Page 78 - DMGT205_SALES_MANAGEMENT

Sales Management

Notes
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Case Study Physical Distribution

anpur Tiles were making several qualities of tiles for floors and walls. They were
also doing business in decorative plumbing hardware. The main markets
Kcomprised buildings and individual buyers. The company was selling to about
1000 retail, regional and wholesale outlets. The company had 20 regional warehouses
scattered over the entire market. The 80% customers could get their requirements in
2 days. The inventory planning of the company permitted 85% of the inventory to be
dispatched to warehouses immediately. Rapid delivery and adequate inventory levels
was the reason of success of Kanpur Tiles.
1. Recently the cost of distribution has in creased and the company is facing a credit
squeeze. This prevented the company to maintain high level of inventory in
warehouse, which also delayed the delivery time.
2. The downward trend was felt in the housing industry which lowered the demand.
The buyers were very selective in choice of individual items therefore the company
had to maintain its quality standards and its reputation.
Floor and wall tiles and other connected materials do not come in the category of impulse
buying. The customers spent a lot of time and were cautious of many aspects of flooring
which lasted for many years. Some executives of the company felt that the two-day delivery
time is not essential and it could be changed to more days for the sake of economy. The
total inventories cost of regional distribution centres were almost 30% of the capital value
of the inventory. Another category of orders was rush orders, in which immediate delivery
was required and they constituted about 50% of the volume.

A survey of the rush order customers showed that customers would not complain if the
delivery period was extended from two to five days but would be unhappy for longer
periods of delivery as they were in the process of constructing their houses and wanted the
supplies immediately. Rest of the customers would accept delivery ranging from 15 to 25
days.
The management had different choices to make.
(a) They could eliminate all branch warehouses and maintain a central warehouse at
the factory. This could reach 95% of the customers within 23 days. Rush orders
would be dealt separately by air shipment, which would increase the cost of
transportation 3 times.

(b) If the company maintains three warehouses it could reach 30% of the consumers in
ten days and rest in 18 days. The inventory cost would be 11% in this scenario.
(c) If the company maintains 10 warehouses it could reach 45% of the consumers in
7 days and the rest in 17 days. The inventory cost would be 25% of the capital value
inventory.
(d) If the company maintains a central warehouse, it could make a gross profit of 40%.
Current gross margin was 20-25%.

All the competitors of the company had limited number of warehouses and their delivery
time was 15-20 days.

Contd...

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