Posted on : 2023-02-12 21:40:33
Article : Good morning, Management solution for the TASK 229- Understanding market topography Fulfils market needs with lower operation expenses and develops more new markets with increased sales revenue.….
A franchisee of a major global beverages company is operating in a central part of a state covering 2 major districts having more than 14 million population. Its area of operation is 250 kms radius covering Tier 2- Tier 3 towns and around 500 rural markets. Area retailer strength is around 40,000 outlets. Since beverage business is season dependent product, availability in all the outlets all the time is a challenge for consumer consumption and for sales volumes.
Market distribution pattern is Distributors, wholesale dealers and stockiest for tier 2, tier3 and major rural markets. Central ware house attached to plant controls the stock deliveries. The company has its own trucks to cover its area markets and use vendor truck services for peak seasons and festival times to meet the market demand. Usually the truck with 800 cases capacity supplies Thrice a week for a tier 2 town distributor while similar capacity truck supplies twice or once a week to tier 3 town distributors. For Villages with more than 5000 population company vehicles ply as per the route trip sheet to cover the rural markets. Apart from these markets there are number of villages with less than 5000 population that need stocks to be delivered. Since these markets’s demand, volumes and flavor mix requirements are more complex only in summer rural retailers required flavor stocks are supplied.
Management found that their markets operation expenses are increasing due to complex route operations and many of the rural markets are not being covered. Per crate distribution cost is coming to 55% of the selling price. With this soaring expenses management wanted sales department to offer a more cost effective stocks distribution plan and all markets coverage.
Company’s sales team came with a total markets coverage distribution plan that can reduce per crate cost and markets will have more stocks in all days of the year. The sales team has planned Hub and spoke system of distribution, where in they have clubbed 7-10 villages in 5 kms radius as a cluster hub. The local stockiest of the selected hub is convinced to supply the surrounding rural markets and offered a reasonable increase in dealer margin to cover the area markets. As such these rural retailers usually visit these hub spots for other goods purchase and they as well purchase required beverage stocks too.
The stockiest is doubly benefited with more new retailers who may also buy other products from him i.e growing is business beyond beverages and his distribution expense will considerably reduce. Advantage to the village retailer is, purchase of only required flavor stocks and may gain credit period too. Now company can plan Thrice a week truck load instead of twice or once a week supply of truck load to 2 such hubs. This system avoids company vehicles long time routing to make small sale. This Thrice a week truck load has improved all flavors stock availability, increased market stocks, increased market expansion.
With this Hub and Spoke distribution model Company started utilizing their limited own vehicles only for supply to these hub markets while vendors trucks are used for single point truck load delivery. This system has brought down per crate distribution cost to 30% of the selling price and could allow 10% extra commission to the Hub stockiest to cater to their allotted rural markets. On the whole company is benefited by 15% on the cost per crate and added more retailers to their products/brands sales.
End point- Effective supply chain management benefits the company financially to reduce distribution cost, increase markets and sale volume with more revenues. To attain this, it needs understanding of market topography to fulfil market needs with lower operation expenses and to develop more new markets with increased sales revenue.
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