We recently had an interaction with an FMCG Stockist who gave us an insight into the stockist operations, the challenges faced by them and how they address them, the key parameters which decide their profitability, and how they leverage the multiple distributor licenses to maximize efficiencies. He also gave us a perspective of the future of distributors in India and what every sales person should keep in mind while dealing with their distributors.
This humble and experienced person has been the stockist for Mumbai operations for companies like Colgate, HUL, and Cadbury for almost 30 years. A stockist of this scale and size usually gets supplies directly from the C&FA (Carrying & Forwarding Agents).
Primary Challenges for a Stockist
He highlighted the 3 Primary challenges for a stockist in present times:
- Servicing each of the existing retailers.
- Getting Width and Depth of Distribution (Width = no of stores ; Depth = quantities)
- Getting the product in the right places
Addressing these Challenges:
The sales are planned using a distribution management system (DMS). At the start of every day , the targets for every salesman are communicated. All the orders booked on a particular day need to be delivered anyhow by the next day.
Three Primary uses of the DMS.
- Planning of sales
- Reporting of daily sales and data.
- Maintains minimum amount of stock by placing replenishment orders.
These replenishment orders are exercised using VMI (vendor managed inventory)
It is an auto-replishment model where at the end of every day, the distributo syncs his inventory. Accordingly, the order is placed automatically to replenish the pre-decided quantities. Hence, the focus is on making the distributor sell more, so that that more numbers will be automatically be ordered from the company.
Rural within Urban
Within the same city, there will be regions which will behave like rural markets. Hence, the approach towards this market has to be different from the approach followed otherwise.
When launching new products or variants, the distributor is guided by the research done by the company end i.e. the marketing team. But, going to the retailers with those products may create issues since the retailer may be unwilling to accept those new introductions. Hence, efforts need to be made to make the retailer convinced that the product will sell and then make terms favorable to him e.g. extend higher credit, or the amount of money you pay him per sale.
Expired goods are taken back (once every month ) without issues and the locked amount is used to order new stock for the coming month. But in these cases, it is essential to keep in check what kind of the product has expired. If it is a fast moving product which is being replenished every week, then the retailer needs to be educated about the concept of FIFO (goods first bought, should be sold first)
Delivery to the Retailers
Delivery is very critical. You might get the order but may not be able to reach the shop! Hence the driver becomes critical for the everyday operations.
Getting width and depth
New accounts are acquired by observing the competitors focus, and identifying stores which at that moment, favor the competing firm. Another approach is reaching areas which were not served by the distributor earlier. It is possible that in these cases, extra credit and other tactical strategies may be used to convince the retailers to stock the goods.
While getting reach and depth, it becomes important to have more number of small warehouses to service the local retailers and hence reduce the transportation costs. The location for these smaller warehouses is decided primary based on proximity to targeted retailers and also the rental rates.
What is important for the distributors?
ROI or Take-Home?
Till late, the most important thing used to be – ROI. But, off late, distributors have understood the importance of ‘Take-home’ compared to the ROI and hence the latter has become important to them now.
The ROI might be 30-40% but what if the take home is INR 30,000. Will that be enough for that distributor? More distributors are willing to have lesser ROI but have larger take home. How does that work? Having lesser ROI may still reap in higher benefits if the inventory turns are higher.
Inventory Holding Costs
One of the major cost drivers for a distributor is the inventory holding host. Hence, he should make an attempt at keeping the inventory levels (number of days inventory) bare minimum, since that is essentially a blocked capital and also demands a physical space to be stored. Keeping this in check also maximizes his take-home.
Even though the minimum level of inventory for a product or its SKU is decided by the company, a stockist tries to negotiate for a lower inventory to ensure lesser cost.
Also it is important to note that a considerable working capital is required for extending credit to the retailers to push sales as well as to run trade promotions. The working capital requirement is higher since most FMCG companies execute zero day credit policies (sometimes even negative). So that the distributor often pays the company in advance to get the goods.
Claims & Settlements
A Distributor doesn’t have a role to play in making his own trade promotions or customer promotions. The companies guide them which trade promotions to run. So the distributor is merely an agent who exercises the trade promotions communicated by the company. After the promotion is over, he raises a claim of settlement with the company. This investment in trade promotions which are reimbursed at a later date also form a part of the distributor’s investment.
Other investments & Risks
Most of the investments required from the distributors’ end are made by the distributors. Hence, they will be getting the computers, the land, the infrastructure. In fact, for companies requiring cold chain, the distributor invests the mobile refrigerators.
The goods and investments are completely insured to take into account lose due to floods, infidelity of employees etc.
Leveraging Experience with Multiple Operations
Sharing of resources and Economies of Scale
Even though the same person can be a distributor for a number of non-competing companies, the sharing of resources is minimal since each company wants the distributor to focus on their products and categories. Sharing of resources like delivery vans and sales persons also leads to frequent complaints by the companies that their sales are suffering due to the other products handled by the distributor. Hence, to keep conflicts to the minimum, the sharing of resources is minimal.
However, the advantage of being a distributor for multiple companies comes into effect when the distributor is able to leverage the experience to maximize the revenues. Having multiple distributor licenses help him to maintain close contact with most of his retailers since he supplies more than one company’s goods to them.
Economies of scale also comes in effect due to the financing aspects as well as owning multiple godown spaces to service areas closest to each of them.
Moving Towards the Future
In present times, a problem for distributor is getting the appropriate manpower, since no one wants to work for the distributor as a sales person or delivery person. They either want to stay back in their home towns or want to work for the corporates. The only people which may be employed by the distributor are those who wouldn’t otherwise secure a job with the corporates. (read: without a graduation degree). But, moving towards the future, distributors are growing in size, which is also increasing their spending power. Hence, in most likelihood, soon distributors will employing graduates like corporates do, and will be operating much like organisations. In South Africa, one of the distributor has a larger turnover than the Colgate’s turnover in south Africa. Consequently they pay higher salaries to their employees than the company. At that scale and size, the employees of the distributor are likely to be equally qualified, and professional as compared to those of the multinational corporates like Colgate.
Distribution is becoming more of a service industry. You get paid for what you service. You deliver that much, you get that much. In future, it is possible that distributor might not be selling. He may be only replenishing the stocks at his retailers, delivering the merchandise, etc.
Key Advise given to a Sales Manager
Look at the long term perspective in that role. Don’t get things done only from your personal angle and damage the systems permanently.
e.g. By dumping of stocks onto the distributor, you will inflate the sales and get promoted, but due to this behavior the distributor may ultimately leave you damaging the distribution channel in the region. This will in fact cause a tremendous lose for which, ironically, you might get promoted.
Apart from the above points, if there are other points which I missed, do share with me in the comments.