Distribution channel and Channel Management at
Ceat Tyres
FOREWORD CEAT Ltd., one of the oldest among RPG companies, is one of India’s leading tyre manufacturers. It manufactures tyres for the Heavy Duty Trucks & Buses, Light Commercial Vehicles, Earth Movers, Forklifts, Tractors, Trailers, Cars, Two & Three Wheelers and Off the road segments. It also exports tyres to over 90 countries. CEAT has two large tyre plants based in Mumbai (Bhandup) and Nasik (Satpur), a tyre plant in Cochin, in Kerala, through RADO Tyres, and two plants in CKITL and ACPL in Sri Lanka, through CEAT Kelani. Tyre Production aggregates over 7.6 million tyres per annum . Ceat produces Tyres for 3 different markets 1. OEM 2. Replacement tyres and 3. Exports. For the purpose of this project we are limiting ourselves to studying the distribution of the “Replacement tyres” market only. The reason is that tyres are sold to OEM’s follow the B2B sales process hence they do not require an elaborate distribution network. Also tyres that are exported use the distribution network of some other company. Hence the most challenging Sales and Distribution network is developed for the Replacement Market. The analytical Framework detailing how the variables affect Sales and Distribution of tyres has been developed for Truck Tyres. The reason being that, buying behavior is different across the Truck, Bus, Passenger Vehicle, 2&3 wheeler segments. Also “Truck tyres” is the largest customer segment for any tyre company accounting for more than 50% of the tyre sales.
CHANNEL DESIGN CEAT has one of the largest distribution network for tyres in India. It has divided the Indian sub continent into 33 regions and has set up a Regional Office for each region. Clearing and forwarding agents (C&FAs) are attached to them. Often the largers regions have 2 or 3 or more C&FA’s to cover the region properly. The total number of C&FA’s across the country is 112. The basic operating structure of the Ceat Ltd comprises of the following entities:
Factory
DDC
RDC
C&FA
Dealers
CEAT has three level distribution structure. The factory supplies goods to the RDCs ( Regional
Distribution Centers) and from these RDCs the goods are transferred to CFAs ( Carrying and Forwarding Agents ) which act as godowns for distribution to the dealers. There is only one DDC ( Divisional Distribution Centre) this is at Nashik and is used for Storage and Assembly of tyres, Tubes and Flaps from the Nashik plant.
RDCs are the mother godowns for storage of goods. The tyres, tubes and flaps are transported to these from factories. The set is formed at RDCs and strapped. The tube is inflated before transportation to RDCs. The Dispatch challans are issued to the transporters. In some cases, the RDCs are required to supply the goods directly to the dealers and invoice them in the required format. Ceat has recently shifted from the DDC structure wherein it had 7 DDC’s to the RDC structure, however this structure is proving inefficient from the operating cost point of view. The inventory cost has shot up and availability has suffered. The amount of safety stock in the system has also gone up. Hence Ceat is about to shift back to t he DDC structure over a one year period. CFAs are the smaller godowns which pull the goods from the RDCs. They transfer the goods to the dealers and an invoice needs to be generated. The CFAs pull the goods from RDCs according to demand. These CFAs then distribute the goods to the dealers. The Dealers are of three types 1. Tyre retailers: These are usually multi-brand tyre dealers. They stock many brands of tyres for a particular segment of customers. These can further be divided into Truck Dealers and Non-Truck dealers. 2. Trader Dealers: These dealers are used typically to ensure upcountry coverage where the company distribution network is absent. These dealers have their shops in upcountry locations or sell to other dealers in upcountry locations and thus enhance the distribution reach of the company. They purchase tyres in bulk and often avail of the Turn over discounts. 3. Ceat Shoppe: Ceat shoppe is a retail outlet where only ceat tyres are sold. This is used mainly for passenger car and 2 wheeler tyre sales. The customers get a range of tyres and advise about selecting the right tyre while purchasing from here. They also get a very good after sales service.
Nashik & Bhandup
Tubes/Flaps Sourcing
Tyre Sourcing Units
Units
Factory
Tubes and Flaps
DDC Nasik
Storage
Assembly of Tyre, tube and flaps
RDC
CFA
Dealer
RDC
CFA
Dealer
CFA
Dealer
CFA
Dealer
The region under each regional office is divided into sales territories that are handled by the territory leaders. The Sales in the region are headed by the Regional Manager. The territory leader caters to all the tyre dealers present in his sales territory. However in the Mumbai Regional Office no territories have been given and TL’s are allowed to go anywhere in Mumbai and develop their dealers. This is so because when the Mumbai RO was formed most of the dealers in the region were loyal to MRF and hence it was important to convert as many as possible. The responsibilities of the RO include: 1. Controlling & administration of office. 2. Handling of day to day work like administration, cash, sales/stock operations/M IS &legal formalities. 3. Reviews with sales field staff. 4. Review of commercial control.
5. Compiling of data received from the CFA. 6. Maintenance & Reconciliation of stocks & accounts.
Attached below is an example of the division of the Pune Regional office into Territories which are assigned to the Territory leaders.
No.
Territory code
TL base
C&F
Market potn
Districts covered
1
B0061
PUNE
PUNE
92,449,800
Pune local
2
B0062
PCMC
PUNE
58,405,800
Pune upcountry,satra
3
B0063
AHMEDNAGAR
AHMEDNAGAR
42,072,700
Ahmednagar,
4
B0064
AURANGABAD
AURANGABAD
30,873,750
Aurangabad,jalna,beed
5
B0081
SOLAPUR
SOLAPUR
35,347,200
Solapur,Latur,Osmanabad
6
B0082
KOHLAPUR
KOHLAPUR
35,178,650
Kohlapur
7
B0083
KARAD
KOHLAPUR
16,403,200
Ratnagiri
To cover the upcountry sales, apart from the trader dealers, Ceat also has appointed area managers in important upcountry areas. Sales associates work under the area managers and are responsible for all the dealers in a given territory in the upcountry market. However the upcountry market is a challenge as the company does not have a CFA over there and availability is always an issue due to the remoteness of the region. The Territory leaders are given a travel plan which has been decided considering the best coverage and lowest cost and journey cycle. Attached below is a sample travel plan:
TOUR CIRCUIT NAME OF THE FIELD STAFF: AREA: PUNE UPC
TOUR
TOWNS
CIRCUIT NO
A
DURATION
TOTAL NO.OF
URLI KANCHAN
DAYS
Frequency
Man Days
2
3
6
2
2
4
3
2
6
2
3
6
1
2
2
DAUND Bigwan INDAPUR B
PHALTAN MALEGAON LONAND SASWAD PATAN
C
CHIPLUN DAPOLI MOSHI
D
NIGDI BHOR DAHIVADI
E
URLI KANCHAN LONAVALA MANCHAR
Total
24
Problems with existing structure: 1. The productivity of sales fleet is the lowest for CEAT ,it is primarily because the territories have been defined in the past which don’t cater to the needs of the present scenario 2. TL’s focus is on major towns and while traveling from one big town to other the smaller towns get neglected which affects the sales. 3. As major dealers are in big towns with higher market potential, cost cutting while selling tyres is done. 4. The TL has no motivation in terms of promotion because right now it takes almost 8 years for the TL to get promoted to RM, which is the next promotion, this leads to them getting demotivated .
Documents used for recording the information flow The major documents used for information flow are : 1. Transportation from Factory to RDC: a.
Delivery Challan (Called as Bilty in slang) – Delivery challan mentions the date and time at which the tyres left the factory. It is issued at the time of dispatch of tyres. When the tyres are received at the RDC the concerned person signs the Delivery challan and one copy is sent back to the factory.
b. GRN (Goods Receipt Notice)- This is a document that is generated by the RDC when the good are received. It mentions the quantity of goods received. Since SAP has been implemented this document is generated online. 2. Transportation from RDC to C&FA a.
IODC (Input Output Delivery Challan) – This is a delivery challan that is generated by the SAP system when the tyres are being transported out of an RDC. It is used to track the transfer of tyres from RDC to C&FA.
b. Delivery challan Entry – When the Tyres transported from the RDC to the CFA, upon receipt at the CFA a DC entry is made into the SAP system. This entry corresponds to the IODC entry made at the RDC and denotes receipt of the tyres at the CFA. 3. Sales from C&FA
a.
Invoice – This is where the Tyre sales occur. Hence a commercial invoice is generated. This invoice is signed by the dealer upon receipt of the tyres.
b. Cheques – The payment cheque is taken from the Tyre dealer immediately after delivery of the tyres. The dealer is given a credit period of 30 days within which he can instruct the company any time to deposit the cheque, if not then t he company deposits the cheque at the end of 30 days of credit.
CHANNEL MEMBER MANAGEMENT Monetary methods All dealers dealing with the Company will have to maintain Security Deposit with the Company. The minimum amount of SDS is Rs.1.00 Lac (one lac) for all dealers dealing in Truck/Non Truck/all other categories. The minimum amount of SDS is 0.50 Lac (fifty thousand) for dealers not dealing in Truck/Specialty.
Interest on Security Deposit (SDS) 1. Dealer will be entitled to SDS interest of 9% per annum. The SDS interest will be payable through Credit Note generated on a half yearly basis. 2. Base interest on Security Deposit @ 9 % p.a is applicable to all set of active dealers irrespective of any condition barring the consistent business clause mentioned below. 3. Dealer will not be eligible for SDS interest, if there is no business with the Company for more than TWO months in succession. Date of last transaction of the dealer with the Company will be considered for this clause. 4. The interest will start from the day, on which dealer re-starts business with the Company.
5. The Interest on SDS will be paid on actual deposit in company books, calculated on daily balance basis and not on month end average.
The dealer will be offered credit limit in the ratio of 1:1 to his security deposit. This means that, at any point of time the total outstanding of the dealer cannot exceed the deposit amount.
Credit Period & Collection
Type Dealer
Local
Upcountry
of
Credit Period
Collection
30 days
Local Cheque against delivery
33 days
DD/Local Cheque
1. Credit period of dealer will start from the date of dispatch or 48 hours from the date on invoice, whichever is earlier. 2. Penal interest will be charged at the rate of 39% per annum against all the payments, made beyond allowed credit period. 3. Penal interest will be recovered through debit notes on a monthly basis. This debit note amount will be automatically adjusted against c redit balances on monthly basis.
There is no COD (Cash on Delivery) on any payments against all type of invoices. 1. Dealer will be eligible for an additional incentive of 9% or 24% p.a on SDS deposit based on the SDS growth and other criteria mentioned in Table A. 2. Additional incentive will be offered on actual SDS deposit lying in company books, calculated on daily balance basis and not on month end average. 3. Additional incentive will be paid on half yearly basis along with SDS interest. 4. Additional incentive percentage mentioned in the Table A&B is o n a per annum basis. 5. Base deposit for additional incentive on SDS is the deposit lying in the books of the Company as on 28/02/2007. 6. On a minimum rotation of 2.75 times of the average deposit and upon increasing SDS over base deposit, dealer will become eligible for TOD and additional incentive as per Table A in this policy. 7. Additional incentive will be offered on half yearly basis. Month end SDS of six months, will be divided by 6 for calculation of average deposit. 8. Rotation for additional incentive on SDS will be calculated on 6 monthly basis. Thus minimum 5.5 rotations are required in each half to qualify for additional incentive. 9. However TOD rotation will be c alculated on quarterly basis only. 10. Dealers with more than 12 lacs of Base SDS as on 28/02/2007 will be eligible for the TOD and additional incentive benefit of 5% increase from base SDS instead of 10% increase for other dealers (Table B). 11. All other qualification criteria of TOD and additional incentive remain the same for this set of dealers (>= 12 lacs base SDS as on 28/02/2007).
Turnover Discount (TOD) Dealers will be eligible for TOD, subject to the following qualifications: 1. The sales turnover to be considered for eligibility of TOD in terms of rotation of SDS will be the final invoice value. 2. TOD discount shall be calculated on the net taxable sales value (i.e. the invoice value after all discounts on the body of the invoice and before taxes) 3. The sales turnover for the TOD purpose shall not include the turnover of Claim, Sludge and Test Tires (TTF)
4. If sales turnover is >= 2.75 times of average Security deposit in a quarter, TOD will be payable through credit note generated on quarterly basis as per Table A given in this policy. 5. Minimum 2.75 rotations on average SDS in a quarter is required to qualify for TOD. The quarter will be April-June, July-September, October-December and January-March. 6. The minimum rotation of 2.75 times of average Security Deposit is applicable on quarter to quarter basis. 7. TOD is payable up-to 4.5 rotation of average SDS deposit of the quarter for which TOD is being paid. 8. After 4.5 rotations, the average SDS needs to be increased for TOD to be eligible on additional turnover in excess of 4.5 rotations. a.
This is applicable to all dealers including new dealers and dealers with more than 12 l SDS deposit as on 28/2/2007.
b. If there is no increase in SDS post 4.5 rotations, no TOD will be allowable on the additional turnover over 4.5 rotations 9. The base security deposit for TOD purpose will be the deposit showing in the company th
books as on 28 February 2007. 10. SDS held by a dealer will be calculated as the average of actual SDS, as on the end date of the three months in a quarter. 11. For the purpose of calculation of growth in SDS in a quarter, the average of the actual SDS at the closing date of every month in the quarter will be compared to the SDS base of 28
th
February 2007. This growth rate will be considered for TOD/Additional incentive on SDS eligibility. Thus, the SDS at the end of the quarter or the highest SDS at any date during the quarter will not be considered for calculation of SDS growth and TOD eligibility.
Additional Incentive and TOD Table Table A For Dealers with < 12 Lacs SDS as on 28/2/07
SDS growth on base
Rotation
of
Avg.
Additional
Incentive
TOD on QTR. T/O
deposit of 28.2.07
QTR.SDS
ON SDS Deposit
More than 10%
>=3.00
24% p.a
2.5%
More than 10%
2.75-2.99
24% p.a
1.5%
0%- 9.99%
>=3.00
9% p.a
2.5%
0%-9.99%
2.75-2.99
9% p.a
2.0%
Less than 0%
>= 3.00
NIL
1.5%
Less than 0% Any
of
the
above
2.75-2.99
NIL
NIL
<2.75
NIL
NIL
condition
Table B For dealers with 12> Lac SDS as on 28/2/07 SDS growth on base
Rotation
deposit of 28.2.07
QTR.SDS
ON SDS Deposit
More than 5%
>=3.00
24% p.a
2.5%
More than 5%
2.75-2.99
24% p.a
1.5%
0%- 4.99%
>=3.00
9% p.a
2.5%
0%-4.99%
2.75-2.99
9% p.a
2.0%
Less than 0%
>= 3.00
NIL
1.5%
Less than 0%
2.75-2.99
NIL
NIL
<2.75
NIL
NIL
Any
of
the
above
of
Avg.
Additional
Incentive
TOD on QTR. T/O
condition
New Dealer st
1. For new dealers appointed on or after 1 March 2007, the SDS base will be the average deposit of the first quarter during which he is appointed. 2. New dealer with an average SDS deposit of Rs.5 Lac and more in the first quarter, shall qualify for 2.5% TOD on Qtr. Turnover and additional incentive of 24% p.a on SDS deposit, subject to 3 rotations or proportionate rotations as the case maybe. 3. New dealer with an average SDS deposit of less than 5 Lac in the first quarter shall qualify for 2.5% TOD on Qtr. Turnover and additional incentive of 9% p.a on SDS deposit, subject to 3 rotations or proportionate rotations as the c ase maybe. 4. Calculation of average SDS base for new dealer will be the average of month-end deposits in a quarter. 5. All other qualification criteria applicable to existing dealers will be applicable to new dealers also, in the first quarter of operation. 6. In the first quarter, proportionate rotation for this set of dealer will be on number of months, the dealer has worked in the quarter of his appointment. For example, if a dealer is appointed in June then for Q1, he has to do one rotation. If he is appointed in May, he
will have to do 2 rotations in Q1. If he is appointed in April, he will have to do 3 rotations in Q1. 7. From next quarter onwards, average SDS of the quarter in which new dealer was appointed will become his base SDS and on this base SDS, these set of dealers will be treated at par with existing dealer for TOD/Addl. Incentive purpose. 8. All existing dealers having NIL SDS on 28/2/2007 will also be treated as New dealer if they are revived on or after 1/3/07.
Additional Incentives and TOD Table For new dealers appointed on or after 1/3/2007 Table C will be applicable to the new dealers in the first quarter of his appointment only nd
From 2
quarter onwards the dealer will be treated as an existing dealer and TOD/Additional
incentive will be applicable accordingly (Refer Table A & B) Table C Average the
SDS
Qtr.
in
Rotation of Avg. Qtr. SDS
Of
Additional Incentive
TOD on Qtr. T/O
on SDS Deposits
appointment More than 5 lacs
>=3.00
24% p.a.
2.5%
More than 5 Lacs
<3.00
NIL
NIL
Less than 5 lacs
>=3.00
9% p.a.
2.5%
Less than 5 lacs
<3.00
NIL
NIL
Additional TOD (ATOD) on Non-truck Value Sale •
Growth based additional turnover discount on non-truck value sale is being introduced effective 1/4/07
•
Dealers will be eligible for ATOD on non-truck sales value for growth over one’s non-truck value base
•
The base of ATOD will be the average monthly value sale of non-truck in the previous year(2006-07)
•
Non-truck value sale, for base and ATOD purpose will not include sale of Sludge, Test and Claim tyres (TTF)
•
This discount will be paid on half yearly basis. This means that if the average sale of the previous year is 1.50 lacs per month, in H1 the base will be 1.50*6= 9.00 lacs. On this base the growth in H1 will be calculated for the ATOD purpose.
ATOD discount on non-truck value will be calculated on the net taxable value (i.e. the invoice value after all the discounts on the body of the invoice and before taxes) Additional T/O discount on Non-Truck Value Sale Table D Growth on Non-Truck value base as defined
ATOD to be paid on Non-Truck value excluding
in the policy
Test, Sludge and claim Tyres as defined in the policy
>20%
1.0%
ATOD on Non-Truck Sales Value To New Dealers 1. Any new appointment during 2006-07, shall have the target base on the number of months, one has worked with the company from the date of his appointment. For example, the base of the dealer appointed in September, 2006 will be the monthly average non-truck off-take of 7 months, multiplied by 6 for the H1 base. Growth on this base will be required for ATOD as per table D. 2. New dealers appointed on or after 1/4/07 will be entitled for 1% ATOD without any target in H1. In H2, he will be treated as existing dealer and all the qualification criteria applicable to existing dealer will be applicable for base and target. H1 average would form the base in this case. 3. New dealer appointed on or after 1/10/2007 will be entitled for 1% ATOD without any target in H2.
Adjustment of Overdue Outstanding/debits beyond 60 days from the due date on invoice will be automatically adjusted against the credit balance or Security deposit or both on a regular basis for all dealers. System will automatically de-activate all such accounts, where no transaction takes place for 60 days. HO can re-activate all such accounts, subject to availability of duly filled up dealer form along with required documents with com pany.
Non-Monetary methods Platinum club:
Ceat has formed a platinum club which consists of its top dealers. There are currently about 50 of India’s top dealers in this club. These dealers are given special importance. They are invited to all tyre promotions, dinners and other events that happen in the region. Their feedbacks are considered important for deciding the marketing strategies and for deciding the margins, incentives and discounts that are given to all the dealers nationwide. If a VP visits that region he
also visits the Dealers shop. Apart from this the platinum club dealers are invited to the annual conclave for sharing the corporate vision and the plan for the next year with them. These annual conclaves are held in foreign countries where the dealers are given fully paid trips. The last annual conclave was at Istanbul and lasted 3 days. Rhino Gold club:
The Rhino Gold club of dealers is a toned down version of the platinum club. It is for the dealers who show promise but yet are not big enough to be accommodated in the Platinum club. There are currently 120 dealers in the Rhino gold club.
Target Setting Mechanism Ceat follows a top down Target setting mechanism. The product managers for the Different sizes of tyres are given their targets for the year. These targets are based on the prevailing market conditions and market potentials. These targets are decided in a meeting by the product managers and the VP’s and senior managers together. The quarterly targets are also decided at this time. These productwise targets are then divided among the different regions by the product managers in consultation with the regional managers of those regions. The potential of the region and the company’s position in the region and the past sales performances are considered while assigning these targets. These productwise targets are then summed up and this becomes the target for the regional manager to fulfill. E.g. In Truck tyres if the target for the region is Rs. 10 lakhs, LCV Tyres Rs. 5 lakhs, Bus Tyres Rs. 3 lakhs, 2 wheelers Rs 2 lakhs, passenger cars Rs. 5 lakhs and 3 wheelers Rs 5 lakhs then the total target for the regional manager is Rs. 30 lakhs for the year. The quarterly targets are also specified for the regional manager. Once the regional manager receives these quarterly targets he divides it among the Territory leaders and Area managers. The area managers will further divide their targets among the sales associates under them. Productwise sales targets are given only till the regional manager level. Thereafter the targets are on the total value in different customer segments. E.g. The regional manager receives a target of 100 tyres in 9.00 – 20 and 200 tyres in 10.00- 20 size tyres but both these fall in the Truck tyre segment, hence the target for the territory leader is in terms of the value of the tyres in the truck segment. The territory leader does not have a target for 9.00-20 ir 10.00 – 20 tyres. After the territory leaders get their targets, the targets for the platinum club dealers and Rhino gold club dealers and trader dealers are decided and given to them. However the sales targets are not given to other multi-brand dealers, instead monetary incentives and discounts are used to ensure that they perform upto the required level.
Monitoring Mechanism Monthly sales data is reported by every Regional office. An MOR (Monthly operations review meeting) is conducted wherein the regional managers, product managers and VP’s participate. Shortfall in sales and the reasons for the same are discussed and if needed the sales targets are revised.
Training and HR inputs provided to Channel Members No training or HR inputs are provided to the dealers except to the Ceat Shoppe. The Ceat soppe being a single brand outlet is used for claim processing and after sales service too. Hence the Ceat shoppe personnel are trained in Claim procedure, Identifying the common defects in tyres, Commercial settlement matters. They are also trained in the different tyres available for the passenger car segment and 2 wheeler segment. Given a customer’s requirement they should be able to suggest the right tyre to them.
FIELD FORCE MANAGEMENT Monetary methods Also Quarterly appraisal of the Territory leaders is done. The TL’s are given quarterly targets in the Truck, Bus, 3-wheeler etc segments. Each segment is given a weightage say Truck 45%, Bus 15% etc. In each of this segment the TL is rated based on the sales figure achieved and the challenges faced in the same. Based on his total score his monetary incentives for the next quarter are decided. Since the monetary incentives given to the sales force is sensitive data, we could not get access to this data for the purpose of this study.
Non-Monetary methods Every month one TL from each region is chosen to be the performer of the month. This performance also counts in the ratings given in the Quarterly appraisal and are thus linked to the monetary compensation also. Also the best TL’s are assigned Sales trainees to be trained under them.
Target Setting Mechanism Target setting mechanism is the same as detailed above.
Monitoring Mechanism At the regional office level a monthly review is conducted before reporting the sales to the head office. The performance of all the territory leaders is judged at this time. Also a performer of the month is adjudged.
Training and HR inputs provided to Channel Members Given below is the training program for the sales trainees. The sales trainees undergo a probation period of one year after which they are confirmed as Territory leaders.
a)Induction and Orientation( 1 day) 1.Brief about company and job profile 2.Carrer path 3.Plan for the future
b)Plant Visit 1. Bhandup plant visit
c) Commercial (2 days)
Commercial Policy (Policy detailing the margins, discounts etc available to the dealers) Commercial Procedure RACE Programme (RACE is an internal company system in which sales data is logged) Documentation Financial Discipline Responsibility : Commercial Officers West – Sridhar and P K Shodhan North – S C Dhiman and Anil Karbhanda South – G Lalitha East – Aninda M Central – Surendranath , A K Sood and Mahesh Gupta
d) Sales Understanding (5 days)
Commercial Policy / Comparison Types of Discounts Comparative Price Chart / Market Rate Mapping – Dealers / Consumer / Retrader / OEM Dealer Classification Market Study – Potential – Market Share Competitor Set-up Dealer Related Data Business Card Responsibility : Regional Managers
e) Technical Study / Customer Service (3 days)
1.Nomenclature of Tyres 2.Function of a Tyre 3.Parts of the Tyre 4.Vehicle-wise Tyre Size 5.Brief on Manufacturing 6.Different patterns of the Tyre 7.Entire range and salient features of our Tyres 8.Segmentation on load / operation 9.Our tyres vis a vis competition 10.Tyre Care and Maintenance 11.Service Failure – Manufacturing and Non-12.Manufacturing 13.Claim Policy 14.Claim Procedure – CL1 to CL3
15.Claim Inspection 16.Follow up on Tyres in OE and FA
Responsibility : Customer Service Managers
Practical Understanding
Customer Interface (3days)
1. Fitment Survey 2. Study of Fleet Working 3. LCV Stand Meets 4. Truck Meets 5. Understanding Selling Styles to customers 6. Comparison of CEAT brands Vs benchmarks 7. Cost Per Kilometer 8. Understanding of retraders and dealers
Responsibility : Regional Managers
Passenger Segment (2days) 1. Understand Sales and Stock Pattern 2. Understand key issues 3. Route Planning 4. In store visibility for all categories at MBDs 5. Actual work on enhancing visibility 6. Visibility Audits
Responsilbility: Regional managers
TRANSPORTATION AND LOGISTICS
Modes of Transportation till Dealer The Tyres are transported mostly by road from the Factory to the RDC, RDC to CFA and from CFA to the dealer. Usually trucks are used for the transport of these tyres. For smaller tyres often L CV’s (Tempo’s) are used. Tyres are transported by Train to Guwahati RDC which is t he only RDC which is linked by train.
Modes of Transportation after Dealer Usually customers come to the dealers shop to purchase tyres and the individual tyres are either fitted on to the vehicle at the shop or they are transported on non-mechanised push carts/ commercial 3-wheelers etc.
Use of Information Technology Ceat has recently shifted to SAP, hence all the transportation documents are generated on SAP. The same has been detailed in the documents used section. SAP BW (Business warehouse) module also generates the analytical report which give the dealerwise and regionwise sales reports. This helps in availability of live information to all the regional and product managers for taking decisions at any time.
THE ANALYTICAL FRAMEWORK For the Purpose of this part of the study we are limiting to the Truck Tyres segment. Truck tyres segment is the largest customer segment for any tyre company accounting for over 50% of the customers. Also Trucks are usually owned in fleets. There are large fleets of 100 to 200 trucks owned by a single transport company which form major customers for any tyre manufacturer. At times company’s Territory Leaders visit these transport companies directly and advise them on selection of the right tyres for their fleets. Often sales orders are also obtained directly by these Territory Leaders instead of the customers buying through the Tyre Dealer. Thus this segment requires the Territory leaders to be aware of all the technical specifications of the tyres and how they affect the performance on road. The TL’s are required to know the right tyre for the right customer.
It is also required out of the TL’s to develop a relationship with the transport
companies to obtain repeat sales. At the same time the number of small fleets and single trucks is also large. Hence one cannot neglect the number of truck tyres sold through the dealers. Hence the trade incentives, training etc also matter. However this category of buyers does not require too much technical specs to be given and the purchasing is over the counter. Hence a good brand pull is essential in this segment. However as of today Ceat does not have a very good brand pull. Also most of the dealers in this
segment have been loyal to MRF brand for years, hence Ceat has had to approach the large fleets directly to obtain sales.
Effect of the variables of Distribution on the distribution of Tyres from Ceat Variable 1 Number of customers: The number of customers is not as large as that for an FMCG. Also the customers are willing to travel some distance to buy tyres which is usually an annual or biennial purchase. Hence the number of intermediaries is not too high. Infact first sales occur to the dealer and the offtake is taken from the dealer. There are little or no secondary sales.
Variable 2 Geographic Dispersion: Geographic dispersion of customers is high but since tyres are not a frequent purchased item customers are willing to travel a bit. Hence the number f intermediaries is not too high.
Variable 3 Frequency of purchase: Tyres have a life of atleast one year. Moreover the tendency of retreading tyres in India brings the frequency of purchase down to once in 2 years or even 3 years. Hence the intensity of transport in the last mile is not high. Another factor contributing to this is the tendency of bringing the vehicle to the shop and getting new tyres fitted on to it. This behavior totally avoids the need of a last mile transport.
Variable 4 Tendency to postpone purchase: There is often a tendency to postpone retreading or purchase of new tyres after the treads have worn out. This is one of the reasons tyre companies participate in free vehicle check-up camps where they identify worn out tyres and advise them to change to new tyres. Also before every monsoon the tyre companies go into aggressive advertising and conduct many vehicle check-up camps. This is the time when maximum number of customers could be convinced to purchase new tyres.
Variable 5 Level of Familiarity/ Product knowledge: The truck fleet owners have a very high degree of product knowledge. They would even have tried the different brands of tyres in the past. Also they go into in-depth calculations of mileage, profit etc before actually purchasing the tyres. Hence the field force is important. The field force shuld be an expert at problem solving in these cases.
Variable 6 Degree of Brand loyalty: The degree of brand loyalty in the Truck tyre segment is not too high. Often the same truck has 4 different brand tyres on 4 different wheels. Hence the margins given to the channel members are important.
Variable 7 Purchase on Impulse: Tyres are never purchased on impulse.
Variable 8 Level of Involvement: The level of involvement is high as the tyres affect the mileage and profitability of the Truck fleet directly. Hence the field force has to be technically competent and has to give the correct information to the customers.
Variable 9 Purchased as a basket of goods: Tyres are not purchased as a basket of goods.
Variable 10 Speed and Complexity of decision making process: The decision making process though slow is pretty complex. Hence the field force is important.
Variable 11 Presence of expert influencer: The tyre puncture mechanics and fitters are influencers in this buying process often. Hence tyres companies often offer monetary/ non-monetary incentives to the influencers like free T-shirts, wall paintings at their shop, free watches etc.
Variable 12 Elements of Crisis Purchase exist: Tyres are crisis purchased only when there is a bad accident. Hence availability of tyres aong major highways becomes important.
Variable 13 Element of Risk Aversion: There is high amount of risk aversion for the Truck dealers in the Tyre purchase. Wrong tyres could lead to early wear-outs. Also Ceat tyres are perceived to give very low number of retreads. Hence the Channel member can unsell the brand. Thus the Dealers margins and their ROI becomes important.
Variable 14 Perishability: Tyres are not a perishable item and have a very high shelf life. Also Dealers often have huge godowns in which they store a lot of tyres. Hence the speed of delivery is not a constraint. A delay of one or two days in the tyre delivery to dealer is acceptable.
Variable 15 Time band associated with purchase: There is no time band associated with the purchase of tyres.
Variable 16 Fungibility: Tyres do not exhibit Fungibility.
Variable 17 Importance of Search costs: Truck fleet owners indulge in a lot of search before buying the tyres. However most of the tyre dealers do not have computers or internet connections. Also they are used to company TL’s visiting them and providing information. Due to these reasons the usage of IT in information search is low.
Variable 18 Degree of customization possible: Tyres are not customized. Tyre is a standard product which is supplied across the country.
Variable 19 Negative/ Positive Reinforcements: Tyres usually use negative reinforcement. Custmers are asked to replace a tyre lest they have an accident. They are asked to use a particular tyre to ensure better grip and lesser accidents.
Variable 20 Value/ Volume Ratio: This varies for the different sizes of tyres. Typically the 2 and 3 wheelers have a low value/ volume ratio. Transport cost is critical in these. The largest value/ volume ratio is for Off the Road tyres (ones used for mining equipment, earth movers, tractors etc.).
THE FINANCIAL ASPECT Financial Data of MRF
2007
2006
5043.54
4248.41
Less: Excise Duty
630.20
509.46
Net Sales/Income from Operations
4413.34
3738.95
Other income
19.72
12.34
Total income
4433.06
3751.29
(63.85)
10.64
b) Consumption of raw materials
3033.96
2608.70
c) Purchase of traded goods
16.93
6.59
d) Staff cost
240.23
200.24
e) Depreciation
154.03
145.73
f) Other Expenditure
743.04
667.16
Total
4124.34
3639.06
Interest
49.23
49.29
Exceptional Income
-
(36.41)
Profit before tax
259.49
99.35
Provision for Tax
89.11
20.05
Net Profit after tax
170.38
79.30
Gross Sales/Income from Operations (including Export Incentives)
Total Expenditure
a) (Increase/Decrease in stock in trade and work in progress)
Financial Data of CEAT
Mar '03
Mar '04
Mar '05
Mar '06
Mar '07
Sales Turnover
1505.53
1672.01
1787.87
1958.08
2397.25
Excise Duty
275.05
240.74
287.99
204.57
257.53
Net Sales
1230.48
1431.27
1499.88
1753.51
2139.72
Other Income
43.06
28.33
31.78
10.86
8.08
Stock Adjustments
33.55
-29.59
-7.79
22.63
2.49
Total Income
1307.09
1430.01
1523.87
1787
2150.29
Raw Materials
791.73
944.6
1061.79
1246.68
1495.72
Power & Fuel Cost
57.81
60.24
54.5
62.33
73
Employee Cost
114.87
115.89
109.44
118.26
128.23
Other Manufacturing Expenses
59.1
65.05
73.69
80.1
77.37
Selling and Admin Expenses
122.64
157.79
157.68
171.47
201.94
Miscellaneous Expenses
17.82
16.28
14.32
12.94
17.44
Preoperative Exp Capitalised
0
0
0
0
0
Total Expenses
1163.97
1359.85
1471.42
1691.78
1993.7
PBDIT
143.12
70.16
52.45
95.22
156.59
Interest
94.54
86.33
72.63
72.63
70.26
PBDT
48.58
-16.17
-20.18
22.59
86.33
Depreciation
21.84
22.1
22.06
22.45
31.06
Other Written Off
0
0
0
0
0
Income
Expenditure
Profit Before Tax
26.74
-38.27
-42.24
0.14
55.27
Extra-ordinary items
2.59
60.49
3.69
5.07
5.65
PBT (Post Extra-ord Items)
29.33
22.22
-38.55
5.21
60.92
Tax
10.9
8.16
-1
4.7
21.67
Reported Net Profit
18.41
14.06
-1.87
0.52
39.25
Comparison
Employee Cost/Sales
Ceat
MRF
0.05349
0.03054
As we can seen from the ratio figure above, the employee cost/sales of Ceat is higher than that of MRF by approximately 75%.
Ceat is currently in a growth phase wherein it is looking at
aggressively expanding its sales. Hence Ceat is in need of talent and wants to retain its existing talent. Hence the employee cost/sales is high. In comparison MRF is already the market leader. MRF sets trends in the tyre industry and employees would like to work for MRF just for the brand name that the company has generated over the years in the Tyre industry. Hence the salaries at MRF are comparatively low. Hence t he employee cost/sales is low. The selling expenses per unit sales for Ceat are about 0.085 which is significantly higher than MRF. 1
Even with respect to market spend per unit of sales, Ceat spends more than MRF. This shows that MRF has a better brand pull than Ceat. Lower brand pull of Ceat results in the following: Ceat has to give higher margins to its dealers. Typically MRF gives 1% Turnover discount to the dealers while Ceat gives 2.5% or more. Lower brand pull also translates into higher selling expenses for Ceat. The amount of BTL advertising required for Ceat is significantly higher. Also the number of promotions, demonstrations and service camps that Ceat has to conduct is significantly higher. MRF being an established brand has developed excellent relations with its dealers and customers over the years and hence does not require spending the same amount as Ceat.
