Salt Industry

7/29/2019 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


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



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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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Documents

Salt Industry