Sales & Distribution Project Report

On
‘Sales and Distribution in LG Electronics’

Submitted as part of course curriculum for

POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)
Under the guidance of Mr. R. J. Masilamani

Submitted by
21DM063- Divyansh Lakpale
21DM072-Gourav Chatterjee
21DM075-Harsh Raj
21DM089-Kalidas Prasad
21DM090-Kanha Aggarwal
21DM093-Kanishk Kumar Singh
 ACKNOWLEDGEMENT

I am grateful to the Birla Institute of Management Technology, Gr. Noida for giving me
an opportunity to pursue my research “LG ELECTRONICS” I wish to thank Prof. R.J
Masilamani, who has been a perpetual source of inspiration and offered valuable
suggestions by serving as my Research Guide. Without his guidance, it would have never
been possible for me to complete the project.

I would also like to thank students from different colleges, who have helped me and
participated in the collection of data for this project. I would also like to thank my
parents, friends, and acquaintances, whosoever was included in this project directly or
indirectly.

CONTENT
 I. About Lg electronics………………………………………..……4

II. Product line……….………………………………………………5

III. Channel design……..…………………………………………….6

IV. Margin allowed……..…………………………………………....7

V. Pricing strategy……………………………………………….….9

VI. Swot analysis……………………………..…………………......11

VII. Sales hierarchy……………………….………………………...12

VIII. Supply chain……………………………………………………13

IX. Scope of improvement…………………………………………16

INTRODUCTION
 OBJECTIVES OF THE STUDY
➢ Complete study at the Retailer/Sub-Dealer Level and Distributor level
➢ Company’s sales mix at various levels
➢ Comparison with Competitors’ pricing
➢ Margins allowed at various levels

LG ELECTRONICS – AN OVERVIEW
The history of LG Electronics has always been surrounded by the company's desire
to create a happier, better life. It was established in 1958 and the company since
then has led the way into the advanced digital era, thanks to the technological
expertise it has acquired by manufacturing many electronic appliances. Applying
new technologies in the making of mobile devices and digital TVs in the 21st
century, LG Electronics has unveiled many new products and continues to
reinforce its status as a global company.

Headquartered in Yeouido-dong, Seoul, LG Electronics is a multinational

electronics company, and a member of the South-Korean multinational
conglomerate LG Corp. The two Korean companies, Lucky and GoldStar, merged to
form LG. The abbreviation comes from this. But before it got its name as LG, Lucky
was the brand name under which household products were sold, and Goldstar sold
the electronic products under its brand name.

LG Electronics was one among the Top 100 global brands in 2005, and LG recorded
a brand growth of more than 14% in 2006. The display manufacturing affiliate, LG
Display, is today the world's largest and best plasma panel manufacturer. LG
Electronics, today, is the world's second-largest television manufacturer and the
world's fifth-largest mobile phone maker by unit sales.

PRODUCT LINE OF LG ELECTRONICS

 ROLE OF MARKETING CHANNELS
Successful value creation needs successful value delivery. Holistic marketers are
taking a value network view of their businesses. The marketing channel performs
the work of moving goods from producers to consumers. All channel functions
have three things in common:
A. Use up scarce resources
B. Can be performed better through specialization
C. Can be shifted among channel members
After a company has selected a channel, the intermediaries must be selected, then
trained, motivated and finally evaluated.

CHANNEL DESIGN
1. DIRECT DEALER CHANNEL-
2. SUB DEALER/ DISTRIBUTOR CHANNEL
DISTRIBUTION NETWORK
 REGIONAL DISTRIBUTION MODEL- ALL DISTRIBUTORS WORK DIRECTLY
WITH THE COMPANY.
 46 Branch Offices and Another 110 Area Offices Across the Country

DIRECT CHANNEL
 STORES THAT DIRECTLY SELLS TO END CONSUMERS.
 EXCLUSIVE STORES OR SHOWROOMS- MORE FOCUS FOR
 PROFITABILITY AND LARGE VOLUMES.
 MULTI BRAND SHOPS.
 34 % OF SALES .

ADVANTAGES-
 NO LOSS OF MARGINS THROUGH INTERMEDIARIES.
 COMPLETE CONTROL OVER DISTRIBUTION PROCESS

DISTRIBUTOR CHANNEL
1)SMALL RETAILERS WHO LACKS CAPITAL TO BUY DIRECTLY FROM LG.
2)DIRECT DEALERS HAVE ATLEAST ADDITIONAL 3 % MARGIN.
3)49% OF SALES.
ADVANTAGES-
1)ALLOWS PENETRATION OF FRAGMENTED DISPERSED MARKET.
2)EASES LOGISTICS FOR BUYERS WHO BUY DIFFERENT ITEMS

PROCESS OF DISTRIBUTION

GOODS ARE DISPATCHED TO C/F’S ON CONSIGNMENT

BASIS.

DISTRIBUTORS SOURCE THE ORDER OF GOODS FROM THE

WAREHOUSES SERVED BY C/F’S

RETAILERS ORDER THEIR REQUIREMENT FROM

DISTRIBUTORS.

GOODS ARE BOUGHT BY THE CUSTOMERS FROM

RETAILERS.
MARGINS ALLOWED
Different profit margins when selling to subsequent dealers and sub-dealers. The
profit margins vary depending on the product category in terms of how slow/fast
the products moves.

CASH AND VOLUME DISCOUNT

Dealers give a cash discount of maximum of 1% and volume discount of maximum
of 5%.
MANAGING OF DAMAGED GOODS
If Dealers finds any good to be damaged or that it needs repairing, then it requests
repair the damaged good within 15 days from the company or gets it replaced
within the same time frame.

LOCAL PROMOTION AND BUDGET

Promotion is done locally and the budget is reimbursed in the range of 50 to 100%
(in some cases) by the company.

PRICING STRATEGY
RATIO OF FAST MOVING AND SLOW MOVING
The TV, Audio and Video segment of LG is the slowest moving of all the product
categories under the brand. On the contrary, in Refrigerators, Washing Machines
and Air Conditioners segment, LG is one of the fast-selling brands and has been a
market leader in this region.

COMPETITORS’ PRICE OF LEADING BRANDS

The comparison of selling prices of Washing Machines and Refrigerators of LG with
those of other leading brands is illustrated below. The prices are average of the
selling prices of both, high-end and low-end models for all product types, for
better comparison against competitors’ prices.

Comparison of Prices of Refrigerators

Comparison of Prices of Washing Machines

RATIO OF FAST MOVING AND SLOW MOVING CATEGORIES

The TV, Audio and Video segment of LG is the slowest moving of all the product
categories under the brand. On the contrary, in Refrigerators, Washing Machines
and Air Conditioners segment, LG is one of the fast-selling brands and has been a
market leader in this region.
MARGINS ALLOWED
LG Direct Retailing has different margin levels for various Product Categories.
There are 4 Product Categories as identified by LG:
1. Category Killers
2. Good
3. Better
4. Best

There is absolutely minimal scope of margin when it comes to Category Killer products at less than 1% and
about 10% for Best category products.
WINDOW DISPLAY AND MERCHANDISING
LG Best Shoppe has managed well to display the products and different product variants of LG.

SWOT ANALYSIS

SWOT Analysis

1. Wide range of products to serve all categories and a strong focus on

technology and quality
2. Effective localization of product offerings for growth markets like India,
Brazil, China
3. Brand offers sound rational appeal – good product features and good
value for money
4. Good after sales service and wide distribution network
5. Subsidiaries enjoy independence in decision making and hence have
flexibility in adapting to the local market
6. Sponsorship of sports and entertainment events enhances visibility
7. It has nearly 100,000 employees and is one of the top mobile
Strength manufacturers

1. Brand lacks influence in the opinionated segment of early adopters

especially in the social media environment
Weakness 2. Brand has limited market share compared to market leaders

1. Fast growth of home appliances, electronics goods market in emerging

economies
2. Convert improved brand image and awareness in to market share
Opportunity 3. Increase the already Wide product portfolio
 1. Price war with close Korean competitors like Samsung can disrupt
growth in price sensitive markets
2. Highly competitive industry dynamics
3. Stagnant urban demand
4. Instances of false green claims can erode brand value and consumer
Threats trust

SALES HIERARCHY OF LG ELECTRONICS

Supply chain
The Supply-Chain Process

At a time when most companies are dissatisfied with the high logistics cost, Lg’s
logistics cost is 3.01 percent on net sale after deduction of excise duty, including
our export freight cost.
The company experimented with several production and distribution models over
the last few years. The exponential growth in demand and constantly catering to
newer and distant locations buoyed Lg to improve our supply-chain. But it was the
implementation of GSCP (Global Supply Chain Planning) in 2008 that streamlined
the operations.”
Year 2008 also changed a lot of things for LG globally with the implementation of
new IT systems and changing its transportation functions through adoption of IT.
Earlier, the Korean cabal found it hard not only to keep up with the fast-growing
company, but concurrently tracking demand, supply, inventory, manufacturing,
raw materials, logistics and distribution. It was onerous to compute collective data
that would allow the company to see its progress at a quick glance, and in real-
time. The Indian arm had to regularly send across long detailed excel sheets of
data. The Korean headquarters required a system to synchronize forecasts,
production and sales that would eliminate the issues of inaccurate shipping,
planning and inventory. The Global Supply Chain Planning was established.

The GSCP integrates control of the entire business process from receiving orders,
production to sales, and inventory, with an online link of LG companies around the
world. Integrated with the Oracle ERP systems of LG worldwide, the end result of
the deployment of GSCP enables the company to close the gap between demand
and supply. It also provides the previous week’s performance results and capability
matrix.
The difference in GSCP from the earlier IT tools that LG Electronics has been using
is that it combines design, parts supply, procurement, production, supply-chain,
and cost management into an integrated process thus allowing the company to
know how much to produce. For that to happen, it is crucial that all the branch
personnel from every department collaborate on the weekly Sales & Operations
Planning (S&OP) to decide on production and sales plans.
Prior to deploying GSCP, LGE also faced problems in managing inventory. At a time
when it needed to be at 42 days of inventory, it had 10 to 15 days more of
inventory. LGE rolled out 12 Inventory Optimization solutions thus releasing it
from millions of cash flow that’s no longer tied to inventory.
Considering that LGEIL outsources its transportation, the company often faced
simple theft, misrepresentation of inventory, counterfeiting and piracy. This was
restricted by installing deployed Global Digital Logistics System (GDLS) which aids
in better route optimization, as well as improved loading and tendering
capabilities. Playing on its existing Oracle ERP and EXEWMS, the transportation
solution provides execution capabilities to its shippers and 3PL partners.
Regional Distribution
Ten years ago, the consumer durables and electronics trade was in disarray in
terms of distribution. Most companies preferred to go with national distributors,
who in turn sent out the goods to dealers. Dealers did not deal with the company
directly. Also, companies manufacturing several products had created separate
divisions within their company and each division would deal with the distributor
separately. This caused a certain amount of confusion in the supply-chain. Soon
there arose issues and allegations in terms of margins or the lack of it, product
quality, and reverse logistics. LGEIL (possibly, another first way back in 2003)
charted a new course and went to the regional distributors (RDs) directly, thus
doing away with national distributors. The company thought that only local people
would know their own market. This has worked well for Lg. It also began offering
higher margins to help them scale up their business from LG products. The
expertise of the RDs also helps LGEIL to near correctly send out the right product
batches and manage the reverse logistics too.
Customer returns are handled by the customer support department directly, while
the returns from dealers are handled by the supply chain. Transportation used is
the same which goes for the delivery of the products to such dealers. In
Maharashtra, the company has a warehouse in Bhiwandi and goods are moved to
the warehouses of our trade partners. Lg deal directly with dealers and
distributors who in turn supply to sub-dealers.”
So how does it distinguish between urban and rural supply-chain? Actually, it is
surprising to know that goods that find their way to urban places also find their
way to rural, though on a smaller scale because of power outages or lack of
electricity.”
As is evident at LGEIL, there’s much required to do something simple and keep it
that way.
OVERSEAS DISTRIBUTION
LG is an international brand world wide. They have their unique distribution
channel in Pakistan; they market their product through a domestic renowned
company known as BUTTERFLY. LG has given their license to BUTTERFLY Company
to market their product.

LG import their product from KOREA and the product come to the Karachi port and
then it send to the warehouse, from where the product delivered to the different
showroom located in the country. Lastly the showroom or the direct sales force
can sell to the end user.

SCOPE OF IMPROVEMENT

 Improvement in Supply:
Improvement in supply is required as Distribution frequently get stock out
from a particular type of butter which is having more sales. This should not
be a repetitive condition. The company should send exactly that what is
required by the Distributor. Sending some others flavours which are not
demanded can reduce the sales of the popular brand lead to decrease in
transparency between the Distributor and the Retailers as the Distributor is
going to avail the same policy with the retailers as the company is availing
with him. Sending proper supply can strengthen the relation of the company.
Distributor and the Retailers.

 Improvement in Packaging:
Packing can be made more attractive by using cartoons to influence the
person. As per the consumer survey, the packaging of product related the
best.

 Should adopt more flexible Replacement policies:

The major reason of dissatisfaction among the other retailers was
replacement policy of expired products. It was also the reason for many of
the closed outlets. The Distributors gets replacement of 1.4% of total sales
 by the company. This percentage can be increased to provide more
flexibility to the Distributor. The Distributer gets replacement from the
company twice in a year. The Distributor should get the replacement
monthly so that he can also replace expire products of retailers regularly.

 Regular Audit of all the Distributors:

A regular audit to all the Distributors should be made by the company
officials to check the condition of all the supply vehicles so that proper
delivery of butter is made to the retailers. It was observed that some of the
supply vehicles of the Distributor were not working properly and the supply
was made in boxes.

References
www.lg.com/global/sustainability/business-partner/
www.lg.com/in
en.wikipedia.org/wiki/LG_Corporation
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