Modern Confectionery Ltd: Streamlining the Distribution Channel Business Plan

Group Assignment – MBAEX-9211 (2017)

FMS, Delhi University (SC)

Modern Confectionery Ltd: Streamlining the Distribution Channel

Modern Confectionery Ltd (MCL)  makes about 25 varieties of confectionery. It is the second largest player in the hard boiled Confectionery. MCL has an established distributor network in Punjab & Haryana. It sells through wholesalers in two more states i.e. Himachal Pradesh & J & K. Current distributors: 10 in Punjab and 6 in Haryana. The current turnover of MCL is Rs. 30 cr.

Ten years back when scouting for distributors, MCL found it difficult to get good distributors. They appointed ex-employees as distributors: Punjab - 5, and Haryana- 4. Other distributors were regular businessmen.

MCL is now in the process of streamlining their distribution efforts in the remaining two states i.e. Himachal Pradesh & J & K. They have had a 'mixed' experience with two kinds of distributors (those who were ex-employees and those who were businessmen).

Ex-employee Distributors

• They are charged up, eager, growing.
• Understand products, customers, markets and competition very well and react fast.

Businessmen / Wholesale Distributors

• Do not listen to advice. Have a 'know-all' attitude
• They are less professional-not, pro-active to develop \ new business.
• Primary motive is profitability.

Both the types of distributors resist changes to operating requirements. MCL competition is also trying to upgrade it’s distributor network.

Ramesh Pandey has recently joined as General Sales Manager and wants to set the distribution right in existing states as also formally enter the markets of the two additional states – Uttar Pradesh & Rajasthan. He plans to have a regular distribution network by appointing distributors. Can you help Ramesh decide on the following:-

1. Should he continue with regular businessmen / wholesalers only in the two new states?

1. Should he start selecting and appointing distributors in all the six states?
2. Should the distributors be selected from ex-employees or from market businessmen (some of whom may be the current wholesalers).
3. Should he commit a Return-on-Investment to the distributors and what should be the recommended system of calculating the quarterly ROI.
4. What important criteria should he adopt while selecting new distributors?
5. Should he fix, and if so what, Performance indicators for the new distributors.
6. Also what steps should he take to bring the current distributors in the same operating discipline?
7. At what stage of distribution spread should he recommend MCL to adopt a DMS (Distribution Management Solution) in it’s business.

In order to sell your recommendations to MCL management, it will be useful to study and document the actual distribution system / distributor profile of at least 1 but, preferably 2, leading confectionery brands.

1. Should he continue with regular businessmen / wholesalers only in the two new states?

No, because confectionary is a business where competition is very high with local manufacturers and MCL has mixed kind of experience with both kind of distributors. They shouldn’t relay on regular businessmen. They are basically profit oriented. If MCL could track its business growth it will surely lost its market presence.

As far as ex-employee is concerned they understand the product very well & their presence in the same can be an additional motivating factor to regular businessman.

2. Should he start selecting and appointing distributors in all the six states?

As Ramesh Pandey joined recently as the General Manager he should be clear about the existing distributor network and issues lies with them. Appointing distributors in all six states will put the company’s future in a uncertainty condition. He should cover all six states phase wise. Currently they existing distributor in Punjab & Haryana. Keeping the business model in mind he should go for next two states followed by other two.

3. Should the distributors be selected from ex-employees or from market businessmen (some of whom may be the current wholesalers).

Distributor should selected either from ex-employee or from new businessmen not the existing wholesalers, because when new businessmen are appointed they also contribute for the development of the company for earning their own profit. In other hand existing businessmen don’t listen to advice the whole key shouldn’t be with them.

4. Should he commit a Return-on-Investment to the distributors and what should be the recommended system of calculating the quarterly ROI.

No, rather than committing for a fixed rate of return he should explain them to adopt a business model of maximizing the rate of return.

The calculations need to explained

Distributor Return on Investment (ROI)

ROI = Number of times investment rotated X Net income as % of turnover

Investment: Rs. 8 lac (stocks, market credit, infrastructure)

Annual turnover: 55 lacs

No. of times investment rotated: 55 /8 = 6.875

Annual income (commission + incentives): Rs. 5 lac

Annual expenses (distribution / office etc):Rs. 2 lacs

Net income as % of turnover: 3*100/55 = 5.45 %

Distributors ROI=6.875*5.45%=37.47%

5. What important criteria should he adopt while selecting new distributors?

Distributor Selection Process

1. Financial capacity

A distributor should be financially strong enough depending upon the market potential as well as your product range. Finance is most important criteria because of following reasons. Distributor is going to stock the required products in bulk quantity from the manufacturer. This requires huge shell out in terms of money.

Distributor will provide credit (no. of credit days based on the requirement) to the retailer and institutions. Distributor should be able to invest in infrastructure, new products, and new initiatives of the company without expecting immediate returns.