LG Electronics India Pvt. Ltd.

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A wholly owned subsidiary Electronics, South Korea Established in January, 1997

of

LG

State-of-the art manufacturing facility at Greater Noida, near Delhi, in 1998

LG Electronics India Pvt. Ltd.

Vision was to become a 'Health Partner' for its consumers
• The CTV range offered by LG has 'Golden Eye' technology • Entire range of LG air-conditioners have 'Health Air System' • Microwave ovens have the 'Health Wave System' • Refrigerators have the 'PN System’ • Washing machines have 'Fabricare System'

FINANCIAL PERFORMANCE
Turnover for 1997 Turnover for 1998 Turnover for 1999 Turnover for 2000 Turnover for 2001 Rs. 125 crores Rs. 485 crores Rs. 1056 crores Rs. 1903 crores Rs. 2216 crores

Turnover for 2002

Crossed Rs. 3000 crores

LG MARKET SHARE
Microwave oven market share(top 3)
50 40 30 20 10 0 LG Samsung Kenstar

%age

Series1

LG MARKET SHARE
CTV market share(top 3)
25 20 15 10 5 0 LG Samsung Onida

percentage

Series1

LG MARKET SHARE
Refrigerator marketshare(top 3)
24 23 22 21 20 19 18 LG Whirlpool Godrej

%age

Series1

LG MARKET SHARE
Washing Machine market share (top 3)
40
%age

30 20 10 0 LG Samsung Videocon Series1

LG CHANNEL STRUCTURE
• • •


Multi-tier structure Have LG Shoppes, cyber shoppes, SSDs, XCanvas Studios, direct dealers Also have a network of distributors and sub dealers About 10,000 stock and selling points spread across the country Different distribution strategies for its different product groups
• GSM mobile phones do not make use of CFA’s • CTV’s, microwaves and other like items require a CFA

LG CHANNEL STRUCTURE
• •

Primary manufacturing facility at Greater NOIDA Two other manufacturing facilities have come up in the region of Pune and Dehradun, keeping in mind the benefits of Excise free zones (EFZ’s) Procurement of supplies and materials for production is done by the purchase department

LG CHANNEL STRUCTURE

The annual forecasts are further disaggregated into forecasts that are carried out twice a month(15 days basis), on the basis of which inventories are maintained and further production levels are maintained
Most raw materials are bought from suppliers within India At the retail level, LG uses a combination of exclusive LG showrooms as well as Multi-brand outlets (MBO’s)

LG CHANNEL STRUCTURE

Consumers for LG include individual consumers as well as institutional clients
LG also indulges in e-retailing as an alternative channel through its website www.lgezbuy.com LG also has a separate channel for services and

spares

LG DISTRIBUTION NETWORK
SUPPLIERS SUPPLIERS SUPPLIERS

FACTORY (OEM)

FACTORY (OEM)

WAREHOUSE

WAREHOUSE

WAREHOUSE

CFA

CFA

CFA

CFA

CFA

CFA

DISTRIBUTOR

DISTRIBUTOR

DISTRIBUTOR

LG SHOPPE

DEALER

DEALER

DEALER

www.lgezbuy.com

INSTITUTIONS

CONSUMERS

CONSUMERS

CONSUMERS

CONSUMERS

LOGISTICS FLOW
CORPORATE LOGISTICS

TEAM HEAD

DISTRIBUTION AND PLANNING (FGs)

OPERATIONS AND TRAFFIC
TO DEAL WITH TRUCKERS & TRANSPORTERS

ZONAL HEADS FOR 2 ZONES (South & west, North & east)

PRODUCT WISE

BRANCH LOGISTICS INCHARGE

CFA’s & WAREHOUSES

LG CHANNEL PARTNERS

CFA’s
• The number of C/F agents as of 31st May, 2004 is 28. • They are spread across 20 states in India. • The company dispatches the goods to C/F on consignment basis. • At the same time, these C/F agents all work on contract basis. • They get paid as per the amount they stock.

DISTRIBUTORS
• The company appoints distributor for selective cities where the markets are small but require more focus and attention. Distributors are required to conduct sales and marketing on behalf of the company in these markets serving to all the required company stores. • The company sends goods to the distributor on out right sale basis. • It is the duty of the distributor to send his people into the field to book the orders and also execute them through their own delivery vehicles. • The distributor has to maintain his own sales, delivery and accounts people for smooth working of his unit and is served by the nearest C/F for all his requirements. • The distributor is given a margin of 10-20%

LG SUPPLY CHAIN MANAGEMENT ISSUES

Delivery Schedule
• takes 1 day for CFA’s to service reorder within their zones • distributor too caters to the demand in his area within 48 hours from the time of receiving the order • If goods have to be procured from the warehouse then it takes 8 days (avg) for the goods to arrive at the C/F or distributor and delivered to the stores. • no inventory management system in place with the MBO’s • ‘LG Shoppe’ and franchisee showrooms do have a system in place to consolidate their inventory and sales with the company main office

LG SUPPLY CHAIN MANAGEMENT ISSUES

Ordering
• The retailers order their requirements directly to the concerned distributors. • The distributors source the orders from the company warehouses, which are connected directly with each of the 43 branches. • The mother warehouse in Greater Noida caters to the needs of all the regional warehouses. • It is the responsibility of the C/F agents to supply to the distributors as per their requirements. • If any reorder do come in during the month then the regional warehouse that entertains them properly services them.

LG SUPPLY CHAIN MANAGEMENT ISSUES

Planning & Forecasting
• The company goes for annual forecasts on the basis of the previous year’s sales and also current trends. • These sales forecasts are then disaggregated into monthly sales plans. • The logistics and the production people meet every 15 days, and on the basis of sales as well as past inventory, they freeze production for the next 15 days. • In case the sales in the previous period have not been up to the mark, and the inventory levels are high, the production is halted and stock of the situation is taken.

LG SUPPLY CHAIN MANAGEMENT ISSUES

Manufacturing
• The company purchases nearly all its material requirements exclusively • separate import departments that look after the imports • Around 80% of all the models across the product line are manufactured at the manufacturing facility at Greater Noida • compressor plant in Noida

LG SUPPLY CHAIN MANAGEMENT ISSUES

Reverse Logistics
• The company accepts returns from their retailers as well as company owned stores • The job of bringing back the defects again rests with local distributor and C/F that collects them from the shop • They are entered and kept separately at the warehouse and proper stock is maintained and sent to warehouse • The damaged goods are dispatched to the warehouse periodically. The damaged goods received from the distributor are credited to his account and as such are only accepted after thorough examination by the local sale executive

LG SUPPLY CHAIN MANAGEMENT ISSUES

Direct marketing

• LG uses direct marketing strategies in the microwave oven product category, as the category hasn’t picked up in volumes in India as of yet. These are carried out through road shows, exhibitions etc.

CHANNEL CONFLICTS AND COOPERATION

The first type of channel conflict may arise because of the coexistence of the following: • LG owned exclusive outlets • MBOs (multi brand outlets) Another type of conflict could be a result of institutional sales being sourced by both: • The company itself • The dealers who want to meet targets Internal conflicts: • The branch managers, who look after all products in a particular region, and product group managers, who look after particular products, often monitor the same dealers in a region, thereby leading to conflicts.

ALTERNATE CHANELS: E RETAILING VENTURE

LGEZBUY.COM
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RECOMMENDATIONS

LG has a reasonable Distributions network in rural India, however since it has plans to expand in that segment, it must back it up with an even wider and more accessible network. Also, the human resources devoted in those regions need to be strategically chosen, keeping in mind the different mind set of not only the consumers but also the channel partners. Before going on an expansion spree in rural India, LG must feel the pulse of that market and understand exactly how the consumers in that segment think and behave.

…RECOMMENDATIONS CONTD…

Likewise, it must also have lots of incentives for its dealers and distributors in the rural markets since trade schemes tend to be highly effective in these regions. LG could also look at providing easy credit schemes for its rural customers. As of now, all after sales services of LG products are looked after by franchisees. The company tends to spend a lot of money on setting up a servicing infrastructure, training the staff, maintaining company representatives at the servicing premise etc. Therefore, LG could look at setting up company owned service centers. This would instill confidence in the customers and also create an after-market for LG products.

..RECOMMENDATIONS CONTD

LG should also try and shift its sourcing of materials and components from Indian suppliers, to cut costs. Only the high quality components should be imported from South Korea. The number of company owned exclusive LG outlets should be increased so as to provide greater flexibility, keeping an eye on the cons of this as well, such as channel conflicts, undercutting by dealers, costs etc.

To avoid unionization and cartel forming among transporters, LG must not give the contracts to a single transporter, but a number of them.

THANK YOU
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