Analyzing the distribution channel of GCPL

Submitted to: Prof. Vinod Kalia

Submitted by: Group B-5 M Gireesh Babu (12P084) Manish Gupta (12P085) Mohit Batra (12P086) Nikhil Gupta (12P087) Nitish Gupta (12P088)

Contents
About the company ....................................................................................................................................... 2 Distribution System (Urban) ......................................................................................................................... 3 Distribution Network (Rural) ........................................................................................................................ 4 Rationale of the Distribution Model ............................................................................................................. 5 Hub and Spoke Model .................................................................................................................................. 6 Channel Members ......................................................................................................................................... 7 Carrying and Forwarding Agent: .............................................................................................................. 7 Super-Stockist: .......................................................................................................................................... 7 Distributor: ................................................................................................................................................ 8 Sub-Stockist: ............................................................................................................................................. 8 Wholesaler: ............................................................................................................................................... 9 Retailers: ................................................................................................................................................... 9 Distributor Salesman ................................................................................................................................. 9 Issues Faced ................................................................................................................................................ 10

About the company

Godrej group was established in 1897. It has 7 major companies with interests varying from FMCG to agri-care. Godrej Consumer Products Ltd. (GCPL) is the company of the Godrej group which deals in FMCG products, is one of the leading FMCG organizations in the Indian FMCG market. The Consumer Products business was part of the erstwhile Godrej Soaps Limited (GSL) and was demerged into Godrej Consumer Products Limited in April 2001. The offerings of the company are mainly divided into Personal wash, House care, Air care and Hair care. It is the largest player in the domestic household insecticides & hair color categories and the second largest player in the toilet soaps category. In the past few years, as a part of its mission of going global it has acquired several companies. It has footprint in Asia, Africa, Latin America, Europe, Australia, Canada and the Middle East.

Distribution System (Urban)

Manufacturer Clearing & Forwarding Agents Distributor Wholesaler Retailer Customer

The distribution system for urban areas consists of 6 levels as mentioned in the diagram. Godrej follows shared distributor system but the shared distributors dont keep the products of the competitors. The flow of goods from the Distributors to Wholesalers happens in the form of hub and spoke model.

Distribution Network (Rural)

Plant (Company)

Carry and Forward Agency (CFA)

Superstockist

Substockist

Retailers

Customers

The distribution network of the GCPL (rural) consists of 6 levels. Super-stockist receives stocks from more than one CFA agent. Each Super-stockist caters to 12 Sub-stockists. The flow of goods from the Super-stockist to Sub-stockist happens in the form of hub and spoke model. Each Sub-stockist services 15 retail shops.

Rationale of the Distribution Model

The models shown above are the ones, which are the most commonly, used by most companies. This is the most supply and cost optimal structure with the help of which the company can achieve the maximum possible efficiency and lowest possible cost in their working. A carrying and forwarding agent (CFA) is used by the company because of the large number of SKUs they have to trade in. Godrej Consumer Products Ltd. has approximately 250 SKUs. For a company, which has so many SKUs, work wouldnt be possible without it. This structure would vary from a company which has a turnover of 700 crores to a company which has a turnover of 7000 crores. Beyond the CFA, the structure used by GCPL is that of a Hub and Spoke Model.

Hub and Spoke Model

Wholesaler/ Substockist Wholesaler/ Substockist Wholesaler/ Substockist

Wholesaler/ Substockist

Wholesaler/ Substockist

Wholesaler/ Substockist

Distributor/ Superstockist

Wholesaler/ Substockist

Wholesaler/ Substockist

Wholesaler/ Substockist

Wholesaler/ Substockist Wholesaler/ Substockist

Wholesaler/ Substockist

The hub and spoke model is followed by GCPL for effective distribution of goods from Distributor (Urban)/Superstockist (Rural) to Wholesalers (Urban)/Substockist (Rural). This model is followed because of the following reasons: Efficient reach Lower Transportation Costs Economies of Scale

Channel Members
Carrying and Forwarding Agent: A person, who is engaged in providing any service, either directly or indirectly, concerned with the clearing and forwarding operations in any manner to any other person or includes a consignment agent. This is the distribution and holding point between the companys manufacturing locations and the super stockist/Distributors. There is one C&FA member allotted to Delhi division by GCPL. They take the responsibility of reaching out to distributors and providing them with products and solving any issues in regular operations. Their major role is dealing with bulk-breaking, providing spatial convenience, assortment and waiting time. C&FA is provided with 1-yearly or 3-yearly contracts where fixed amount of goods is placed with for a fixed amount.

Super-Stockist:
These are generally present in rural areas as part of the hub-and-Spoke model and rarely found in metro cities. Every super-stockist covers around 10-15 villages with average population close to 5,000. They supply good to sub-stockists (generally 20 such members) from the CFAs. The major role of this channel is to reach out to high number of households which can be done using the existing substockists in the rural areas. The key expectations from this channel member are: Physical possession Ownership
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Ordering and Payment Market information Financing

Distributor:
An entity that buys products or product lines, warehouses them, and resells them to wholesalers/retailers or direct to the end users or customers. There are 21 distributors working for GCPL for Delhi division. Distributors bear the onus on them to supply wholesalers with products. Distributors are provided with 5% margins

Sub-Stockist:
These generally cater to around 25 local retailers in an area due to close proximities. The more remote villages are covered by different transport means that make a trip once in 15 days and supply to the local retailers. Sub-stockists do not invest in promoting the brand. The sales representatives of GCPL, called ISRs, go to the Sub-stockists and make sales call to the retailers. The primary expectation from this channel member is: Promotion Ordering Market information Financing

Wholesaler:
Wholesalers are those who buy large quantities of goods from various vendors, warehouse them and resell to the retailers. The key function of a wholesaler is to maintain smooth downward flow of material in the channel with efficient upward flow of information and money. Wholesalers are provided with 2% margins.

Retailers:
A business or person who sells products directly to the end consumer is called a retailer. There are around 20,000 retailers for GCPL in Delhi division who are reaching out to end customers. Retailer margins vary from 2% for hair dye to 25% for deodorants. The primary expectations from this channel member are: Physical possession Ownership Promotion Risk Taking Ordering Payment Market information

Distributor Salesman
The GCPL Distributor Salesmen are divided into 2 categories depending on certain factors like sales and number of SKUs sold. The two categories are: 1. PRO- Premium Retail Outlet 2. GRO- General Retail Outlet
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A PRO salesman covers 12 shops in a day, which are of higher sales value and also bill more number of SKUs. On the other hand a GRO salesman covers about 20-30 shops in a day but which are individually of lower sales value. For Delhi, the productivity for a salesman (maximum number are GRO) is around 15-20 shops in a day. This means that out of the total number of bills cut in a day are around 15-20.

Issues Faced
ROI- The return on investment, which is given to a distributor, is very less. It is approximately equal to 2%. If the ROI for any distributor is below 2%, he will start going into losses. So this is always a huge problem for any distributor, as he has to keep calculating the ROI every month in order to make sure that it remains above 2% and he keeps incurring profits. For the whole year, the ROI for a distributor is around 24%. Credit Allocation- Any company has to work by giving credit in the market. Credit giving works from the top of the channel i.e. the manufacturer to the retailer. Since this chain starts from the retailer level and carries on from their to the wholesaler to the distributor and finally to the CFA and the company, collecting credit from the channel members is a huge issue faced on the part of the company. Availability- A problem that is faced at the wholesaler level is that they many times run out of stock. Due to the high demand they have, many times companies are unable to deliver the products to the wholesaler. This is also a problem of penetration that has been faced by the company. Sometimes its not possible for the company to deliver the goods to all the wholesalers when they are demanded by them. This is huge problem of stock out, which can result in the form of increased sales.
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People issue- One of the biggest problem, which is faced by sales managers at all levels is to get the work done in the way one wants it to be done. For a CFA, many times many portions of stock get vanished from his inventory. For a distributor, a salesman who has been asked to get orders from 24 shops might just visit 10 shops and return if the number of orders has been completed. The company asks the distributor to give certain amount of margin to the wholesaler but the distributor gives a different amount.

Macroeconomic- Seeing from a holistic point of view, sometimes-macroeconomic factors have a huge impact and cause issues. For example, during Commonwealth Games, the sales of each company had risen by a huge amount but after its completion there was a big slump in the sales. Also due to the MNREGA scheme, many people had started migrating back to Bihar from Delhi due to which again there was a slump in sales due to shortage of laborers.

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