I have been working in a Paint Manufacturing Industry as a

Distribution Head of Maharashtra, Goa, Karnataka, Tamil Nadu &

Andhra Pradesh. Now the Company management has asked me
to develop distribution channel for these region. Our
manufacturing setup is at Goa and Central Ware house is also
located in the same region.

In paint industry there are normally two types of product;

Industrial segment and decorative segment. The Company has to
use multi channel distribution system as the paint industry is
bifurcated in two segments like industrial & decorative segments.
There are two types of distribution system based on segment
wise.

Industrial Segment :
Direct Marketing
thru net etc.
Mfg. CWH Regional
`` Distribution Centre Area wise Retailer
Dealers

To penetrate vast geographical region & areas the Company has

to appoint dealers on regional basis who are specifically
appointed only for Industrial segment. The dealers will not
intervene in decoration system. Even company should have to
develop such a technological driven system like e-booking or e-
enquiry thru internet etc. in which they can be directly
approachable by any industry as certain big industry requires
large amount of industrial paints.

Decorative Segment :
Direct Marketing
thru net etc.
Mfg. Regional DC Distributor
Retailer

Instead of appointing dealers the Company can invest heavily in

tinting machine which is to be installed at the distributor as well
as with retailer and Information Technologies to keep ahead of
competition. It has to link all of its factories and regional
distribution centre through V–SAT terminals, which in turn would
give benefits in streamlining the distribution channel.

Introduction of tinting machines at the dealer/ retailer level: The

extensive usage of the same will bring down the overall inventory
and consequently the working capital requirement as the base
colours and material only needs to be maintained for certain sets
of products at the retailer level. Also new technology is being
used for increasing the utility and lifespan of paints.
Inventory Management: To put it simply, average inventory
levels are important because they allow you to determine how
much money you have tied up in inventory and how much value
your inventory assets hold. Helping to determine what they
should be can help cut back on unneeded inventory, and knowing
what they are can help you determine average warehouse usage,
inventory risk, percentage of assets that are made up inventory,
holding costs, etc. I think we should hold 14 days finished
products inventory at each distribution centers and 10 days
finished products inventory at mother ware house as a Safety
Stock.

Customer service: It would play an important role in any

industry as growing competition. Some of the main problems
customers have are of unresolved complaints, pricing issues,
competitors having better offers, or they just feel you do not care
enough. One has to be constantly tuned in to a customer's needs.
Determining what they want is an important factor in
organizational success. Since the market is in constant flux, one
needs a consistent and committed approach in order to gauge
and be in touch with the changing whims of a consumer.

Customer Care Services: There are various ways of improving

your relationship with customers and they can all be successfully
outsourced. The array of customer support services offered
includes:

- Telemarketing/Telesales
- Customer Support
- Order Taking
- Customer Service
- Product Support
- Technical Helpdesk
- Collections
- Market Research

Cost of Operation: Distribution affects profits and

competitiveness. This affects cost competitiveness as well as
profits since margins are squeezed by distribution costs.
Transport costs would also plays a vital role in deciding operation
costs.

The products in this industry are transported from manufacturing

units via c & f agencies or warehouse to distributors who further
sell the same to distributors or stockiest who finally sell it to the
retailers in the market. These products are transported either via
roadways or railways within the domestic markets and normally
don’t take more than a week to reach the retailers. Therefore,
efficient transportation arrangement is very essential for deciding
the costs of the products.
Information Technology : IT would play a major role while
setting up of distribution system. Our all channel should be
connected with each other with one common system and VSAT. It
would help to monitor the sales, inventory level, replenishment of
products etc.
Overview:

Wining Company is this that can meet customer needs

economically and conveniently and with effective communication.
Without distribution even the best product or service fails. In
earlier strategy of designing distribution channel 4 Ps – Product,
Pricing, Placement and Promotion, would play major roles.
Though 4 Ps major roles remain unaffected, the additional 4 Cs –
Consumer, Cost, Convenience and Communication, would be now
achieving momentum in strategic decision while selecting
distribution channel.

This is crucial area for business success. A successful marketing

strategy gives sustain growth and profitability. This gives the
edge to all the business efforts.

Distribution is important because:

1) It affects sales - if it's not available it can't be sold. Most
customers won't wait.
2) Distribution affects profits and competitiveness. This affects
cost competitiveness as well as profits since margins are
squeezed by distribution costs.
3) Delivery is seen as part of the product influencing customer
satisfaction. Distribution and its associated customer
service play a big part in relationship marketing.

The supply chain of products in the FMCG market in India is one

of the longest supply chains an industry could really have. There
are as many as 5 levels of intermediaries involved in the entire
supply chain through which a product passes before reaching the
end consumer.
What has been observed is that even though these FMCG
companies are big multinationals and Indian but face a major
challenge of making their products available in the market in the
right quantities and in the right time. This is simply because
these companies don’t really have a wide network of sales agents
and other force which is required and is ideal for catering their
products to the markets. This aspect is taken over by distributors,
wholesalers and retailer whose margins on these products
actually double the price of these products when a final consumer
buys it. The margins kept by these intermediaries range from 2%
to 5%.
FMCG products are normally a high volume ball game and
products have to essentially be available in the market at all
given points of time and at all given points of purchase and
therefore the distribution activities are highly volatile and
dynamic. The supply of products takes place virtually on a daily
basis in fixed quotas or otherwise, to retailers as per their
requisitions and the anticipation of demand and the performance
of products in the recent past. All such criteria are taken into
consideration before the quantum of products being dispatched
to the next level of intermediary. Since it’s a volume game,
manufacturers make all possible efforts to boost sales and
promote their distributors to earn more and more orders from the
retailers and wholesalers. A close check is maintained on the flow
of the products on a daily, weekly, fortnightly and monthly basis
to determine the trend in the business and flow of products and
consumption. This activity also helps to find out drawbacks of the
distribution system, if any, and rectify them within time.
Decisions about physical distribution are key strategic decisions.
They are not short term. Increasingly it involves strategic
alliances and partnerships which are founded on trust and mutual
benefits. We should believe in the birth of strategic distribution
alliances.
Channels change throughout a product's life cycle. Changing
lifestyles, aspirations and expectations along with the IT
explosion offer new opportunities of using distribution to create a
competitive edge.
Controlling the flow of products and services from producer to
customer requires careful consideration. It can determine success
or failure in the market place.
The choice of channel includes choosing among and between
distributors, agents, retailers, franchisees, direct marketing and a
sales force.
Deciding between blanket coverage or selective distribution,
vertical systems or multi-channel networks, strategic alliances or
solo sales forces, requires strong strategic thinking.
The Company has to take decisions about levels of stock,
minimum order quantities, delivery methods, delivery frequency
and warehouse locations have major cash flow implications as
well as customer satisfaction implications.

Distribution Strategy:

We can forecast market by doing market research which is an

effort to ascertain the worth or demand of the product in the
market as well as the standing of the enterprise in the industry. It
may be defined as the systematic and objective process of
collecting, generating, analysing, and interpreting information
and communicating the findings for use in making marketing
decisions. It furnishes all the relevant information about the
existing products in the market and helps the firm to identify and
solve problems related to launching of new products. It helps the
firm to identify and evaluate the marketing opportunities and
exploit them for the firms profitability. Thus, market research is
useful to a firm in a wide variety of activities, which include sales
forecasting; measuring market share; identifying market trends;
measuring brand images; developing consumers profiles;
designing products and packaging; analyzing demand; measuring
price perceptions and ascertaining advertising effectiveness.
Based on the research of the products we should think of about
the inventory to be held at each location for smooth flow of
products without any interruption and stock out.

To put it simply, average inventory levels are important because

they allow you to determine how much money you have tied up
in inventory and how much value your inventory assets hold.
Helping to determine what they should be can help cut back on
unneeded inventory, and knowing what they are can help you
determine average warehouse usage, inventory risk, percentage
of assets that are made up inventory, holding costs, etc. I think
we should hold 14 days finished products inventory at each
distribution centers and 10 days finished products inventory at
mother ware house.

As a FMCG Company we should go for intensive (with mass

distribution) distribution system where we can reach to each part
of the territory whether it is rural or urban area. While setting up
channel partners we should use multi channel route – direct and
indirect marketing as growing trends of malls, hyper market etc.
So direct marketing is combined with indirect marketing through
intermediaries. At the centre or at convenience location of each
territory we should own a distribution centre / ware houses as
well as regional offices which can be connected with mother
warehouse and head office as well as it is widely accessible to the
territory. The warehousing subsystem seeks to develop and
maintain a steady flow of products. In effect, warehousing serves
as a valve to regulate the flow of products through a marketing
channel. The inventory control subsystem seeks to minimize the
working capital tied up in inventory while providing the specified
level of consumer service. Order timing and order quantity are
two major inventory control decisions. The major costs are the
inventory carrying cost and the order processing costs. The order
processing subsystem seeks to ensure that orders are received,
handled and filled accurately, reliably and speedily. Activities
include order receipt, credit approval, preparation and collection
of accounts receivable, etc.

The regional office / distribution centre has to do direct marketing

with Malls, hyper market or book shelf for our products in these
markets to explore the growing trends by appointing Company’s
sale personnel, which is highly essential. Our ware houses should
not be never stock in position. We should maintain atleast
minimum level inventory to ensure smooth flow of goods to the
market because consumer never wait for any particular brand
product & he should definitely shift to alternate product.

The next level of strategic decisions is strategic relationships and

partnerships. Two common strategies are Vertical Marketing
Systems and Horizontal Marketing Systems.
Our company should go for Horizontal Marketing Systems as we
don’t want to own the distribution channel for indirect marketing
instead of that we should appoint intermediaries to penetrate
large part of territory. They then share their distribution expertise
and distribution channels. This can speed up the time taken to
penetrate the market. There is room for creative alliances here.
Resources available affect distribution strategy. We would prefer
to utilize someone else's resources in return for a slice of the
profits.

Direct Marketing Sell at Mall etc.

`
Manufacturer
Indirect Marketing Distributors Retailers

A distribution stockiest deals mainly with financing stocks,

providing manpower, servicing the retailers, implementing
promotional activities, extending indirect coverage, reporting
sales and stock data and screening transit damages. We should
go in for a fewer number of distributors handling larger areas of
outlets. This could mean reduced costs for the company. We
don’t require appointing large number of sales team instead of
that we require to upgrade frontline sales force. We should
equipped distributors salesmen with palmtops for accurate
recording and processing of orders and other information. This is
reported to be delivering major gains in reach, effectiveness,
coverage and brand promotion. Investments downstream to arm
those who are directly in touch with the last link in the channel
viz., retailer is a new innovation in this market.

The products in this industry are transported from manufacturing

units via c & f agencies or warehouse to distributors who further
sell the same to distributors or stockiest who finally sell it to the
retailers in the market. These products are transported either via
roadways or railways within the domestic markets and normally
don’t take more than a week to reach the retailers. Therefore,
efficient transportation arrangement is very essential for deciding
the costs of the products.

Mfg. Unit Central Ware Distribution Distributor Retailers / Direct

House Centers Marketing

Transportation is required in for all above activities hence it is

very essential to take strategic decision to decide transport
activities as lots of money will involve in these process. While
deciding transportation from distribution center to retailers who
should consider the beat route means one route in which
maximum distributors would be covered. This would reduce the
transportation costs.
Selecting members within a channel :

Having decided to go through intermediaries the next question is

whether to use agents or distributors and also how many. Unlike
distributors, agents don't hold stocks - they only act as sales
agents finding customers, collecting orders and passing them on
to the supplier in return for a percentage commission. Hence we
will not go for agents and an appoint distributors area wise.
While deciding the channel partner we are considering the
following aspects:
1. Market Coverage: - does the profile of existing customers
match your target market profile? - is the number of customers
big enough to meet the required distribution penetration? - is the
existing sales force big enough to cover the territory? - are they
dependant on a single individual? - are the existing delivery fleet
and warehouse facilities adequate?
2. Sales Forecast: How many can they sell? What are their
forecasts based upon? Do they give a 'best, worst and average'
forecast? Will they invest in large stock commitment? Do they
have budgets to run promotions? Some suppliers even ask their
distributors for a marketing plan showing how they intend to
market the supplier's products.
3. Cost: What will it cost in terms of discounts, commissions,
stock investment and marketing support?
4. Other Resources: Does the target market require anything
special such as technical advice, installation, quick deliveries, and
instant availability? If so can the distributor provide it?
5. Profitability: How much profit will the distributor generate for
the supplier?
6. Control: Do they have a reporting system in place? How do
they deal with problems? How often is review meetings
scheduled? Can you influence the way they present your
products?
7. Motivation: Does the agent or distributor convey a sense of
excitement and enthusiasm about the product? What about its
sales force - what's their reaction?
8. Reputation: Has it got a good track record? This includes the
number of years in business, growth and profit record, solvency,
general stability and overall reliability. Is it dependant on one key
player?
9. Competition: Do they distribute any competitor's products?
10. Contracts: Some distributors demand exclusivity. Some
agreements tie the supplier in for certain periods of time. Check
for flexibility in case things go wrong

The bottom line is: Can the distributor be motivated, controlled

and trusted? Motivated to sell your product among a range of
others. Controlled to feed back results or change strategy if
requested. And trusted to act as a reliable ambassador of your
product?
In reality, maintaining continually high levels of motivation
among intermediaries presents a challenge. It requires a
reasonable quality product, creative promotions, product training,
joint visits between producer and distributor, co-operative
advertising, merchandising and display.
Keeping the intermediary stimulated is important. Positive
motivators, like sales contests are preferred to negative
motivators like sanctions such as reduced discounts and the
threat of terminating the relationship.
A positive reward works better than a negative punishment.
Ideally there should be a shared sense of responsibility - a
partnership - a strategic partnership. The supplier and
intermediary are there to help each other.
Clear communications, covering sales goals, review meetings,
reporting procedures, marketing strategy, training, market
information required, suggestions for improvements, all help.
Regular contact through visits, review meetings, dinners,
competitions, newsletters, thank you letters, congratulatory
awards all help to keep everyone working closely together.
These are all non-financial incentives which provide a form of
psychic income as opposed to financial income. That's not to say
that financial incentives aren't useful motivators, it just means
that there are other motivations there too. In fact the money
spent on financial incentives is often spent more effectively when
the sales person is rewarded with a plaque, a gold pen or a
holiday rather than just the cash which tends to get soaked up
and lost in a sea of ordinary household daily expenditure.
Non cash rewards appeal to the higher levels of Maslow's
Hierarchy of Needs - belonging, esteem and self actualisation.
Despite this, conflict can occur when too many distributors are
appointed within close proximity of each other, or the producer
engages in a multiple channel strategy of direct marketing as
well as marketing through intermediaries.
Carefully motivating distributors is vital if goods are to flow
smoothly through the channel and reach satisfied customers.

Information Technology

IT would play a major role while setting up of distribution system.

Our all channel should be connected with each other with one
common system. It would help to monitor the sales, inventory
level, replenishment of products etc.

1) Re-imbursement of schemes
We will design a system of distributors placing orders for stocks
online. i.e. there is no sales person / order taker who visits the
distributor to take orders. All orders are placed online. The
company, on the same system, has introduced a facility through
which, distributors are able to log on their claims, which are then
picked up by the company from the system, and a re-
imbursement is made within 2-4 days of logging on the claim.
Thus, through this system, the company has managed to reduce
paper work as well as reduce the time for re-imbursement of
schemes from 30 days to about 4 days. This facility was initially
available only to 60 distributors. The company planned to
gradually allow all distributors to avail of this facility within a
year. Although distributors did feel this was a good initiative,
there seemed to be some kind of ‘hidden’ resistance because it
was now virtually impossible for them to log in fraudulent claims.

2) Improvement area: Delivery

The company introduced a Vendor Management inventory (VMI)
System. The company set norms on the
maximum quantity of stock to be maintained by a distributor for
each SKU. The distributor was henceforth not
required to unnecessarily place orders if a product / SKU was not
selling. For e.g.
If Maximum quantities to be stocked for Brand A small pack =
100
Stock in hand = 60
Distributor will not be forced to buy more than 40 more such
packs.
Of course, the maximum quantity to be maintained will vary from
SKU to SKU.
The distributors have welcomed this move by the company since
it prevents dumping of stocks on them
3) Sales planning to be done along with Distributor
The company began a system wherein the distributor and the
Territory Sales In-charge will plan the sales at a
beat level together. (1 beat is basically one route that the DSR
covers. Each route consists of approximately
40 outlets). This planning was initially to be done only for those
key products / brands which contribute to
80% of turnover.
4) Sturdiness of packaging
A third party agency has been appointed to deal with Claims
occurring due to L&D (Leakages & Damages).
This third party agency visits the distributors, checks for
authenticity of the claim and ensures the same are
settled, wherever genuine.

Distributor Satisfaction – A Real

Case study
For ABC Ltd.* Please note that due to Confidentiality reasons
the Client organisation name is masked