Sales & Distribution Management

Cadbury Distribution Channel

Submitted To: Prof. Ashish Dubey Submitted by Arun Kumar (PGP26137)

JyotiPrakash (PGP26147) KarthiP Saurabh Soni Shobhit Kumar (PGP26149) (PGP26167) (PGP26170)

Group 6 Section C

Contents
Acknowledgement ................................................................................................................................... 3 Introduction ............................................................................................................................................ 4 Primary Research..................................................................................................................................... 4 Distributor selection ................................................................................................................................ 6 Understanding of distributor s business ............................................................................................... 7 Analysis and Key Issues of concern ......................................................................................................... 9 Key issues for the company (RETAILER): ............................................................................................... 9 Key issues for the company (DISTRIBUTOR):....................................................................................... 10 Project Vishwas: .................................................................................................................................... 11 Project Einstein:..................................................................................................................................... 12 Marketing Implications: ..................................................................................................................... 13 Targets of Project Einstein: ................................................................................................................ 13 Key Performance Indicator (KPI)s for each actor in the SCM: .............................................................. 13 Implementation of Project Einstein: ................................................................................................... 14 Sales force initiatives: ........................................................................................................................ 15 Impact on consumers:........................................................................................................................ 15 References: ........................................................................................................................................... 16

Acknowledgement
We thank Prof. Ashish Dubeyfor giving us the opportunity to work on this project report submission and provide valuable inputs and guidance throughout. We acknowledge and thank all those individuals instrumental in managing and maintaining IIM Lucknow Library. The information we gathered, including and not limited to e-journals and databases was immensely helpful in understanding concepts and formation of this report analysis.

Introduction
UK based Cadbury Pvt. Ltd. started its Indian operation in 1948 as a trading concern. For over 58 years, chocolates in India are synonymous with Cadbury. A 1900 people strong company, they have 5 factories and 4 sales branches across India. Cadbury Dairy Milk is the most loved chocolate brand in India and Cadbury is one of India's best managed companies (2002 Business Today & AT Kearney). In addition to the above facts, Cadbury is One of India's top 25 Great Place to Work (Business World & Grow Talent). With brands like Cadbury Dairy Milk, Gems, 5 Star, Perk, clairs, Bourn Vita, Halls or newer offerings like Celebrations and Bytes, Cadbury has been successful in catering to most of the occasions India. This variety has been possible because of development of a well-established distribution network over the years. Cadbury India, with sales of Rs 1,587 crores in 2008 and a sales growth rate of 23 per cent in 2007-08, is the fastest growing in the Cadbury world. The sales figures in the year 2009 were termed as outstanding by the CEO of Cadbury, TodStitzer. The chocolate division led the way with sales rising seven per cent while candy (5%) and gum (2%). The selection of Cadbury for our project was an outcome of an in-depth consideration of all the above mentioned facts The study aims at developing an in-depth understanding of the distribution network, hierarchy, channel structure and overall business of the distributors and other channel partners. The research conducted comprises of intensive primary research by targeting the Cadbury distributor in Lucknow, retailers etc. Further, secondary research was conducted to consolidate and verify the veracity of the findings.

Primary Research
The primary research was conducted in the Lucknow area. The components of primary research are highlighted in the table below Number of people approached 1 4 4 1 1

Person Involved Distributor Shivanshu(PG Traders) Retailers - Aliganj&Indiranagar Sales people - Hired by distributor ASM - Lucknow area On call Sales person

Type of Research In-depth interview In-depth interview In-depth interview In-depth interview Sales visit

The primary research from the above sources helped us to build insights and understanding about the channel structure which can be observed as follows

Factory Depot Redistribution point

Factory Depot Redistribution point Wholesaler

Retailers Consumers
Channel type 1

Retailers Consumers
Channel type 2

The sales force structure of the organization follow the hierarchy given in the following figure

Sales Director

Branch Sales Officer Mumbai Area Sales manager

Branch Sales Officer - Delhi

Branch Sales Officer - Kolkata

Branch Sales Officer Chennai Area Sales manager

Area Sales manager

Area Sales manager

Sales officer

Sales officer

Sales officer

Sales officer

The sales structure for the modern trade is little different than that of traditional trade. Although the sales director is the same; there are Key Account Managers who handle big chains like Big Bazaar, Reliance etc. Excluding this, for other small modern trade format stores the area sales manager and sales officer structure remains the same. Also, it was observed that the Area Sales Managers have their office at the depot while the sales officer goes to the redistribution point which belongs to the distributor. There are sales officers assigned to check three parameters at the distributors end. 1. Stock level 2. Stock expiry 3. Clearance of bills. Salesmen are on the payrolls of distributors but are controlled by the sales officer. A Sales Officer generally has 15 salesmen under him. So one can assume that each distributor typically has around 8-10 salesmen under them and again this varies with each city. Each salesman visits 200-225 shops in total. It is compulsory for them to visit 30-35 shops every day. So orders are taken on a weekly basis from all retail outlets. Apart from that, Sales Officer also has 2 merchandisers assigned to them. These merchandisers are responsible for the visual display of Cadbury products in the shops as well as the any placements program. The entire area of Lucknow is divided into two regions - Trans-Gomti& East Gomti. Trans-Gomti area is relatively more developed than the mainland due to the contemporary planning. It is divided roughly into the following areas: Mahanagar, Nirala Nagar, Aliganj, Janakipuram, Indira Nagar, and the largest of all, Gomti Nagar. East Gomti covers the rest of the areas. Trans-Gomti is again divided into Trans-Gomti 1 & 2.

Distributor selection
Cadbury provides diligent attention towards selecting their distributor similar to most of the other companies. Since the competition is high in confectionaries sector, they are bound to select a competent dealer who can provide add value to the company. The distribution selection is done by considering the following parameters: y y y Business reputation and business standing Business capacity and salesmanship Previous experience in the same line and expertise related to it

y y y y y

Financial capacity Credit worthiness Capacity to offer/promote to consumers Capacity to extend credit sales to retailers Capacity to provide o Storage facilities o Showrooms o Shops o Service workshops o Salesmen Social status and reputation

Understanding of distributor s business

Understanding developed of the distributors business can be clubbed under the following heads y Number of companies he deals with 1. Shivanshu deals with 6 companies including Cadbury: - Eveready, Belmonte, United Biscuits, United Cookies, Nutrition s 2. He is among the 5 distributors at Lucknow and is roughly the 3rd biggest in terms of turnover per month Number of employees, turnover, infrastructure 1. Shivanshu has 4 sales officers on his pay roll for Cadbury and he reports to a sales officer who is on Cadbury payroll. The sales officer then reports to a ASM at Cadbury 2. He makes around 25L/month from Cadbury while he makes a total of 30L/month from his other companies 3. He has a cold storage (250 square feet) for Cadbury and that is the only investment he has made from his end. Cadbury doesn t pay for any infrastructure investment made from the distributor s end nor does it provide any subsidy of any sort. Biannually he also hires a pesticide control agency to keep the place free of any pesticides Market coverage (ex- number of retailers, wholesalers, routes in case of a FMCG distributor) 1. Shivanshu deals with 650 retailers and wholesalers in total. He covers the Transgomti area from Aliganj to IIM Lucknow 2. His sales team visits these retailers for inventory, instore branding, payment etc. They also check monthly for expired goods and take them back

Margin structure and credit terms 1. He gets a margin of 3% on the selling price 2. He has to maintain 7 days of stock 3. 3 days in week goods supplied to them 4. He pays cash upfront but allows a 7 day payment period for retailer 5. Margin for wholesaler is 2%. Retailer gets margin of 10% on products below Rs. 15 and 12-14% for above Rs. 15. This margin is 7.5% for Drinking chocolate and cocoa 6. While Cadbury does have incentives for distributors for achieving targets, they don t believe in a push model. They rely mostly on consumer pull 7. Also, any goods that expire at his end are immediately destroyed in front of the SO and Cadbury s extends a credit note for the same Use of technology at his end 1. He doesn t use any technology beside the cold storage unit if that counts 2. His team use a daily call report sheet that is filled manually and thus no gadget etc is used at their end for reporting inventory or payment details 3. Distributor enters these details and uploads them into the Cadbury server

Analysis and Key Issues of concern

y y y Analysis of the structure, distributor selection, his operations, infrastructure and sales people Identify areas of conflict within the channel (both current as well as potential). Suggest areas of improvement (this has to be seen from the company s perspective). Be as specific as possible.

Key issues for the company (RETAILER):

y To ensure that the sales executives visit the RETAILER regularly periodically. Ideally, a retailer would want timely visits so that his inventory levels can be maintained. Any loss of sale due to non-regularity of sales executives visiting he retailer is perceived by retailer as inefficiency on part of the COMPANY To ensure that the cold-storage (small refrigerator, etc.) handed over the retailer stock goods ONLY of the company in question. The Merchandiser needs to ensure that when he goes to clean the display at the retailer s end, the goods stocked in company-branded storage area should belong only to the company since the company has paid for the space. To ensure regular and timely delivery of orders to the retailer To ensure that any new product launches and delivery of stock of the NEW product are co-ordinated and in synch with television commercials being aired. Very often new commercials go on air without local retailers having any stock. In such cases, consumer pull fails to be a critical determinant of success in the postlaunch evaluation. This is especially critical in case of Cadbury since (as pointed out earlier), they operated a pull-oriented distribution structure rather than a push-oriented where distributors and other channel intermediaries are heavily incentivized. To ensure that Sales Officer maintains cordial relationship (emphasis on interpersonal skills) with retailer and not treat the retailer as just another link to reach the consumer. In the truest sense of the word, retailer is the costomer and he should be made to feel important.

y y

Key issues for the company (DISTRIBUTOR):

y To address the increasing company portfolio of products, the challenge is to get the distributor to invest more and more to stock more (and hence distribute) more of the product Most distributors are non-exclusive and it requires significant effort form the company s side to ensure that most of the distributor s cash and inventory space is allocated to the company and not to competition. Most distributors are satisfied, complacent entities who have been with the company for years. In many cases, these are family-run entities and do not feel the need to block more and more cash for an incremental increase in revenue / outflow of goods. In such cases, it makes sense to make the proposition attractive for the distributor by treating the distributor as a partner in the business and hence, get him to invest more in inventory.

Also, the company planned to reduce the bulk packaging from 60 bars to 22 bars. Each bulk pack will be shrink-wrapped. This is expected to minimize the sale of loose packs to the retail trade. Cadbury integrated the mobile medium in its campaign through animated mobisodes to strengthen consumers association with Cadbury Dairy Milk s slogan, Kuchmeetha ho jaaye . Since mobile gaming is popular among young people, brands are designing games around their core proposition and hosting them on mobile operators portals, where consumers can download and play on a per-session basis. However, connection speeds will also remain an issue until the rollout of 3G in the country. Cadbury has embarked on a strategy which involves increased consumption of its products through enhanced reach, affordability and visibility, which it feels can be attained by creating new markets, widening the depth of its distribution network and working towards a comprehensive portfolio with brands across all price segments. Cadbury's focus was on volume growth or putting more grams in Indian mouths . And, this it would do by tapping new segments. Its chocolate variants Bournville' and Silk', for instance, are attempts to catch the premium segment while Cadbury Shots' priced at INR 2 was introduced to make inroads into the bottom-of-the-pyramid market.

Project Vishwas:
On October 3, the Food and Drug Administration received complaints about infestation in two bars of Cadbury Dairy Milk, Cadbury India s flagship brand with over 70% market share. Sales volumes came down drastically in the first 10 weeks, which was the festival season; retailer stocking and display dropped, employee morale - especially that of the sales team - was shaken. The challenge was to restore confidence in the key stakeholders(consumers, trade and employees, particularly the sales team) and build back credibilityfor the corporate brand through the same channels(the media) that had questioned it. The immediate objective was to get the following key messages across: y y y Infestation could never occur at the manufacturing stage The problem was storage linked; this without alienating trade channels Cadbury Dairy Milk continued to be safe for consumption

The above mentioned objectives were briefed to the media and ultimately Cadbury gained the media s confidence. Cadbury, on October 15, 2003, unveiled a three-pronged strategy named Project Vishwas , to ensure the quality of its products. Project Vishwas is to build awareness among retailers on storage equipment for chocolates, provide assistance in improving storage conditions and strengthen package of the company s range of products. The Project Vishwas aims at  Building awareness among retailers about storage requirements for Cadbury products  Assistance in improving storage conditions at the retail end  Strengthening packaging of the Cadbury Dairy Milk range The plan involved both distribution and retail channels to make sure that the chocolates reach the consumers in full quality.  As a first step the company s team of quality control managers along with 3oo sales staff checked over 50,000 retail outlets in Maharashtra and replaced all the questionable

stocks with immediate effect. The team also talked to the owners of the outlets, educated them on handling and storage methods.  Secondly Cadbury India reduced the number of chocolates in its bulk packets to 22 bars from the existing 60 bars. Simultaneously the company also spruced up its packaging. The new packets carried a purity sealed monogram and the chocolate would be wrapped in aluminum foil, enclosed in a poly-flow pack, and was completely sealed on all sides.  In the next phase Cadbury Dairy milk was packaged in poly coated aluminum foil, which would be heated, sealed and then wrapped in the outer package. To communicate these significant changes the company was making, Cadbury brought in a brand ambassador to reinforce the credibility that the company had demonstrated through its actions. Amitabh Bachchan, was signed to promote the products.

Project Einstein:
End to end supply chain transformation at Cadbury India This part of the report analyses the impact of the project Einstein initiative on supply chain of Cadbury and its marketing implications. Project Einstein is an Initiative undertaken by Cadbury to Create Differentiation in the market through an end to end Supply Chain transformation. These supply chain initiatives have thoroughly impacted the fill rate of Cadbury India Limited. Apart from reducing the logistic costs they have also impacted on the availability of finished goods at the retailer level. During the course of the project the following are the key issues identified:  Most of the depots there was a sales skew. Almost 40% of the sales were happening in the last week.  This also led to an increase in warehouse costs due to higher inventory carrying.

There were also issues identified with the need for a continuous replenishment system.

The same SKUs had a high stock out level and a high inventory level at different times. This showed system inefficiencies. No Inventory trigger based order process leading to stock-outs

Some of the SKUs had an inventory holding of 10 days when the max lead time was 5 days.

Marketing Implications:
 One of the alternatives thought was to move from a push based system to a pull based to tackle the sales skew. Warehousing space can be reduced by 20% if the sales skew is tackled which would further reduce the costs  Scientific inventory positioning was considered to handle the system inefficiencies. This would help in reducing the holding costs for distributors and retailers and hence would increase the margins.  Superior supplier integration also could help in achieving superior service levels

Targets of Project Einstein:

     Product freshness was to be increased from 62 days to 37 days Stock availability at depot was to be increased from 80-85% to 95% 90% of the goods at retailer should have a freshness <30 days from date of manufacture 25% reduction in finished goods inventory was targeted 2% lower logistics cost by increasing the investment in warehousing.

Key Performance Indicator (KPI)s for each actor in the SCM:

 For Procurement it was to ensure raw material availability and to ensure vendor reliability.   For Manufacturing it was to ensure finished goods availability at plant and depot For Customer operations it was to ensure stock availability at Retail depot and to ensure an OTIF rate i.e., On Time in Full rate.

Implementation of Project Einstein:

 Raw material stock norms were validated at the supplier end every quarter. This was done with a particular focus on changes in historic consumption and variance in consumption.  A similar approach was followed at the depot level where the retailer stock norms were analyzed with focus on variance in consumption.  Monthly and weekly review of Sales and Operations planning process. This included a weekly SKU forecast and an analysis of SKUs that showed variance from the forecast. The S&OP also involved a demand review and a supply review.  Excel based optimizer likes Solver based production scheduling and solver based supply network optimization was done. The latter involved production and dispatch allocation, factory to depot lane allocation etc.  Significant investment was put in increasing the warehouse space. 99,500 sft of warehouse space was increased over 19 depots.  Transportation space was also increased by using ultra large insulated container to ship chocolates. This gave 21% increase in volume space and 12% reduction in overall freight cost.  City distribution was also made better by using better insulated vehicles. These dedicated customized body vehicles also reduced the freight charges by 15%.  9% cost reduction was done by choosing to partner with few strategic transports service providers. This led to a decrease of about 62% in the number of transport service providers.  Enhanced focus on availability of raw material at supplier level has helped in achieving superior service levels.   Tailored supply chain was ensured for Diwali which saw the maximum sales historically. Rail transport was used in place of road transport whenever the distance was greater than 1000 kms. This ensured a 12% freight cost reduction.  Some of the SKUs which were previously packaged separately were strategically mixed into the same pack. Bubbaloo and Halls were mixed in the same load. This ensured flexibility in truck placement.

Envirotuff Thermal Container Liner (ETL) insulation was used in some container vehicles specifically while shipping premium chocolate products like Bournville.

Robust score card tracking was done at each SKU level. This ensured freshness tracking, production level stocking etc. A dashboard system was used to check the status of various regions in terms freshness level, range availability etc.

Sales force initiatives:

 Rewards & recognition Pay-for-Performance model to award better performance Instituted best depot & depot manager award for 2009    Training on problem solving was implemented to warehouse managers. Public speaking training given to various members in the sales force. Internal and external training chartered to each member in the sales team.

Impact on consumers:
   Reliance retail : Credited Cadbury for very good service level and store availability Metro: Stock out rates has improved from 30% to 2.5% currently. Aditya Birla Retail Limited: Fill rate of Cadbury improved from 86% to 90%. Increased shelf availability of Cadbury resulted in better customer response.  Retailers are noticed that they are getting the same-month stock and this helped in increasing sales for wholesalers.  Availability for seasonal SKUs during festival has been above 90%. This meant that retailer were able to place 100% of the products 1 week before the date of festival, as compared to previous years where they had to place even a day before the festival.

References:
1. http://www.cadburyindia.com/cadtoday/company.asp

2. Chapter 15-16, Marketing Management- Kotler, edition 13th 3. http://en.wikipedia.org/wiki/Cadbury_plc 4. http://www.rocint.com/eigco/Supply%20Chain%20Cost%20Control/Vivek%20Sarbhai.pdf 5. http://archives.chennaionline.com/events/business/2003/10cadbury.asp