Anirban Basu’s Post

Distributor's Costs - Value Chain Analysis This post is for the sales managers having #sales territories of distribution-led businesses. The query is on two key challenges usually faced by sales professionals in #traditionaltrade: 🅰️ Managing the #distribution of a territory having multiple #distributors 🅱️ Managing the #channelconflict and #infiltration of stocks A company offers equal gross margin to all its distributors. Sometimes, in geographies where the #costtoserve is high, the company supports the distributors with additional subsidies like the #warehouse rent or #salesforce salary, partly or wholly, so that the net profits across all distributors, irrespective of market size or sales turnover, would have a parity. Managing a uniformity of costs among all the distributors is the key to ensure a seamless distribution #valuechain. One needs to continuously keep a track on costs of all distributors operating in a particular geography. 🔴 The six cost segments that impact disciplined distribution value chain are: 1️⃣ Warehousing Costs: Rentals, maintenance, safety equipment, insurance etc. 2️⃣ Stock Holding Costs: Paid up inventory, accounts receivable etc. 3️⃣ Stock Handling Costs: Loading, unloading, stacking, delivery etc. 4️⃣ Selling Costs: Salesforce salary, incentives, travel and daily allowances etc. 5️⃣ Administrative Costs: #DMS, #SFA, salaries of support teams (e.g. accountant, computer operator, warehouse manager etc.), wifi, stationaries etc. 6️⃣ Transportation Costs: Delivery van rentals, fuel, delivery unit salaries, vehicle insurances, depreciation etc. Costs of all six segments for every distributor must be reviewed periodically in comparison with the average costs across all distributors of that geography and this calculation needs to be done as a % of the total sales turnover, preferably on a monthly basis. If all the distributors are getting similar inputs from the company (e.g. #promotions, #price, #discounts, #subsidies etc.) ideally there must be a parity in each segment of cost (or a marginal difference of maximum 0.5% in total costs). If there is a big difference, the #ASM must go deep into the particular cost segment of that distributor and check each and every component that is causing the difference. 🔴 Spending less than the average cost: The distributor can make higher #netprofits but by compromising the quality of market coverage and customer servicing. With this extra net profits, the distributor can disturb the market by offering deep discounts to the #customers of other areas causing stock infiltration and channel conflict. 🔴 Spending higher than the average cost: This will impact negatively on profitability and #ROI, which ultimately will result in discontinuation of business. To sum up, managing distribution costs is the key to disciplined distribution that will minimize channel conflict and infiltration of stocks. For deeper insights, reach us at hello@boilingpoint212.com Stay tuned👍