Salt Industry
Transcript of Salt Industry
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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.
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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 namely-
Tata-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.
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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.
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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.
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Bibliography
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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 small-
scale firms fulfill rest of consumers' demand.
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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.
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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.
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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.
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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.
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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
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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.
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Processes
Fig.: Supply Chain Management.
Production of finished goods
Distribution
Raw material procurement
Consumption by end users
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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
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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.
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Prototype of contemporary
Distribution Network in salt Industry
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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.
Fig.Model of distribution network in Salt-Industry.
Company
Carrying and Forwarding Agent
Distributor
Retailers
Dealers
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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
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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.
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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.
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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.
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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.
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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.
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SWOT ANALYSIS
OF
PRESENT DISTRIBUTION SYSTEM
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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.
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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.
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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.
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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.
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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.
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Feed back
Fig. Proposed model of distribution network.
Company
Carrying and Forwarding Agent
Distributor
Retailers
Dealers
Indirect feedback
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Proposed model
Of
Distribution network
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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 Tata-
Tea, 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.
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Sales-Force management
The above model helps in designing and managing the sales force.
Designingthe sales
Force
Managing
the Sales-
Force
Improving
Sales-Force
effectiveness
Sales-Force
objectives
Recruiting and
selecting Sales-
Representatives
Training in selling
techniques and
Sales-
professionalism
Sales-Force
strategy
Training Sales-
Re resentative
Negotiation
Skills
Sales-Force
Structure
Supervising
Sales-
Representative
Sales-Force
Size
Relationship
building
Skills
Motivating
Sales-
Representative
Sales-Force
Com ensation
Evaluating
Sales
Representative
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CONCLUSION
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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.
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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.
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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.
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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!
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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 arent 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.
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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.
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BIBLIOGRAPHY
Books
Marketing Management by Philip Kotler
Channels of Distribution by Kenneth Rolnicki
Magazines
Business India
Business Today
Newspapers
Economic Times.
Business Standards.
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ACKNOWLEDGEMENT
This is the part of my work where I can pay my gratitudes 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.
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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
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