Salt Industry

A DISSERTATION ON “STRATEGIC FORMULATION OF DISTRIBUTION NETWORK A STUDY OF SALT-INDUSTRY” UNDER THE SUPERVISION OF

Dr. Neeraj Saxena SUBMITTED BY

Anil Kumar Pathak

YEAR: 1998-2000

NORTHERN INSTITUTE FOR INTEGRATED LEARNING IN MANAGEMENT BADARPUR, NEW DELHI-44.

Executive summary The distribution network is based up on the study of distribution network in salt industry. Distribution is the concept, which deals with activities of interrelation between demand creation and physical supply of goods. There are three key players in this industry namelyTata-Salt. Captain Cook. Annapurna(kissan). The above players satisfy about 80%-85% demand of Salt required for house consumption. To garner information about how these players have distribution of their Salt, I have interviewed dealers and distributors dealing in salt. Comparing distribution network the above three companies and doing SWOT of the same, I have arrived model of distribution network which can be ideal for all players operating in salt industry. While formulating the distribution network flaws and benefits of the existing distribution network adopted by these three companies were thoroughly examined.

Information regarding distribution network of these three companies were entirely based up on interviews through Dealers/Distributors in New Delhi. At the final chapter of my dissertation I have made flow chart of distribution system these companies can adopt in order to rectify their distribution network. I have suggested that companies should also include customer dimension in order to deliver them desired level of satisfaction. During my survey I have seen that companies consider salt as a inferior product of their product line and after creating a certain level of brand awareness through advertising the product they suddenly stop advertising the product and their product success mainly strives for push given by channel intermediary like-Distributor, Dealer, and Retailers.

Characteristics of FMCG product Individual items are of some small value but all FMCG products put together accounts for a significant part of consumer budget The consumer keeps limited inventory of these products and prefers to purchase them frequently as and when required. Many of their products are perishable. The consumer spends little time on purchase decision, rarely does he/she looks for technical specification (in control to technical goods). Brand loyalty or recommendations of reliable retailer/dealer drive purchase decisions. Trail of a new product i.e. brands switching is often included by heavy advertisement recommendations of retailers or neighbors/friends.

Bibliography

THE PRESENT SCENARIO: Mainly there are three companies leading the market TATA salt is being the oldest and has the first comer advantage in industry. TATA salt accounts for about 40% share of organized market in salt industry, entered in market in 50's. There were no brands to put challenged for TATA salt initially so they have created strong loyalty for their brand because consumers were left without any other option to choose from. In early 90's CAPTAIN COOK entered to the industry and tried to position their salt in little different manner "free-flow". Started catering some share of TATA's. In 94-95 ANNAPURNA salt was launched and monopoly of TATA has been broken forever. But still Tata accounts for maximum share. Captain-cook is second in organized industry and Annapurna salt id third. Unorganized smallscale firms fulfill rest of consumers' demand.

Characteristics of business in FMCG industry FMCG companies sale their products directly to the consumers' major features, which distinguish, this sector from others are-

♦ Low capital intensity. Most product categories in FMCG require relatively minor investment in plant and machinery and other fixed assets. Therefore shortage of products for want of capacity would be rare phenomenon. Generally place do not integrate backward. Also the business has low working capital intensity as bulk of sales from manufacturers takes place on a cash basis.

♦ High initial launch cost Nonetheless there is a large front-ended investment made in new product including cost of product development market reassert, test marketing and most importantly it's launch. To create awareness and develop franchise for a new brand require enormous initial expenditure on launch advertisement, free samples and product promotions.

Launch cost are two high as 50-100% of revenue in first year and their cost progressively reduce as brand matures, gains consumers acceptance and turn over rises. For established brand, advertisement expenditure varies from 5-12% depending upon the categories. It is common to give occasional push by relaunching, which involves repositioning of brands with sizeable marketing support.

♦ TECHNOLOGY Basic technology for manufacturing is easily available; also technology for most products has been fairly stable. Modifications/improvements

rarely

change

the

basic

process.

Nonetheless basic major global players spend an enormous sums on R&D. Due to their ability to spread cost over the wider base of their global operations. Their R&D efforts are towards cost effective manufacturing process without compromising on quality and functional performance.

Research driven formalities, which give cutting edge, high standards of hygiene/purity for personal case, and food products, standardized formulations, which can be used across the countries.

♦ Marketing driven The players have to reach out to mass population and compete with several other brands, which eventually offer similar products. The perceived difference is greater then the real difference in the product.

♦ MARKET RESEARCH Consumer purchase decision based on perception about brands. They also keep on changing with fashion, income and changes in life style. Unlike industrial products, company spends enormous sums on product launches, market research and test marketing become inevitable.

INTRODUCTION Distribution is the activity, which create interrelationship between activities of demand generation and physical supply of goods. Salt is a FMCG product. So it is justified to put some emphasis up on formulation of Distribution Network in FMCG industry. "FMCG refers to consumer durable goods required for daily or frequent use. Typically the consumption of these goods are very fast and a consumer purchases these product at least once in a month." Products in this category are detergent, toilet soap, toothpaste, shampoo, Salt etc. Distribution of salt is lengthy process like distribution of other FMCG Product. It is a long channel of intermediaries, which consists of C/F agents, Distributors, Dealers, and Retailers. Managing such a long channel is it-self a gigantic task before companies. Salt is an essential commodity for daily household consumption so it is indispensable for the companies to manage the channel in such an efficient way so as to make the product available for the consumers on demand. Demand for salt also remains fix throughout the year so no extra effort for demand anticipation is required in this case.

This entire work is study of distribution network with social reference to salt industry. Distribution network stands for how a company distributes it's product in to the market (or the finished goods, which are, ready for consumption or use by consumers). Distribution network is a way by which company uses to reach out its end users. Distribution network is an important part of the supply chain management starting from procurement of raw material; production of finished goods inside the company premises and finally distributing the goods for consumption by the consumers. Each part of this entire process is equally important in order to decide success or failure of any company. First step of supply chain management i.e. procurement of raw material is also known as Inbound logistics, and the final step of this whole chain i.e. distribution of finished goods is known as Outbound logistics. By it's obvious means it is quite apparent that you can expect good out put if and only if your processes and the inputs are of desired level i.e. you need to have a proper check at each and every step. For achieving their goals of success companies should keep eyes on all activities starting from selecting a supplier for purchasing raw

material. Producing a quality product is not the final destination of any company. After producing the finished goods the measure part of logistics still remains incomplete i.e. effective and efficient distribution of finished goods. This is real testing stage for most of the companies and is a crucial stage for the success of any company. Companies try to achieve their distribution objective by imparting several activities in to their operations.

Raw material procurement Processes

Production of finished goods

Distribution

Consumption by end users

Fig.: Supply Chain Management.

IMPORTANCE OF DISTRIBUTION NETWORK: Without having effective and efficient distribution network no company will be able to fulfill documents of it's consumers and will lead to loss of consumer base. Consumers put so much investment on formulation of distribution network, which is effective in response to consumer demand. Companies can asses the demand conditions by their distribution networks. Most of the companies manages this network by establishing by sale department, which keeps track of requirement of intermediaries, and also keep track of competitors' strategy is promoting the product. This input from sales department give feedback to marketing department for product development, brand management, pricing etc. So distribution has become an integral part of any industry now a days. Specially when we talk salt kind of product which is a FMCG product the importance of managing distribution network becomes many fold because any FMCG products of same kind do not have any functional differences between them, so difference between two

brands is entirely perceptual. This perceptual difference has to be reinforced, in the mind of consumers so as to create the positive perception about brand. Intermediaries in distribution network are the key players in playing this role effectively.

Prototype of contemporary Distribution Network in salt Industry

Established Salt companies like Tata-Salt, captain-cook, Annapurna (Kissan), Follow a typical model of distribution network in order to maintain flow of their product from company to end-user.

Company

Carrying and Forwarding Agent

Distributor

Dealers

Retailers

Fig.Model of distribution network in Salt-Industry.

Contemporary model of distribution network The salt industry is presently following a typical model of distribution network, which constitute four effective components in it namely Carrying and forwarding agents, Distributors, Dealers, and Retailer.

Job of these intermediaries are very specific in nature carrying and forwarding agents are the important part of this network who provides warehousing facilities to the companies in order to make their product available in different locations throughout the country. Mainly companies choose to have only one C/F agent in a state but there can be more than one if geographical area is very big. Who charges from the company for the warehousing facilities, loading and unloading of the goods from the company. C/F agents also provide transportation facilities for goods of the company till the distributors point for which they charge from the company.

Distributor is a reseller of company's goods to the next intermediaries in the channel Companies mainly have at least one distributor in each city who receives bulk discount from the company for stocking the

goods of the company. Companies generally prefer that their distributor should not pile competitors product of the same category. Dealer is also a reseller who gets discount from their immediate distributors to keep companies stock with them. Distributor passes some portion of their discount to the dealers in order to make the company's product available everywhere. Companies pressurize their distributors to appoint as many as dealers possible in order to get full coverage of the city.

Retailer is a third and final reseller in this channel who keeps different variety of goods with them in order to serve maximum demand of consumers. Retailers are very important part of this network and remain in direct contact with consumers. They are the one who knows the consumers' demand and companies heavily depend on them to give their product a final push. Retailer points are the places where companies put emphasis upon promoting their product through merchandising.

JUSTIFICATION OF STUDY/RATIONALE: As this study was conducted to understand the dynamics of distribution network in salt industry and to analyze the possibilities of framing a distribution networks that can be more effective in present scenario. This study has tried to emphasize the reason why the companies like Tata-Salt, Captain-Cook, Annapurna are more successful salt then other salt brands.

OBJECTIVE OF THE STUDY: Basic objective of study was to understand basic strategies adopted by each of the companies to have competitive advantage, their distribution network. Main objective of my study was to assess the established distribution network and analyze the possibilities of formulating new distribution network, which can be more effective in meeting the demand.

HOW DO COMPANIES USES THEIR DISTRIBUTION SYATEM Distribution system is a key for the success of any organization. Companies uses distribution in order to anticipate so many key activities like:

Company demand Company's demand is company's estimated share of market demand at alternate levels of company marketing effort. It can be represented as: QT = STQ Where, QT= company T's demand. ST= company T's market share Q= Total market demand. The company share of market demand depends on how it's products, services, prices; communications and so on are perceived relative to its competitors. If other things remain equal the company's market share would depend upon the size and effectiveness of its market expenditure relative to competitors.

Total market potential Total market potential is the maximum amount of sales that might be available to all the firms in an industry during a given period under a given level of industry marketing effort and given environmental conditions. A common way to estimate the total market potential is as follows: Q = nqp Where, Q= Total market potential. n= Number of buyers in the specific product or market under the given assumptions. q= Quantity purchased by an average buyer. p= Price of an average. Other Elements which are desirable for the success of any company in the market like- company sales forecast, company sales potential, area market potential and so on can also be estimated by means of distribution network.

SWOT ANALYSIS OF PRESENT DISTRIBUTION SYSTEM

Each system which has taken long time to come into it's present shape has it's own flip and flop sides, and so is the present distribution system of the salt companies.

STRENGTH It takes years for companies to build any kind of distribution network. It cannot be changed on the periodical basis until the previous system has major drawbacks. There is always a possibility to improve the processes involved in the distribution system according to the demand of the time. Strength of any distribution network can be managed in terms of its efficiency and effectiveness to deliver company's goods on demand for the consumers. The present distribution system is old in case of TATA salt, CAPTAIN COOK, ANNAPURNA. Due to old distribution network of these companies there is high level of confidence among companies and it's intermediaries, which are a key to the success of any distribution channel. An intermediary tries to push the product of the company in which they have high level of confidence.

Because this distribution network is pre-established, it gives companies a competitive advantage over its competitors. If the company has wide coverage through its distribution. It can create high barrier of entry for others to enter into the market.

WEAKNESS The major weakness of this channel is can be estimated in terms of the time taken for the information to reach from retailer to the company is very long. It puts a question mark on the responsiveness of the distribution channel according to the demand. This in terns results in wrong and incorrect anticipation of demand. Time lapses can create opportunities for competitors to enter in to the market. Companies like TATA, CAPTAIN COOK and KISSAN, which are having varieties of FMCG goods appoints different C&F agents for their differing products ranges which results in heavy cost of warehousing and transportation.

OPPORTUNITIES This configuration of channels provides sufficient control for the companies over its intermediaries. Like C&F agent of one company can handle product of only one company at a time. If a company is able to convince influential person to become part of their channel, they can create high barriers of entry for the competitors. Using such an extensive model of distribution can make its product available throughout the desired geographical area.

THREATS Intermediaries are very strong in this channel and they can bargain for heavy discount and other policy decisions from the company when they start feeling their importance as potential channel members. Company's

performance

is

entirely

dependent

upon

their

intermediaries' cooperation. There is always a possibility to take a wrong decision regarding selection of channel member, which can distract entire flow of distribution.

Company

Carrying and Forwarding Agent

Feed back Indirect feedback

Distributor

Dealers

Retailers

Fig. Proposed model of distribution network.

Proposed model Of Distribution network

Explanation of the above model: ♦ Company should design monthly f/b system and should take the information given by their intermediaries seriously. Desired action should be taken as and when required required. ♦ Both form of feedback should be adopted i.e. direct vis-a vis direct feedback is one in which channel intermediaries communicate directly to the company, and indirect feedback system is one in which each channel intermediary communicate through it's immediate intermediary in the channel. ♦ Company can use one carrying and forwarding agent to keep two to three assortment of their product like in case of Tata, one C/F agent of Tata-Salt can be given responsibility of handling TataTea, Tata-cafe. Which can result in heavy cost saving in terms of cost of warehousing, loading-unloading, Transportation. Company can use this saving for other promotional activities. ♦ Inventory level should be decided by using techniques of demand estimation. ♦ Techniques of sales force management should be used in order to maintain channel of distribution.

Sales-Force management

Designing the sales Force

Managing the SalesForce

Improving Sales-Force effectiveness

SalesForce objectives

Recruiting and selecting SalesRepresentatives

Sales-Force strategy

Training SalesRepresentative

Training in selling techniques and Salesprofessionalism

Sales-Force Structure

Supervising SalesRepresentative

Negotiation Skills

Sales-Force Size

Sales-Force Compensation

Motivating SalesRepresentative

Relationship building Skills

The above model helps in designing and managing the sales force.

Evaluating Sales Representative s

CONCLUSION

Conclusion: The process of getting goods to consumers has traditionally been called physical distribution. Physical distribution starts at the factory. Distribution of any product requires intensive decision making from managers to choose a set of warehouses or stocking points, and transportation careers that will deliver produced goods to final destination in the desired time and at the lowest total cost.

The above paragraph clearly indicates the importance of distribution network for any company to make its product available for the end users. Companies now days are putting more emphasis upon strengthening their distribution network in order to get competitive advantage over their competitors.

In present time the concept of distribution system is taking new dimension in order to deliver not only their goods to customers but also delivering customer satisfaction simultaneously.

Success of any distribution network lies in the fact that how much it is susceptible to the changing demands of marketing environment. As the marketing requirement are volatile in nature so a company can not maintain its distribution efficiently for a long by following a particular kind of outdated distribution system. In present scenario it is inevitable for the companies to think beyond the physical distribution of goods because now a Day's consumer will not purchase what you will make available for them but they will purchase only those products, which satisfies their needs.

To survive in present scenario companies should try to maintain strong relationship will their channel intermediary and they should also try to take customer feed back in view. Now a days when competition is rising in every industry due to entry of competent and potential players companies are left with no other option but to satisfy their customer by delivering them the desired product in a desired way.

RESEARCH METHODOLOGY:

Research design The research was mainly exploratory in nature, in which I have tried to find ways to develop new distribution network, and looked in to the essence of already established distribution network.

Population All distributors, retailers and stockist in salt, sample size for retailer it is 50, for distributors and stockist it is 20.

Information collection method After designing research problem the task of the data collection was undertaken. Primary data were collected through detailed interview of retailers/distributors and stockist. Secondary data were searched in ET, BUSSINES TODAY and other magazines.

SUGGESTIONS • Invest in brand power for channel power. If you are fortunate enough to have a high customers- brand preference, then use it to gain a stronger, more powerful new channel position. • Go for all

the business from your COD. Do not allow “cherry

picking”. In other words, ask for, motivate, and expect full product line and product mix support from your distributors. • Only pick the best “Eagle” COD candidates or risk sales leakage. Do not succumb to what I call “the warm body syndrome” when being pressured to find a distributor in primary market. You will end up rushing into signing a mediocre candidate who generates mediocre sales results. Use the time proven channel design sequence! • Always be honest. Do the right thing or you will lose credibility with your COD. Tell your distributors the truth about product quality or delivery problems. It is better they hear it from you rather than someone else. • Direct and indirect COD will always have some level of conflict between them. I call it “the conflict eternal”. Deal with it!

• The primary business objective of a channel master is to achieve a disproportional share of your channel distribution resource commitment. Always remember that you are competing with every other product line the distributor carries, and it only has so many resources to allocate (inventory, training, local marketing). • Your major market areas aren’t necessarily the ones you first attempt to penetrate. Because competition may be strongly entrenched, your company might not have the funding to properly support major market demands. You may want to first try out your channel marketing plan in a secondary market to find out if there are any deficiencies.

LIMITATIONS Non-availability of secondary data: • Due to non availability of secondary data the viability test on proposed model could not be conducted, so it is just a conceptual model. Non Response • Respondents also hide so many valuable information like transportation cost, warehousing cost, and so on. This non response has resulted in non testing of proposed model. Time Pressure • Although time was sufficient, but at the mean time when I was conducting survey for garnering primary data, I have to leave my work in between for interviews which hampered pace of study and resulted in delay. Financial Constraint • To study any FMCG product extensive survey is required which in terms need huge fund, which is also restricted my scope of study.

Although there were so many constraints but I have tried to justice to my study in terms of physical and mental labour.

BIBLIOGRAPHY

Books • Marketing Management by Philip Kotler • Channels of Distribution by Kenneth Rolnicki Magazines • Business India • Business Today Newspapers • Economic Times. • Business Standards.

ACKNOWLEDGEMENT

This is the part of my work where I can pay my gratitude’s to the persons without wherein this, whole work would have been impossible. First of all I would like to convey my best Regards to Dr. Neeraj Saxena my guide of direction. Who have continuously helped me during this work and helped during most difficult movements of my work. I also would like to thank Dr. S.K. Nigam who have assigned we this interesting topic for study. Finally at the end I would like to thank my trend Mr. Prusum Kumar & Ghulam Zakaria who have helped me in typing the whole work.

TABLE OF CONTENTS

• Introduction • Overview of FMCG Industry • Model of supply chain management • Salt Industry and their distribution model • Research Methodology • Objective of Study • Justification of study/Rationale • Importance and use of Distribution Network • SWOT Analysis of present Distribution Network • Proposed Model of Distribution Network • Conclusion • Suggestions • Limitations

• Bibliography