DRIVE-SPRING 2014
PROGRAMMBADS (SEM 3/SEM 5) MBAFLEX/ MBAN2 (SEM 3) PGDMMN (SEM 1)
SUBJECT CODE & NAME-MK0010- Sales, Distribution and Supply Chain Management
BK ID-B1721 CREDIT & MARKS-4 Credits, 60 marks
Q1 When one member of distribution channel tries to maximize its profits at the expense of rest of
the members, it will create conflicts, resulting in the decline of profits. To avoid these conflicts,
now retail firms have started forming vertical Marketing systems (VMS). Explain the three types of
VMS through which goods and services are usually distributed to customers.
(Definition of VMS, Three types of VMS)2, 8
Answer.
Vertical Marketing systems (VMS)
A Vertical Marketing System (VMS) is a system in which almost all the members of distribution channel such
as manufacturers, wholesalers and retailers work together to satisfy human needs and wants by facilitating the
smooth flow of goods and services from manufacturer to the ultimate consumer. In traditional marketing system,
manufacturers, wholesalers and retailers are separate entities who try to maximize their own profits. The
philosophy behind developing vertical marketing system is that when one member of distribution channel tries to
maximize its profits at the expense of rest of the members, it will create conflicts, resulting in the decline of profits
for the whole channel of distribution. To avoid these conflicts, now retail firms have started forming vertical
marketing systems.
Types of VMS:
Three types of VMS are:
1. Independent firm VMS
2. Partially integrated VMS
3. Fully integrated VMS
1. Independent firm VMS is a marketing system where manufacturers play a vital role to provide goods and
services to customers. This is the case where retailers are very small and therefore, manufacturers have to reach the
whole market. Also when a firm’s financial resources are limited and channel members are not in a position to
share risks and expenses, therefore, they want the manufacturer to come forward and lead the retailing efforts.
Independent retailers on the other hand, target their customer base and build loyalty by becoming a friendly
retailer and word of mouth publicity.
2. Partially integrated VMS is a marketing system in which two independent, financially strong firms along a
channel of distribution perform all manufacturing and distribution functions without the involvement of any
intermediary. This is the case where involvement of wholesalers may be expensive and/or unaffordable. The
example of such system is where manufacturers and retailers divide all the retailing activities like production,
storage and distribution without any independent wholesalers. Partially integrated VMS is most suitable where:
I.
wholesalers are costly to afford
II.
company has ample resources
III.
both manufacturers and retailers are large
IV.
unit sales are moderate, and
V.
Strict control over channel is required.
3. Fully integrated VMS is a system where one member of the distribution channel for say manufacturer
performs all production, storage and distribution functions without the involvement of any channel member. This
is the case where manufacturer having sufficient resources wants direct interaction with its customers. Earlier this
system was usually employed by manufacturers of repute but now due to easy availability of finance and retail
facilities that significantly contribute to a nation’s economy, retailers are also moving upward in the chain.
Q2 Define Aggregate Planning and its strategies to meet demand and supply.
(Definition of Aggregate planning, Strategies used in Aggregate planning (Chase, Level & Mixed))3, 7
Answer.
Aggregate planning
One important strategy used in planning demand and supply is called Aggregate Planning. The aggregate plan is a
demand management tool that allocates resources optimally relating both direct and derived demand such that
there is both, a better utilization of the production system and an improvement of customer service. The aggregate
plan can be product type or category or geography but it generally covers a planning horizon that can be as long as
least 18 months. Aggregate planning reflects the operational decisions that must be made in the short to
intermediate time horizon to ensure that the operations function has the resources needed to meet customer needs
and market demand. It encapsulates the requirements of both tactical and operational planning. Forecasting is a
very important component for effective aggregate planning.
Strategies used in aggregate planning
a) Chase Strategy
A cyclical nature of business often employs a chase strategy. When the demand fluctuates a firm should adjust the
capacity to match the demand as close as possible. This situation is shown in Figure.
Figure: The Chase Strategy
A Chase Strategy is a strategy aimed at adjusting capacity in anticipation of demand. You are “chasing demand” by
regulating capacity to the demand doing it as dynamically and quickly as you can.
b) Level Strategy
The level-production strategy is an operations manager's vision. In a level strategy, an organization maintains a
continuous capacity over a period of time, regardless of variations in demand. This strategy is utilized when the
skills of manpower, the requirement of training, and the cost of recruiting and terminating employees is high. For
example, in a law firm the number of hours per week to serve clients is finite. It is difficult to hire part-time lawyers
for a few hours. The capability to adjust capacity to the fluctuations is limited. Figure shows the level strategy.
Figure: The Level Strategy
c) Mixed Strategy
Individual firms create endless combinations of these three pure strategies, i.e., chase and level strategies to match
with their own conditions and situations. Each of these pure strategies has its strong points and weaknesses. The
chase strategy reduces the costs of holding inventory, including the hazard of investing meager resources to gather
the wrong products. Though the firm may gain from this, it also takes the risk of possibly alienating employees,
especially if demand fluctuations are persistent. In case employees regard their firm’s allegiance to be weak, then
the employees feel less motivated and dedicated, less punctual and no responsibility towards their work.
Q3 An organization needs to be extremely cautious in making investments in various types of
inventories. The extent of control required to be maintained on all items is not the same. Explain
some important tools of Inventory management like ABC analysis, Just-In-Time & Economic order
quantity model.
(Definition of Inventory and Inventory Management, ABC analysis, Just-In-Time & Economic Order Quantity
Model) 3, 7
Answer.
Inventory and Inventory Management
Inventory
The term ‘inventory’ means any stock of direct or indirect material (raw materials or finished items or both) stocked
in order to meet the expected and the unexpected demands in the future.
Inventory Management
Inventory management is primarily about specifying the size and placement of stocked goods. Inventory
management is required at different locations within a facility or within multiple locations of a supply network to
protect the regular and planned course of production against the random disturbance of running out of materials or
goods. The scope of inventory management also concerns the fine lines between replenishment lead time, carrying
costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future
inventory price forecasting, physical inventory, available physical space for inventory, quality management,
replenishment, returns and defective goods and demand forecasting.
Tools of Inventory management
ABC analysis
ABC classification is one of the models of inventory classification. ABC stands for ‘Always Better Control’. The value
of inventory items consumed in a year is one of the important factors of this control method.
•
Small quantities of inventory items form a very large portion of inventory consumption throughout the
year.
•
Somewhat larger number of inventory items form a reasonable share of inventory consumption
throughout the year
•
Huge number of inventory items form a very small share of inventory consumption throughout the year
•
These essential facts have given rise to the concept of ABC Analysis. It has been observed that in a
manufacturing firm only
•
10% of items contribute to 70% of the inventory consumption throughout the year.
•
20% of the items contribute to 20% of the inventory consumption throughout the year.
•
70% of the items contribute to only 10% of the inventory consumption throughout the year.
Just-In-Time
The concept of just-in-time (JIT) system has been made popular by Japanese firms. In a JIT system, manufactured
components and parts are transported to the manufacturing site just few hours before they are actually put to use.
The delivery of material is integrated with the manufacturing cycle and speed.
Economic Order quantity Model
It is defined as the level of inventory order at which the cost of holding inventory (i.e., ordering cost + inventory
carrying cost) is the minimum. By using the EOQ model, it becomes easy for a firm to understand that its total
expenditure will increase if it orders too much or too little of a stock item.
Q4 Explain the SCOR model with a diagrammatic representation.
(SCOR model, Focusing Aspects with diagram)5, 5
Answer.
SCOR model
The SCOR model is used to understand simple or complex supply chains through a common set of terms.
Consequently, different industries can be related to each other to interpret any supply chain. SCOR is based on five
unique management methods. These are: Plan, Source, Make, Deliver and Return.
(i) Plan: It includes methods required to balance collective demand and supply to devise a strategy which meet
sourcing, production and delivery requirements in an optimum manner.
(ii) Source: It includes methods to procure goods/services to meet the actual or anticipated demand.
(iii) Make: It includes methods that convert a raw product to a finished product to meet the actual or anticipated
demand.
(iv) Deliver: It includes methods that are involved in the transfer of final products to the end consumer. This
includes concepts such as distribution management, transportation, etc.
(v) Return: It includes methods which are involved in receiving the returned products no matter what the reason
for return is.
Focusing Aspects with diagram
The SCOR model focuses on the following aspects:
1. All communication with the customer right from the purchase of a product to its payment.
2. All product transactions that come in the process right from the supplier to the end customer which includes
equipment, bulk commodities, spare parts, etc.
3. All market communication right from understanding the collective demand to the fulfilment of each order. Other
key notions highlighted by the SCOR model are – information technology, guidance, quality and administration.
Figure: SCOR Model
Q5 Explain the challenges faced by International Sales Manager.
(Listing of challenges faced by International manager)10
Answer.
Challenges faced by International manager
The challenges faced by sales managers while doing business abroad are as follows:
(i) Language Barriers: One of the foremost challenges faced by international sales managers is the language
barrier. Every manager would like to go to abroad and serve organizations but due to language differences, they are
not able to produce results. It happens because you being a sales manager you may be capable of doing your job but
your customers don’t understand what you want to communicate. Therefore, a company for international sales
positions always look for linguist.
(ii) Cultural Differences: Each country has its own unique set of cultural norms. For instance, in USA, most of
the sales do much of their own administrative work, including attending phones, sending mail, etc., but in other
parts of the world, for example particularly in Asia, managers have several administrative employees at their
disposal to do everything from making a cup of coffee to cleaning the car. Therefore, if a MNC has its business in
10countries, it means you being the in-charge for international affairs, must acquaint yourself with minimum 10
different cultures.
(iii) Sense of Trust and Understanding: In a MNC it is a practice to appoint and recruit executives of various
nations. Think about a situation when a manager from abroad comes and after joining the office, starts changing
the existing policies. It will be difficult to have faith in that person. Therefore, developing relationships with others
is not a critical success factor in international market but in international environments too.
(iv) Time Zone Challenges: One obvious challenge, international sales managers face are the time zone
differences. It means when you are working in USA and sitting in your office, it may not be the right time to talk to
your Asian counterparts because due to time differences, they may be out of office or even taking bed rest at home.
Similarly, when you want to chat with a person sitting abroad or while emailing, remember you most likely will not
hear back from the person you sent your message to until the next day.
(v) Work Culture and Practices: In order to be successful as an international sales manager, one must know
the work culture and routine office practices of the culture you are in. For instance, in most of the advanced
countries, it is a common practice for senior executives and rest of the employees to have lunch together at the same
time and sometimes in the same dining hall. Similarly, some countries, work for six days in a week while in entire
US, organisations operate on a Monday to Friday schedule.
Q6 Describe the supply chain Benchmarking Procedure.
(Definition of Benchmarking, Procedure for supply chain benchmarking)2, 8
Answer.
Benchmarking
Benchmarking has been used variedly to refer to several activities. Several definitions have described as
‘benchmarking’. Some of these definitions are discussed to emphasize the diversity:
•
‘A continuous systematic process for evaluating the products, services and work of organizations that are
recognized as representing best practices for the purpose of organizational improvement’ (Spendolini, 1992).
•
‘A continuous search for, and application of, significantly better practices that lead to superior competitive
performance’ (Watson, 1993).
•
‘A disciplined process that begins with a thorough search to identify bestpractice- organizations, continues with
the careful study of one’s own practices and performance, progresses through systematic site visits and
interviews, and concludes with an analysis of results, development of recommendations and implementation’
(Garvin, 1993).
Procedure for supply chain benchmarking
There is a procedure for defining the methodologies and metrics, achieve milestones and set comparisons for
benchmarking. At the implementation level, application of benchmarking is generally believed to involve seven key
steps:
(i) Determine which functions to Benchmark: The organization needs to first ascertain which functional
areas are to be benchmarked, those which will gain the most from the benchmarking procedure.
(ii) Identify performance variables and collect data: The organization needs to recognize the performance
variables which will be used to measure those functional areas and then accordingly collect data.
(iii) Select best in class companies: The organization needs to first choose the best-in-class company for each
area that is to be benchmarked. The chosen company should be one that performs its functions at the lowest cost
and achieves the highest level of customer satisfaction.
(iv) Compare: An organization needs to compare its performance with that of the best-in-class company for each
benchmark being considered. The results need to be compared in an easy format to ascertain the gap between its
own performance and that of the best-in-class company.
(v) Specify programmes and actions to ‘meet and surpass’: The organization needs to specify the
programmes and actions to meet and exceed the competition which is based on a strategy to improve the areas
which have some possibility of improvement. The organization can either devise its own methods to improve its
weak areas or look up to the industry leaders for guidance.
(vi) Implement and monitor: The organization needs to implement these programmes by setting specific goals
to be achieved within a stipulated time period. The organization also needs to develop a monitoring mechanism to
review and update the examination/study done within the stipulated time period.
(vii) Recalibrate: The monitoring mechanism developed by the organization will form the basis for revision and
change of measurements in the subsequent benchmarking studies.