Distribution channel and Channel Management

at

Ceat Tyres

FOREWORD

CEAT Ltd., one of the oldest among RPG companies, is one of India’s leading tyre manufacturers. It

manufactures tyres for the Heavy Duty Trucks & Buses, Light Commercial Vehicles, Earth Movers,

Forklifts, Tractors, Trailers, Cars, Two & Three Wheelers and Off the road segments. It also exports

tyres to over 90 countries. CEAT has two large tyre plants based in Mumbai (Bhandup) and Nasik

(Satpur), a tyre plant in Cochin, in Kerala, through RADO Tyres, and two plants in CKITL and ACPL

in Sri Lanka, through CEAT Kelani. Tyre Production aggregates over 7.6 million tyres per annum.

Ceat produces Tyres for 3 different markets 1. OEM 2. Replacement tyres and 3. Exports. For the

purpose of this project we are limiting ourselves to studying the distribution of the “Replacement

tyres” market only. The reason is that tyres are sold to OEM’s follow the B2B sales process hence

they do not require an elaborate distribution network. Also tyres that are exported use the

distribution network of some other company. Hence the most challenging Sales and Distribution

network is developed for the Replacement Market.

The analytical Framework detailing how the variables affect Sales and Distribution of tyres has

been developed for Truck Tyres. The reason being that, buying behavior is different across the

Truck, Bus, Passenger Vehicle, 2&3 wheeler segments. Also “Truck tyres” is the largest customer

segment for any tyre company accounting for more than 50% of the tyre sales.

CHANNEL DESIGN

CEAT has one of the largest distribution network for tyres in India. It has divided the

Indian sub continent into 33 regions and has set up a Regional Office for each region.

Clearing and forwarding agents (C&FAs) are attached to them. Often the largers regions have 2 or

3 or more C&FA’s to cover the region properly. The total number of C&FA’s across the country is

112.

The basic operating structure of the Ceat Ltd comprises of the following entities:

� Factory

� DDC

� RDC

� C&FA

� Dealers

CEAT has three level distribution structure. The factory supplies goods to the RDCs (Regional

Distribution Centers) and from these RDCs the goods are transferred to CFAs (Carrying and

Forwarding Agents) which act as godowns for distribution to the dealers.

There is only one DDC (Divisional Distribution Centre) this is at Nashik and is used for Storage and

Assembly of tyres, Tubes and Flaps from the Nashik plant.

RDCs are the mother godowns for storage of goods. The tyres, tubes and flaps are transported to

these from factories. The set is formed at RDCs and strapped. The tube is inflated before

transportation to RDCs. The Dispatch challans are issued to the transporters. In some cases, the

RDCs are required to supply the goods directly to the dealers and invoice them in the required

format.

Ceat has recently shifted from the DDC structure wherein it had 7 DDC’s to the RDC structure,

however this structure is proving inefficient from the operating cost point of view. The inventory

cost has shot up and availability has suffered. The amount of safety stock in the system has also

gone up. Hence Ceat is about to shift back to the DDC structure over a one year period.

CFAs are the smaller godowns which pull the goods from the RDCs. They transfer the goods to the

dealers and an invoice needs to be generated. The CFAs pull the goods from RDCs according to

demand. These CFAs then distribute the goods to the dealers.

The Dealers are of three types

1. Tyre retailers: These are usually multi-brand tyre dealers. They stock many brands of tyres

for a particular segment of customers. These can further be divided into Truck Dealers and

Non-Truck dealers.

2. Trader Dealers: These dealers are used typically to ensure upcountry coverage where the

company distribution network is absent. These dealers have their shops in upcountry

locations or sell to other dealers in upcountry locations and thus enhance the distribution

reach of the company. They purchase tyres in bulk and often avail of the Turn over

discounts.

3. Ceat Shoppe: Ceat shoppe is a retail outlet where only ceat tyres are sold. This is used

mainly for passenger car and 2 wheeler tyre sales. The customers get a range of tyres and

advise about selecting the right tyre while purchasing from here. They also get a very good

after sales service.

The region under each regional office is divided into sales territories that are handled by

the territory leaders. The Sales in the region are headed by the Regional Manager. The territory

leader caters to all the tyre dealers present in his sales territory.

However in the Mumbai Regional Office no territories have been given and TL’s are allowed to go

anywhere in Mumbai and develop their dealers. This is so because when the Mumbai RO was

formed most of the dealers in the region were loyal to MRF and hence it was important to convert

as many as possible.

The responsibilities of the RO include:

1. Controlling & administration of office.

2. Handling of day to day work like administration, cash, sales/stock operations/M IS &legal

formalities.

3. Reviews with sales field staff.

4. Review of commercial control.

RDC RDC

CFA CFA CFA CFA

Tyre Sourcing Units Tubes/Flaps Sourcing

Units

DDC Nasik

Dealer Dealer Dealer Dealer

Tubes and Flaps

Storage

Assembly of Tyre,

tube and flaps

Nashik & Bhandup

Factory

5. Compiling of data received from the CFA.

6. Maintenance & Reconciliation of stocks & accounts.

Attached below is an example of the division of the Pune Regional office into Territories which are

assigned to the Territory leaders.

No. Territory code TL base C & F Market potn Districts covered

1 B0061 PUNE PUNE 92,449,800

Pune local

2 B0062 PCMC PUNE 58,405,800

Pune upcountry,satra

3 B0063 AHMEDNAGAR AHMEDNAGAR 42,072,700

Ahmednagar,

4 B0064 AURANGABAD AURANGABAD 30,873,750

Aurangabad,jalna,beed

5 B0081 SOLAPUR SOLAPUR 35,347,200

Solapur,Latur,Osmanabad

6 B0082 KOHLAPUR KOHLAPUR 35,178,650

Kohlapur

7 B0083 KARAD KOHLAPUR 16,403,200

Ratnagiri

To cover the upcountry sales, apart from the trader dealers, Ceat also has appointed area

managers in important upcountry areas. Sales associates work under the area managers and are

responsible for all the dealers in a given territory in the upcountry market. However the upcountry

market is a challenge as the company does not have a CFA over there and availability is always an

issue due to the remoteness of the region.

The Territory leaders are given a travel plan which has been decided considering the best

coverage and lowest cost and journey cycle. Attached below is a sample travel plan:

TOUR CIRCUIT

NAME OF THE FIELD STAFF:

AREA: PUNE UPC

TOUR TOWNS DURATION TOTAL

CIRCUIT NO NO.OF

DAYS Frequency Man Days

A URLI KANCHAN 2 3 6

DAUND

Bigwan

INDAPUR

B PHALTAN 2 2 4

MALEGAON

LONAND

SASWAD

PATAN 3 2 6

C CHIPLUN

DAPOLI

MOSHI 2 3 6

D NIGDI

BHOR

DAHIVADI

E URLI KANCHAN 1 2 2

LONAVALA

MANCHAR

Total 24

Problems with existing structure:

1. The productivity of sales fleet is the lowest for CEAT ,it is primarily because the territories

have been defined in the past which don’t cater to the needs of the present scenario

2. TL’s focus is on major towns and while traveling from one big town to other the smaller

towns get neglected which affects the sales.

3. As major dealers are in big towns with higher market potential, cost cutting while selling

tyres is done.

4. The TL has no motivation in terms of promotion because right now it takes almost 8 years

for the TL to get promoted to RM, which is the next promotion, this leads to them getting

demotivated .

Documents used for recording the information flow

The major documents used for information flow are :

1. Transportation from Factory to RDC:

a. Delivery Challan (Called as Bilty in slang) – Delivery challan mentions the date and

time at which the tyres left the factory. It is issued at the time of dispatch of tyres.

When the tyres are received at the RDC the concerned person signs the Delivery

challan and one copy is sent back to the factory.

b. GRN (Goods Receipt Notice)- This is a document that is generated by the RDC

when the good are received. It mentions the quantity of goods received. Since

SAP has been implemented this document is generated online.

2. Transportation from RDC to C&FA

a. IODC (Input Output Delivery Challan) – This is a delivery challan that is generated

by the SAP system when the tyres are being transported out of an RDC. It is used

to track the transfer of tyres from RDC to C&FA.

b. Delivery challan Entry – When the Tyres transported from the RDC to the CFA,

upon receipt at the CFA a DC entry is made into the SAP system. This entry

corresponds to the IODC entry made at the RDC and denotes receipt of the tyres

at the CFA.

3. Sales from C&FA

a. Invoice – This is where the Tyre sales occur. Hence a commercial invoice is

generated. This invoice is signed by the dealer upon receipt of the tyres.

b. Cheques – The payment cheque is taken from the Tyre dealer immediately after

delivery of the tyres. The dealer is given a credit period of 30 days within which he

can instruct the company any time to deposit the cheque, if not then the company

deposits the cheque at the end of 30 days of credit.

CHANNEL MEMBER MANAGEMENT

Monetary methods

All dealers dealing with the Company will have to maintain Security Deposit with the Company.

The minimum amount of SDS is Rs.1.00 Lac (one lac) for all dealers dealing in Truck/Non Truck/all

other categories.

The minimum amount of SDS is 0.50 Lac (fifty thousand) for dealers not dealing in Truck/Specialty.

Interest on Security Deposit (SDS)

1. Dealer will be entitled to SDS interest of 9% per annum. The SDS interest will be payable

through Credit Note generated on a half yearly basis.

2. Base interest on Security Deposit @ 9% p.a is applicable to all set of active dealers irrespective

of any condition barring the consistent business clause mentioned below.

3. Dealer will not be eligible for SDS interest, if there is no business with the Company for more

than TWO months in succession. Date of last transaction of the dealer with the Company will

be considered for this clause.

4. The interest will start from the day, on which dealer re-starts business with the Company.

5. The Interest on SDS will be paid on actual deposit in company books, calculated on daily

balance basis and not on month end average.

The dealer will be offered credit limit in the ratio of 1:1 to his security deposit. This means that, at

any point of time the total outstanding of the dealer cannot exceed the deposit amount.

Credit Period & Collection

Type of

Dealer

Credit

Period Collection

Local 30 days

Local Cheque

against delivery

Upcountry 33 days

DD/Local

Cheque

1. Credit period of dealer will start from the date of dispatch or 48 hours from the date on

invoice, whichever is earlier.

2. Penal interest will be charged at the rate of 39% per annum against all the payments, made

beyond allowed credit period.

3. Penal interest will be recovered through debit notes on a monthly basis. This debit note

amount will be automatically adjusted against credit balances on monthly basis.

There is no COD (Cash on Delivery) on any payments against all type of invoices.

1. Dealer will be eligible for an additional incentive of 9% or 24% p.a on SDS deposit based on the

SDS growth and other criteria mentioned in Table A.

2. Additional incentive will be offered on actual SDS deposit lying in company books, calculated

on daily balance basis and not on month end average.

3. Additional incentive will be paid on half yearly basis along with SDS interest.

4. Additional incentive percentage mentioned in the Table A&B is on a per annum basis.

5. Base deposit for additional incentive on SDS is the deposit lying in the books of the Company

as on 28/02/2007.

6. On a minimum rotation of 2.75 times of the average deposit and upon increasing SDS over

base deposit, dealer will become eligible for TOD and additional incentive as per Table A in

this policy.

7. Additional incentive will be offered on half yearly basis. Month end SDS of six months, will be

divided by 6 for calculation of average deposit.

8. Rotation for additional incentive on SDS will be calculated on 6 monthly basis. Thus minimum

5.5 rotations are required in each half to qualify for additional incentive.

9. However TOD rotation will be calculated on quarterly basis only.

10. Dealers with more than 12 lacs of Base SDS as on 28/02/2007 will be eligible for the TOD and

additional incentive benefit of 5% increase from base SDS instead of 10% increase for other

dealers (Table B).

11. All other qualification criteria of TOD and additional incentive remain the same for this set of

dealers (>= 12 lacs base SDS as on 28/02/2007).

Turnover Discount (TOD)

Dealers will be eligible for TOD, subject to the following qualifications:

1. The sales turnover to be considered for eligibility of TOD in terms of rotation of SDS will be

the final invoice value.

2. TOD discount shall be calculated on the net taxable sales value (i.e. the invoice value after

all discounts on the body of the invoice and before taxes)

3. The sales turnover for the TOD purpose shall not include the turnover of Claim, Sludge

and Test Tires (TTF)

4. If sales turnover is >= 2.75 times of average Security deposit in a quarter, TOD will be

payable through credit note generated on quarterly basis as per Table A given in this

policy.

5. Minimum 2.75 rotations on average SDS in a quarter is required to qualify for TOD. The

quarter will be April-June, July-September, October-December and January-March.

6. The minimum rotation of 2.75 times of average Security Deposit is applicable on quarter

to quarter basis.

7. TOD is payable up-to 4.5 rotation of average SDS deposit of the quarter for which TOD is

being paid.

8. After 4.5 rotations, the average SDS needs to be increased for TOD to be eligible on

additional turnover in excess of 4.5 rotations.

a. This is applicable to all dealers including new dealers and dealers with more than

12 l SDS deposit as on 28/2/2007.

b. If there is no increase in SDS post 4.5 rotations, no TOD will be allowable on the

additional turnover over 4.5 rotations

9. The base security deposit for TOD purpose will be the deposit showing in the company

books as on 28th

February 2007.

10. SDS held by a dealer will be calculated as the average of actual SDS, as on the end date of

the three months in a quarter.

11. For the purpose of calculation of growth in SDS in a quarter, the average of the actual SDS

at the closing date of every month in the quarter will be compared to the SDS base of 28th

February 2007. This growth rate will be considered for TOD/Additional incentive on SDS

eligibility. Thus, the SDS at the end of the quarter or the highest SDS at any date during

the quarter will not be considered for calculation of SDS growth and TOD eligibility.

Additional Incentive and TOD Table

Table A

For Dealers with < 12 Lacs SDS as on 28/2/07

SDS growth on base

deposit of 28.2.07

Rotation of Avg.

QTR.SDS

Additional Incentive

ON SDS Deposit

TOD on QTR. T/O

More than 10% >=3.00 24% p.a 2.5%

More than 10% 2.75-2.99 24% p.a 1.5%

0%- 9.99% >=3.00 9% p.a 2.5%

0%-9.99% 2.75-2.99 9% p.a 2.0%

Less than 0% >= 3.00 NIL 1.5%

Less than 0% 2.75-2.99 NIL NIL

Any of the above

condition

<2.75 NIL NIL

Table B

For dealers with 12> Lac SDS as on 28/2/07

SDS growth on base

deposit of 28.2.07

Rotation of Avg.

QTR.SDS

Additional Incentive

ON SDS Deposit

TOD on QTR. T/O

More than 5% >=3.00 24% p.a 2.5%

More than 5% 2.75-2.99 24% p.a 1.5%

0%- 4.99% >=3.00 9% p.a 2.5%

0%-4.99% 2.75-2.99 9% p.a 2.0%

Less than 0% >= 3.00 NIL 1.5%

Less than 0% 2.75-2.99 NIL NIL

Any of the above

condition

<2.75 NIL NIL

New Dealer

1. For new dealers appointed on or after 1st

March 2007, the SDS base will be the average

deposit of the first quarter during which he is appointed.

2. New dealer with an average SDS deposit of Rs.5 Lac and more in the first quarter, shall

qualify for 2.5% TOD on Qtr. Turnover and additional incentive of 24% p.a on SDS deposit,

subject to 3 rotations or proportionate rotations as the case maybe.

3. New dealer with an average SDS deposit of less than 5 Lac in the first quarter shall qualify

for 2.5% TOD on Qtr. Turnover and additional incentive of 9% p.a on SDS deposit, subject

to 3 rotations or proportionate rotations as the case maybe.

4. Calculation of average SDS base for new dealer will be the average of month-end deposits

in a quarter.

5. All other qualification criteria applicable to existing dealers will be applicable to new

dealers also, in the first quarter of operation.

6. In the first quarter, proportionate rotation for this set of dealer will be on number of

months, the dealer has worked in the quarter of his appointment. For example, if a dealer

is appointed in June then for Q1, he has to do one rotation. If he is appointed in May, he

will have to do 2 rotations in Q1. If he is appointed in April, he will have to do 3 rotations

in Q1.

7. From next quarter onwards, average SDS of the quarter in which new dealer was

appointed will become his base SDS and on this base SDS, these set of dealers will be

treated at par with existing dealer for TOD/Addl. Incentive purpose.

8. All existing dealers having NIL SDS on 28/2/2007 will also be treated as New dealer if they

are revived on or after 1/3/07.

Additional Incentives and TOD Table

For new dealers appointed on or after 1/3/2007

Table C will be applicable to the new dealers in the first quarter of his appointment only

From 2nd

quarter onwards the dealer will be treated as an existing dealer and TOD/Additional

incentive will be applicable accordingly (Refer Table A & B)

Table C

Average SDS in

the Qtr. Of

appointment

Rotation of Avg. Qtr. SDS Additional Incentive

on SDS Deposits

TOD on Qtr. T/O

More than 5 lacs >=3.00 24% p.a. 2.5%

More than 5 Lacs <3.00 NIL NIL

Less than 5 lacs >=3.00 9% p.a. 2.5%

Less than 5 lacs <3.00 NIL NIL

Additional TOD (ATOD) on Non-truck Value Sale

• Growth based additional turnover discount on non-truck value sale is being introduced

effective 1/4/07

• Dealers will be eligible for ATOD on non-truck sales value for growth over one’s non-truck

value base

• The base of ATOD will be the average monthly value sale of non-truck in the previous

year(2006-07)

• Non-truck value sale, for base and ATOD purpose will not include sale of Sludge, Test and

Claim tyres (TTF)

• This discount will be paid on half yearly basis. This means that if the average sale of the

previous year is 1.50 lacs per month, in H1 the base will be 1.50*6= 9.00 lacs. On this base the

growth in H1 will be calculated for the ATOD purpose.

ATOD discount on non-truck value will be calculated on the net taxable value (i.e. the invoice

value after all the discounts on the body of the invoice and before taxes)

Additional T/O discount on Non-Truck Value Sale

Table D

Growth on Non-Truck value base as defined

in the policy

ATOD to be paid on Non-Truck value excluding

Test, Sludge and claim Tyres as defined in the

policy

>20% 1.0%

ATOD on Non-Truck Sales Value To New Dealers

1. Any new appointment during 2006-07, shall have the target base on the number of months,

one has worked with the company from the date of his appointment. For example, the base of

the dealer appointed in September, 2006 will be the monthly average non-truck off-take of 7

months, multiplied by 6 for the H1 base. Growth on this base will be required for ATOD as per

table D.

2. New dealers appointed on or after 1/4/07 will be entitled for 1% ATOD without any target in

H1. In H2, he will be treated as existing dealer and all the qualification criteria applicable to

existing dealer will be applicable for base and target. H1 average would form the base in this

case.

3. New dealer appointed on or after 1/10/2007 will be entitled for 1% ATOD without any target

in H2.

Adjustment of Overdue

Outstanding/debits beyond 60 days from the due date on invoice will be automatically adjusted

against the credit balance or Security deposit or both on a regular basis for all dealers.

System will automatically de-activate all such accounts, where no transaction takes place for 60

days. HO can re-activate all such accounts, subject to availability of duly filled up dealer form

along with required documents with company.

Non-Monetary methods

Platinum club:

Ceat has formed a platinum club which consists of its top dealers. There are currently about 50 of

India’s top dealers in this club. These dealers are given special importance. They are invited to all

tyre promotions, dinners and other events that happen in the region. Their feedbacks are

considered important for deciding the marketing strategies and for deciding the margins,

incentives and discounts that are given to all the dealers nationwide. If a VP visits that region he

also visits the Dealers shop. Apart from this the platinum club dealers are invited to the annual

conclave for sharing the corporate vision and the plan for the next year with them. These annual

conclaves are held in foreign countries where the dealers are given fully paid trips. The last annual

conclave was at Istanbul and lasted 3 days.

Rhino Gold club:

The Rhino Gold club of dealers is a toned down version of the platinum club. It is for the dealers

who show promise but yet are not big enough to be accommodated in the Platinum club. There

are currently 120 dealers in the Rhino gold club.

Target Setting Mechanism

Ceat follows a top down Target setting mechanism. The product managers for the Different sizes

of tyres are given their targets for the year. These targets are based on the prevailing market

conditions and market potentials. These targets are decided in a meeting by the product

managers and the VP’s and senior managers together. The quarterly targets are also decided at

this time.

These productwise targets are then divided among the different regions by the product managers

in consultation with the regional managers of those regions. The potential of the region and the

company’s position in the region and the past sales performances are considered while assigning

these targets.

These productwise targets are then summed up and this becomes the target for the regional

manager to fulfill. E.g. In Truck tyres if the target for the region is Rs. 10 lakhs, LCV Tyres Rs. 5

lakhs, Bus Tyres Rs. 3 lakhs, 2 wheelers Rs 2 lakhs, passenger cars Rs. 5 lakhs and 3 wheelers Rs 5

lakhs then the total target for the regional manager is Rs. 30 lakhs for the year. The quarterly

targets are also specified for the regional manager.

Once the regional manager receives these quarterly targets he divides it among the Territory

leaders and Area managers. The area managers will further divide their targets among the sales

associates under them. Productwise sales targets are given only till the regional manager level.

Thereafter the targets are on the total value in different customer segments. E.g. The regional

manager receives a target of 100 tyres in 9.00 – 20 and 200 tyres in 10.00- 20 size tyres but both

these fall in the Truck tyre segment, hence the target for the territory leader is in terms of the

value of the tyres in the truck segment. The territory leader does not have a target for 9.00-20 ir

10.00 – 20 tyres.

After the territory leaders get their targets, the targets for the platinum club dealers and Rhino

gold club dealers and trader dealers are decided and given to them. However the sales targets are

not given to other multi-brand dealers, instead monetary incentives and discounts are used to

ensure that they perform upto the required level.

Monitoring Mechanism

Monthly sales data is reported by every Regional office. An MOR (Monthly operations review

meeting) is conducted wherein the regional managers, product managers and VP’s participate.

Shortfall in sales and the reasons for the same are discussed and if needed the sales targets are

revised.

Training and HR inputs provided to Channel Members

No training or HR inputs are provided to the dealers except to the Ceat Shoppe. The Ceat soppe

being a single brand outlet is used for claim processing and after sales service too. Hence the Ceat

shoppe personnel are trained in Claim procedure, Identifying the common defects in tyres,

Commercial settlement matters. They are also trained in the different tyres available for the

passenger car segment and 2 wheeler segment. Given a customer’s requirement they should be

able to suggest the right tyre to them.

FIELD FORCE MANAGEMENT

Monetary methods

Also Quarterly appraisal of the Territory leaders is done. The TL’s are given quarterly targets in the

Truck, Bus, 3-wheeler etc segments. Each segment is given a weightage say Truck 45%, Bus 15%

etc. In each of this segment the TL is rated based on the sales figure achieved and the challenges

faced in the same. Based on his total score his monetary incentives for the next quarter are

decided. Since the monetary incentives given to the sales force is sensitive data, we could not get

access to this data for the purpose of this study.

Non-Monetary methods

Every month one TL from each region is chosen to be the performer of the month. This

performance also counts in the ratings given in the Quarterly appraisal and are thus linked to the

monetary compensation also.

Also the best TL’s are assigned Sales trainees to be trained under them.

Target Setting Mechanism

Target setting mechanism is the same as detailed above.

Monitoring Mechanism

At the regional office level a monthly review is conducted before reporting the sales to the head

office. The performance of all the territory leaders is judged at this time. Also a performer of the

month is adjudged.

Training and HR inputs provided to Channel Members

Given below is the training program for the sales trainees. The sales trainees undergo a probation

period of one year after which they are confirmed as Territory leaders.

a)Induction and Orientation( 1 day)

1.Brief about company and job profile

2.Carrer path

3.Plan for the future

b)Plant Visit

1. Bhandup plant visit

c) Commercial (2 days)

Commercial Policy (Policy detailing the margins, discounts etc available to the dealers)

Commercial Procedure

RACE Programme (RACE is an internal company system in which sales data is logged)

Documentation

Financial Discipline

Responsibility : Commercial Officers

West – Sridhar and P K Shodhan

North – S C Dhiman and Anil Karbhanda

South – G Lalitha

East – Aninda M

Central – Surendranath , A K Sood and Mahesh Gupta

d) Sales Understanding (5 days)

Commercial Policy / Comparison

Types of Discounts

Comparative Price Chart / Market Rate

Mapping – Dealers / Consumer / Retrader / OEM

Dealer Classification

Market Study – Potential – Market Share

Competitor Set-up

Dealer Related Data Business Card

Responsibility : Regional Managers

e) Technical Study / Customer Service (3 days)

1.Nomenclature of Tyres

2.Function of a Tyre

3.Parts of the Tyre

4.Vehicle-wise Tyre Size

5.Brief on Manufacturing

6.Different patterns of the Tyre

7.Entire range and salient features of our Tyres

8.Segmentation on load / operation

9.Our tyres vis a vis competition

10.Tyre Care and Maintenance

11.Service Failure – Manufacturing and Non-12.Manufacturing

13.Claim Policy

14.Claim Procedure – CL1 to CL3

15.Claim Inspection

16.Follow up on Tyres in OE and FA

Responsibility : Customer Service Managers

Practical Understanding

Customer Interface (3days)

1. Fitment Survey

2. Study of Fleet Working

3. LCV Stand Meets

4. Truck Meets

5. Understanding Selling Styles to customers

6. Comparison of CEAT brands Vs benchmarks

7. Cost Per Kilometer

8. Understanding of retraders and dealers

Responsibility : Regional Managers

Passenger Segment (2days)

1. Understand Sales and Stock Pattern

2. Understand key issues

3. Route Planning

4. In store visibility for all categories at MBDs

5. Actual work on enhancing visibility

6. Visibility Audits

Responsilbility: Regional managers

TRANSPORTATION AND LOGISTICS

Modes of Transportation till Dealer

The Tyres are transported mostly by road from the Factory to the RDC, RDC to CFA and from CFA

to the dealer. Usually trucks are used for the transport of these tyres. For smaller tyres often LCV’s

(Tempo’s) are used.

Tyres are transported by Train to Guwahati RDC which is the only RDC which is linked by train.

Modes of Transportation after Dealer

Usually customers come to the dealers shop to purchase tyres and the individual tyres are either

fitted on to the vehicle at the shop or they are transported on non-mechanised push carts/

commercial 3-wheelers etc.

Use of Information Technology

Ceat has recently shifted to SAP, hence all the transportation documents are generated on SAP.

The same has been detailed in the documents used section. SAP BW (Business warehouse)

module also generates the analytical report which give the dealerwise and regionwise sales

reports. This helps in availability of live information to all the regional and product managers for

taking decisions at any time.

THE ANALYTICAL FRAMEWORK

For the Purpose of this part of the study we are limiting to the Truck Tyres segment. Truck tyres

segment is the largest customer segment for any tyre company accounting for over 50% of the

customers. Also Trucks are usually owned in fleets. There are large fleets of 100 to 200 trucks

owned by a single transport company which form major customers for any tyre manufacturer. At

times company’s Territory Leaders visit these transport companies directly and advise them on

selection of the right tyres for their fleets. Often sales orders are also obtained directly by these

Territory Leaders instead of the customers buying through the Tyre Dealer. Thus this segment

requires the Territory leaders to be aware of all the technical specifications of the tyres and how

they affect the performance on road. The TL’s are required to know the right tyre for the right

customer. It is also required out of the TL’s to develop a relationship with the transport

companies to obtain repeat sales.

At the same time the number of small fleets and single trucks is also large. Hence one cannot

neglect the number of truck tyres sold through the dealers. Hence the trade incentives, training

etc also matter. However this category of buyers does not require too much technical specs to be

given and the purchasing is over the counter. Hence a good brand pull is essential in this segment.

However as of today Ceat does not have a very good brand pull. Also most of the dealers in this

segment have been loyal to MRF brand for years, hence Ceat has had to approach the large fleets

directly to obtain sales.

Effect of the variables of Distribution on the distribution of Tyres from Ceat

Variable 1 Number of customers:

The number of customers is not as large as that for an FMCG. Also the customers are willing to

travel some distance to buy tyres which is usually an annual or biennial purchase. Hence the

number of intermediaries is not too high. Infact first sales occur to the dealer and the offtake is

taken from the dealer. There are little or no secondary sales.

Variable 2 Geographic Dispersion:

Geographic dispersion of customers is high but since tyres are not a frequent purchased item

customers are willing to travel a bit. Hence the number f intermediaries is not too high.

Variable 3 Frequency of purchase:

Tyres have a life of atleast one year. Moreover the tendency of retreading tyres in India brings the

frequency of purchase down to once in 2 years or even 3 years. Hence the intensity of transport in

the last mile is not high. Another factor contributing to this is the tendency of bringing the vehicle

to the shop and getting new tyres fitted on to it. This behavior totally avoids the need of a last

mile transport.

Variable 4 Tendency to postpone purchase:

There is often a tendency to postpone retreading or purchase of new tyres after the treads have

worn out. This is one of the reasons tyre companies participate in free vehicle check-up camps

where they identify worn out tyres and advise them to change to new tyres. Also before every

monsoon the tyre companies go into aggressive advertising and conduct many vehicle check-up

camps. This is the time when maximum number of customers could be convinced to purchase new

tyres.

Variable 5 Level of Familiarity/ Product knowledge:

The truck fleet owners have a very high degree of product knowledge. They would even have tried

the different brands of tyres in the past. Also they go into in-depth calculations of mileage, profit

etc before actually purchasing the tyres. Hence the field force is important. The field force shuld

be an expert at problem solving in these cases.

Variable 6 Degree of Brand loyalty:

The degree of brand loyalty in the Truck tyre segment is not too high. Often the same truck has 4

different brand tyres on 4 different wheels. Hence the margins given to the channel members are

important.

Variable 7 Purchase on Impulse:

Tyres are never purchased on impulse.

Variable 8 Level of Involvement:

The level of involvement is high as the tyres affect the mileage and profitability of the Truck fleet

directly. Hence the field force has to be technically competent and has to give the correct

information to the customers.

Variable 9 Purchased as a basket of goods:

Tyres are not purchased as a basket of goods.

Variable 10 Speed and Complexity of decision making process:

The decision making process though slow is pretty complex. Hence the field force is important.

Variable 11 Presence of expert influencer:

The tyre puncture mechanics and fitters are influencers in this buying process often. Hence tyres

companies often offer monetary/ non-monetary incentives to the influencers like free T-shirts,

wall paintings at their shop, free watches etc.

Variable 12 Elements of Crisis Purchase exist:

Tyres are crisis purchased only when there is a bad accident. Hence availability of tyres aong

major highways becomes important.

Variable 13 Element of Risk Aversion:

There is high amount of risk aversion for the Truck dealers in the Tyre purchase. Wrong tyres

could lead to early wear-outs. Also Ceat tyres are perceived to give very low number of retreads.

Hence the Channel member can unsell the brand. Thus the Dealers margins and their ROI

becomes important.

Variable 14 Perishability:

Tyres are not a perishable item and have a very high shelf life. Also Dealers often have huge

godowns in which they store a lot of tyres. Hence the speed of delivery is not a constraint. A delay

of one or two days in the tyre delivery to dealer is acceptable.

Variable 15 Time band associated with purchase:

There is no time band associated with the purchase of tyres.

Variable 16 Fungibility:

Tyres do not exhibit Fungibility.

Variable 17 Importance of Search costs:

Truck fleet owners indulge in a lot of search before buying the tyres. However most of the tyre

dealers do not have computers or internet connections. Also they are used to company TL’s

visiting them and providing information. Due to these reasons the usage of IT in information

search is low.

Variable 18 Degree of customization possible:

Tyres are not customized. Tyre is a standard product which is supplied across the country.

Variable 19 Negative/ Positive Reinforcements:

Tyres usually use negative reinforcement. Custmers are asked to replace a tyre lest they have an

accident. They are asked to use a particular tyre to ensure better grip and lesser accidents.

Variable 20 Value/ Volume Ratio:

This varies for the different sizes of tyres. Typically the 2 and 3 wheelers have a low value/ volume

ratio. Transport cost is critical in these. The largest value/ volume ratio is for Off the Road tyres

(ones used for mining equipment, earth movers, tractors etc.).

THE FINANCIAL ASPECT

Financial Data of MRF

2007 2006

Gross Sales/Income from Operations (including

Export Incentives)

5043.54 4248.41

Less: Excise Duty 630.20 509.46

Net Sales/Income from Operations 4413.34 3738.95

Other income 19.72 12.34

Total income 4433.06 3751.29

Total Expenditure

a) (Increase/Decrease in stock in trade and work

in progress)

(63.85)

10.64

b) Consumption of raw materials 3033.96 2608.70

c) Purchase of traded goods 16.93 6.59

d) Staff cost 240.23 200.24

e) Depreciation 154.03 145.73

f) Other Expenditure 743.04 667.16

Total 4124.34 3639.06

Interest 49.23 49.29

Exceptional Income - (36.41)

Profit before tax 259.49 99.35

Provision for Tax 89.11 20.05

Net Profit after tax 170.38 79.30

Financial Data of CEAT

Mar '03 Mar '04 Mar '05 Mar '06 Mar '07

Income

Sales Turnover 1505.53 1672.01 1787.87 1958.08 2397.25

Excise Duty 275.05 240.74 287.99 204.57 257.53

Net Sales 1230.48 1431.27 1499.88 1753.51 2139.72

Other Income 43.06 28.33 31.78 10.86 8.08

Stock Adjustments 33.55 -29.59 -7.79 22.63 2.49

Total Income 1307.09 1430.01 1523.87 1787 2150.29

Expenditure

Raw Materials 791.73 944.6 1061.79 1246.68 1495.72

Power & Fuel Cost 57.81 60.24 54.5 62.33 73

Employee Cost 114.87 115.89 109.44 118.26 128.23

Other Manufacturing Expenses 59.1 65.05 73.69 80.1 77.37

Selling and Admin Expenses 122.64 157.79 157.68 171.47 201.94

Miscellaneous Expenses 17.82 16.28 14.32 12.94 17.44

Preoperative Exp Capitalised 0 0 0 0 0

Total Expenses 1163.97 1359.85 1471.42 1691.78 1993.7

PBDIT 143.12 70.16 52.45 95.22 156.59

Interest 94.54 86.33 72.63 72.63 70.26

PBDT 48.58 -16.17 -20.18 22.59 86.33

Depreciation 21.84 22.1 22.06 22.45 31.06

Other Written Off 0 0 0 0 0

Profit Before Tax 26.74 -38.27 -42.24 0.14 55.27

Extra-ordinary items 2.59 60.49 3.69 5.07 5.65

PBT (Post Extra-ord Items) 29.33 22.22 -38.55 5.21 60.92

Tax 10.9 8.16 -1 4.7 21.67

Reported Net Profit 18.41 14.06 -1.87 0.52 39.25

Comparison

Ceat

MRF

Employee Cost/Sales 0.05349 0.03054

As we can seen from the ratio figure above, the employee cost/sales of Ceat is higher than that of

MRF by approximately 75%. Ceat is currently in a growth phase wherein it is looking at

aggressively expanding its sales. Hence Ceat is in need of talent and wants to retain its existing

talent. Hence the employee cost/sales is high. In comparison MRF is already the market leader.

MRF sets trends in the tyre industry and employees would like to work for MRF just for the brand

name that the company has generated over the years in the Tyre industry. Hence the salaries at

MRF are comparatively low. Hence the employee cost/sales is low.

The selling expenses per unit sales for Ceat are about 0.085 which is significantly higher than MRF.

Even with respect to market spend per unit of sales, Ceat spends more than MRF.1 This shows that

MRF has a better brand pull than Ceat.

Lower brand pull of Ceat results in the following:

Ceat has to give higher margins to its dealers. Typically MRF gives 1% Turnover discount to the

dealers while Ceat gives 2.5% or more.

Lower brand pull also translates into higher selling expenses for Ceat. The amount of BTL

advertising required for Ceat is significantly higher. Also the number of promotions,

demonstrations and service camps that Ceat has to conduct is significantly higher. MRF being an

established brand has developed excellent relations with its dealers and customers over the years

and hence does not require spending the same amount as Ceat.