Sunray India Limited

Marketing case analysis

FAS C1 Section 1
Aditya Kakani – 19F106
Ayush Ajmera – 19F114
Chetan Bandodkar – 19F117
Deepika Kothari – 19F118
Rohit Menon – 19F145
Q1. Financial implication of moving to outsourced distribution

a. Do we gain or lose?
b. If we are losing in financial terms should we still push ahead

There are various financial implications from moving from depot system to third party distribution /
outsourcing

Costs of outsourcing –

1. Moving Cost

The first and the foremost cost is of moving the inventory from the companies warehouse to the
distributors warehouse and as we know Sunray is a big brand, which means it has high production of
tea and this will lead to high cost of transporting cartons from one place to another would have a
huge impact on the financial statement.

2. Obsolete inventory

As the business is moving to outsourcing it would send not all but only the demanded products and
remaining inventory will be useless and has to be dispose sooner or later which will have a negative
impact on the financial statement.

3. Nonperforming Asset

Moving outsource would lead to the current depots which are important assets of the company to
turn into Non-Performing Assets.

4. There are many other costs like new interface cost, new workforce cost.

a. Taking various costs of outsourcing we can infer that there would be lose in the beginning.

b. Agreeing to the fact that in the beginning there won’t be any gain for the company but we
should have a long run view and should consider all the factors and also a broader perspective of
how the business will change over the coming years.

There are many risks involved in moving outsource, your company can be sacked, but Sunray is a
huge champion of the market with a base of 1800 depots and equally large workforce, that is
why if it moves outsourced there can be huge infrastructure and human resource cost involved.

From the Annexure 2 we can see that depots have a good turn over and the operating cost is not
very high, but this is not the best sales or optimum level of Sunray. The Competitors have moved
to distribution and they are growing because now they are only concentrating on doing what
they should that is marketing tea and if the big business like Sunray just target the marketing
segment of Tea and not distributing, it is a high probability that it will reach its optimum level in
the future.
Q2. New distribution model

c. How will it help in increasing sales?

d. Are there risks involved?
e. What should be the profile of distributors
f. Operating terms and Margin structure
g. Supervision and control

c. How will it help in increasing sales?

New distribution model will have a wider customer reach which in turn can increase the sales. As
it has a considerable market share of 23 % percent in India tea, new distribution model can
reach to wider geographical areas. The cost and time will be saved and they can concentrate on
their core product. Distribution channels have a good geographical knowledge and can give the
good insights about it. This can help sunray to plan their strategy working with the distributors.
Distributors also have a good penetration in interior parts of India, where opening a depot by
Sunray would be difficult to manage.

d. Are there risks involved?

Yes, there are a lot of risks involved as they have to see what they will do with the workforce
which will be affected by the new distribution model .They have to decide the what distributors
are having a wider network in the area as it will help them in longer run so thorough analysis of
distributor will be required who are trustworthy.

e. What should be the profile of distributors?

The profile of the distributor should have at least the below aspects:

 How wide their reach would be in the interior markets?

 Do they have the right contacts in market chain for distribution?
 Will they able to deal with the local marketing issues?
 What is the size and capability of their salesforce?
 Do they have the required logistics management?

f. Operating Terms and margin structure

 Sunray should appoint a single distributor in a targeted location so that he gets to handle
larger volumes.
 There should be fixed and variable costs associated with the distributor.
 Variable costs can be changed according to the performance of the distributor and his
achievement of the target sales. So, he will be motivated to work and deliver in future.
 Performance has to be evaluated quarterly and decide for further extension of contract.
 Margin to distributor can be set at 7.25% as the competitors have an average of 7%. margin
can be variable according to the performance of the distributor.
g. Supervision and control

 Keep a check on the distributors like if they are selling any competitors product or not.
 The distribution network is ready to operate to the standards of the customer service once
set by the Sunrays sales force needs to be ensured.
 To keep track on the revenue generated from the new distribution system.
 Duties of some of the members of the sales management team should be redefined like to
monitor and manage the performance of the distribution channel.
 They could maintain a hierarchy where each distribution centre will then report to the Sales
Executive (7-8 distribution centres one executive will handle) who in turn will report to Area
Manager (assign 6-8 Sales Executive) and who will in turn report to Zonal manager (assign
12-14 sales manager).

Q3. What happens to the sales man-power? How are we going to manage the pain of
mass retrenchment?

When the thought of moving from depot to outsourcing distribution comes the first though comes is
hat about the sales man? Sunray has 1800 depots and an equally large work force to handle the
distribution channel. If the outsourcing happens the present work force would be retrenched. It
would save Sunray a lot of money, but will affect the workforce lives adversely.

To manage mass retrenchment

1. Prior notice period to the workforce could be given with some amount of money so that they
could find a new job and plan accordingly.
2. As now Sunray will only be focusing on marketing tea there is or will be requirement of new
workforce to derive higher sales and higher production, so the older workforce could be trained
and provide new job roles.
3. Counselling sessions could be given to the sales team which covers issue of dealing with job loss,
financial management in time of crisis.
4. Sunray should keep in touch with the sales team and they should give the first priority to them
whenever there is a new job role and also should refer them to other companies so that it could
be easy for them to take retrenchment.

Q4. What about the administration process, controls and audit points for the new
distribution system in comparison to existing?

 In the existing distribution system, the company owns their own depots to the tune of 1800
throughout the country. The company hence has the responsibility of controlling and
functioning these depots to optimally help in distribution of the products directly to every
retailer that comes under the jurisdiction of that depot. Company sales executives are hired
 to manage sales in each of these depots. The FMCG adopted distribution system has 2700
depots throughout the country and 360 company sales executives to manage sales at all
these depots.
 Each depot has a runner to manage the operations there to help achieve the sales goals. The
FMCG adopted system does not have this post.
 The area sales manager manages a set of depots under a particular designated area. The
Sunray distribution system has 180 area sales managers throughout the country whereas the
FMCG distribution system has 60 area sales managers throughout the country.
 A number of areas are grouped under a particular zone and each such zone is overlooked by
a zonal head. Sunray distribution system has 20 zonal heads. The FMCG adopted distribution
system has no such post in their power hierarchy.
 The different zonal heads work under 4 regional heads. The same particular post exists in
the case of FMCG adopted distribution system and the total number of regional managers is
4. The regional heads report to the centre.
 Analysing the power delegation in both distribution systems, the number of levels of control
is less in the FMCG adopted distribution system. There are 6 levels of control in the case of
Sunray distribution system whereas that of FMCG adopted distribution system is 4.
 At the base, the new system has 900 more depots which increases the reach towards further
inward parts of the country.
 As the total number of manpower as mentioned above at all the levels is considerably less,
there is lesser hassle in managing the entire salesforce.
 The sales are monitored at the retailer level and 4 consequently higher level enveloping the
entire country in case of the new system compared to 6 other levels in case of Sunray
distribution system.