dont face a stock out. Thus the system of 1visit per week suits as long they are provided with their requirements on call, occasionally in case of urgent need. The big outlets are also provided with dispensers frequently as compared to the smaller shops in the same market. (same is the case with fridges)
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These small shops can purchase the minimum required quantity as and when needed. There is a convenience factor as there is order on call facility, all round the clock.
B)
area by a companys sales officer under pressure of sales target. An example cited
was when the S O of Haryana dumped goods by giving discounts to a distributor of Rajasthan under desperation to meet his sales targets. companys end. This has to be worked out at the
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All the 3 teams visit the retailers once in a week; the days of visit have been specifically kept different. The collection is done by the same team for the goods supplied. The sales force is complimented by a weekly visit to the district by the sales executive of the company. The idea behind the visit by the company personnel is to supplement the lags in the distribution by wholesaler and in certain specific cases to push extra stock in the market; the mission is achieved by allowing higher margins to certain prominent retailers.
Credit Policy
Nestle India Limited: The distributors are termed as Cash Distributors because the company charges the distributors before the stock is delivered; the company has connected the distributor online and the transactions happen online. The Distributor: The distributor sells goods on credit; the period of credit ranges from 1-2 week. The wholesaler allows discount of 1% on cash payment (policy followed by the wholesaler).
Stock Policy:
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As per the company regulations the distributor is supposed to maintain a stock of 3 weeks; the distributor maintains a stock of 3 -3.5 weeks in monetary terms it equals to Rs. 30 lakh for the distributor. The stock is formalized by the company; the dealer can negotiate on 3-4 end days, the stock policy is formed for the month. The distributor to push in slow moving SKUs clubs them with fast moving SKUs for the retailers. DUMPING: the company dumps significantly on the distributors, the distributor has to mange the supply by the company. The distributor has some resentment on the issue but has to content with it, the result is the stock gets blocked and distributors stores it till the expiry and then return it; result: cash crunch for the distributor and loss for the company in the long run.
The Undercutting
The major problem that the wholesaler has to contend with is the problem of undercutting; Ghaziabad is one of the closest places to the main distribution market Delhi and that results in retailers buying from Delhi at higher margins which wholesalers are incapable of providing. The wholesaler contents with this as a problem with every company so it is a part of the market.
Lead Period
Wholesaler: The lead periods in providing stocks to the dealers differs from the SKU and quantity ordered; some SKUs are delivered correspondingly with taking order but some are sent from the warehouses. A higher quantity ordered has to be replenished from the warehouse.
Company: The stock from the company is provided every month but company keeps
replenishing stocks at the requests of the distributors. It takes 2 days for company to replenish stocks.
Return Policy
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The company follows a policy of return when the product has past its expiry date, damaged or has a defect; the replenishment is done with cash and happens at the end of every six months.
Return On Investments
The company does not gives any guarantee to the distributor with regard to returns on his investment which is in line with the market credentials of the company; the distributor has invested Rs. 60 lakhs in the whole business.
Storage Policy
The distributor maintains Cold Storages and Deep Freezers for the storage of the products; the investment in infrastructure is considerable for he company to maintain such infrastructure.
Sales Force
The company does not have a policy to train the staff of the distributor, the distributor trains his own sales force. The remuneration and all other expenses are borne by the distributor.
Promotion Policy
The company follows a policy for consumer promotions but as regard the trade promotions they are scant rather negligible, the promotions put in extra pressure to push more quantity. The problem of maintenance of the promotional item is considerable and takes in huge energies and money.
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bulk. Here he dose not have to be bound to take, and neither is there any pressure to keep any other SKUs of Nestl. Point to note here is that this retailer is quite happy and content with Cadburys Distributors. He is ready to give his order to him as he is getting good margins and dose not really need to visit to the market. Ashok Vihar The retailer of Ashok Vihar also has some opinions, which match to that of the Retailers of R.P.Bagh. He dose not take his supplies from the distributor, but from the wholesaler. with higher margins left for himself.
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Contacts
Nestle
1. Karanjeet Singh- Ex-Sales Officer, Nestle, 9811772225
Distributors
1. Kumar Bros.
Mr. Lalit Kumar Distributor, Ghaziabad 150, Durga Tower, Gound Floor, Raj Nagar, Ghaziabad 2. Duggal Enterprises Karol Bagh, Patel Nagar, Rajinder Nagar & Nariana.
Retailers
Karol Bagh
Cool Palace, Ashoka Stores Sindhi Corner Frontier Bakery Bhasin Bakery Shop
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Observations
1. As seen earlier, the wholesalers are a cause of conflict in the distribution system. However, the company does not objects to the unwarranted existence of wholesalers as they serve as means to improve the distribution of companys products and the undercutting done by them helps to push up sales in the long run at times. An example in this context is that of Nestls clairs. The sales of clairs were disappointing till 1998 in spite of various attempts by the company to alter packing, size, prices etc. Then the company offered the wholesalers QPS (Quantity Purchase Schemes) margins ( or even T.V.s) on bulk buying by them over a period of time. They pushed the product into the retail channel and once sold at the retailers end, repeat purchases followed. Henceforth the official route set in , the distributor could ensure repeat sales by building upon the previous successful sales of clairs by the retailer. 2. The company introduces contests to motivate their channel partners regularly. In 2001 the company had launched a contest Khulja Sim Sim - Supper awards for super achievers similar to Proud to be Nestle. 3. Training of Sales force of Distributors should be taken over by Nestle to ensure optimal performance. 4. The company dumps huge stocks of slow moving SKUs to achieve targets, but in the long run, it results into dissatisfaction of distributor and losses for the company. 5. The selection of Distributors is a very crucial decision for the company. A lot of time and effort is spent to train them. Also, they are not frequently changed.
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