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.

tubes and flaps are transported to these from factories. . The amount of safety stock in the system has also gone up. 2. Tyre retailers: These are usually multi-brand tyre dealers. 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. The Dealers are of three types 1. The CFAs pull the goods from RDCs according to demand.RDCs are the mother godowns for storage of goods. They also get a very good after sales service. Ceat has recently shifted from the DDC structure wherein it had 7 DDC’s to the RDC structure. The Dispatch challans are issued to the transporters. The customers get a range of tyres and advise about selecting the right tyre while purchasing from here. This is used mainly for passenger car and 2 wheeler tyre sales. Ceat Shoppe: Ceat shoppe is a retail outlet where only ceat tyres are sold. The tyres. They transfer the goods to the dealers and an invoice needs to be generated. They stock many brands of tyres for a particular segment of customers. however this structure is proving inefficient from the operating cost point of view. In some cases. Hence Ceat is about to shift back to the DDC structure over a one year period. The tube is inflated before transportation to RDCs. 3. These CFAs then distribute the goods to the dealers. the RDCs are required to supply the goods directly to the dealers and invoice them in the required format. CFAs are the smaller godowns which pull the goods from the RDCs. The set is formed at RDCs and strapped. They purchase tyres in bulk and often avail of the Turn over discounts. Trader Dealers: These dealers are used typically to ensure upcountry coverage where the company distribution network is absent. The inventory cost has shot up and availability has suffered. These can further be divided into Truck Dealers and Non-Truck dealers.

The Sales in the region are headed by the Regional Manager.Nashik & Bhandup Factory Tyre Sourcing Units Tubes/Flaps Sourcing Units DDC Nasik Tubes and Flaps Storage Assembly of Tyre. tube and flaps RDC RDC CFA CFA CFA CFA Dealer Dealer Dealer Dealer The region under each regional office is divided into sales territories that are handled by the territory leaders. cash. The territory leader caters to all the tyre dealers present in his sales territory. 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. Reviews with sales field staff. 4. . 2. 3. Handling of day to day work like administration. sales/stock operations/M IS &legal formalities. Controlling & administration of office. 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. The responsibilities of the RO include: 1. Review of commercial control.

Ceat also has appointed area managers in important upcountry areas.beed 5 B0081 SOLAPUR SOLAPUR 35. 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. Maintenance & Reconciliation of stocks & accounts.405. Territory code TL base C&F Market potn Districts covered 1 B0061 PUNE PUNE 92.403.200 Solapur.750 Aurangabad. Compiling of data received from the CFA.072.satra 3 B0063 AHMEDNAGAR AHMEDNAGAR 42.jalna.200 Ratnagiri To cover the upcountry sales.873.178.347. 6. 4 B0064 AURANGABAD AURANGABAD 30.449.650 Kohlapur 7 B0083 KARAD KOHLAPUR 16.5. apart from the trader dealers.800 Pune upcountry.Latur. Sales associates work under the area managers and are responsible for all the dealers in a given territory in the upcountry market. Attached below is a sample travel plan: .800 Pune local 2 B0062 PCMC PUNE 58.700 Ahmednagar. Attached below is an example of the division of the Pune Regional office into Territories which are assigned to the Territory leaders.Osmanabad 6 B0082 KOHLAPUR KOHLAPUR 35. The Territory leaders are given a travel plan which has been decided considering the best coverage and lowest cost and journey cycle. No.

TOUR CIRCUIT NAME OF THE FIELD STAFF: AREA: PUNE UPC TOUR CIRCUIT NO TOWNS DURATION TOTAL NO.OF DAYS A URLI KANCHAN DAUND Bigwan INDAPUR B PHALTAN MALEGAON LONAND SASWAD PATAN C CHIPLUN DAPOLI MOSHI D NIGDI BHOR DAHIVADI E URLI KANCHAN LONAVALA MANCHAR 1 2 2 2 3 6 3 2 6 2 2 4 2 Frequency Man Days 3 6 .

GRN (Goods Receipt Notice). Documents used for recording the information flow The major documents used for information flow are : 1. 4.it is primarily because the territories have been defined in the past which don’t cater to the needs of the present scenario 2. It is issued at the time of dispatch of tyres. 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. Transportation from Factory to RDC: a. As major dealers are in big towns with higher market potential. Delivery Challan (Called as Bilty in slang) – Delivery challan mentions the date and time at which the tyres left the factory. This entry corresponds to the IODC entry made at the RDC and denotes receipt of the tyres at the CFA. which is the next promotion. When the tyres are received at the RDC the concerned person signs the Delivery challan and one copy is sent back to the factory. this leads to them getting demotivated . 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. cost cutting while selling tyres is done. 3. 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. 2. Since SAP has been implemented this document is generated online. Sales from C&FA . 3. upon receipt at the CFA a DC entry is made into the SAP system. The productivity of sales fleet is the lowest for CEAT .This is a document that is generated by the RDC when the good are received. b. Delivery challan Entry – When the Tyres transported from the RDC to the CFA. It mentions the quantity of goods received.Total 24 Problems with existing structure: 1. Transportation from RDC to C&FA a. b. It is used to track the transfer of tyres from RDC to C&FA.

The minimum amount of SDS is 0.a. 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. calculated on daily balance basis and not on month end average. 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. b. Interest on Security Deposit (SDS) 1. The minimum amount of SDS is Rs. Dealer will not be eligible for SDS interest.00 Lac (one lac) for all dealers dealing in Truck/Non Truck/all other categories. The interest will start from the day. The dealer will be offered credit limit in the ratio of 1:1 to his security deposit. 5. CHANNEL MEMBER MANAGEMENT Monetary methods All dealers dealing with the Company will have to maintain Security Deposit with the Company. This means that. Credit Period & Collection Type Dealer of Credit Period Collection Local Cheque against delivery DD/Local Cheque Local 30 days Upcountry 33 days . on which dealer re-starts business with the Company.50 Lac (fifty thousand) for dealers not dealing in Truck/Specialty.1. 3. The Interest on SDS will be paid on actual deposit in company books. Hence a commercial invoice is generated. This invoice is signed by the dealer upon receipt of the tyres. Invoice – This is where the Tyre sales occur. at any point of time the total outstanding of the dealer cannot exceed the deposit amount.a is applicable to all set of active dealers irrespective of any condition barring the consistent business clause mentioned below. The SDS interest will be payable through Credit Note generated on a half yearly basis. 4. Base interest on Security Deposit @ 9% p. 2. Dealer will be entitled to SDS interest of 9% per annum. if not then the company deposits the cheque at the end of 30 days of credit.

The sales turnover for the TOD purpose shall not include the turnover of Claim. Credit period of dealer will start from the date of dispatch or 48 hours from the date on invoice. Penal interest will be recovered through debit notes on a monthly basis. 3. Base deposit for additional incentive on SDS is the deposit lying in the books of the Company as on 28/02/2007. will be divided by 6 for calculation of average deposit. TOD discount shall be calculated on the net taxable sales value (i. Sludge and Test Tires (TTF) . the invoice value after all discounts on the body of the invoice and before taxes) 3. This debit note amount will be automatically adjusted against credit balances on monthly basis. calculated on daily balance basis and not on month end average. There is no COD (Cash on Delivery) on any payments against all type of invoices. Month end SDS of six months. The sales turnover to be considered for eligibility of TOD in terms of rotation of SDS will be the final invoice value. Turnover Discount (TOD) Dealers will be eligible for TOD. 7. Additional incentive will be offered on actual SDS deposit lying in company books.5 rotations are required in each half to qualify for additional incentive. whichever is earlier. 9. 11. 1.75 times of the average deposit and upon increasing SDS over base deposit. 2. Penal interest will be charged at the rate of 39% per annum against all the payments. made beyond allowed credit period.a on SDS deposit based on the SDS growth and other criteria mentioned in Table A. 2. Additional incentive percentage mentioned in the Table A&B is on a per annum basis. Additional incentive will be offered on half yearly basis.e. Additional incentive will be paid on half yearly basis along with SDS interest. 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). subject to the following qualifications: 1. 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). dealer will become eligible for TOD and additional incentive as per Table A in this policy. On a minimum rotation of 2. 6. Thus minimum 5. 4. 10. Rotation for additional incentive on SDS will be calculated on 6 monthly basis. However TOD rotation will be calculated on quarterly basis only. 2. 8. 3. Dealer will be eligible for an additional incentive of 9% or 24% p.1. 5.

75 times of average Security Deposit is applicable on quarter to quarter basis.9. 5.5% 1. 7.75-2.a 9% p. Additional Incentive TOD on QTR. T/O ON SDS Deposit 24% p. as on the end date of the three months in a quarter.75 times of average Security deposit in a quarter. After 4. If sales turnover is >= 2.a 24% p.00 2.5 rotations 9. If there is no increase in SDS post 4. 8.2.99 >=3.99% Less than 0% >=3.5% 2. the average of the actual SDS at the closing date of every month in the quarter will be compared to the SDS base of 28th February 2007.a 9% p.75 rotations on average SDS in a quarter is required to qualify for TOD. The quarter will be April-June.SDS More than 10% More than 10% 0%. October-December and January-March. 11.75-2.4.5 rotations. SDS held by a dealer will be calculated as the average of actual SDS.5 rotations. TOD is payable up-to 4. July-September. no TOD will be allowable on the additional turnover over 4. 6. This is applicable to all dealers including new dealers and dealers with more than 12 l SDS deposit as on 28/2/2007.99% 0%-9. a. For the purpose of calculation of growth in SDS in a quarter. the average SDS needs to be increased for TOD to be eligible on additional turnover in excess of 4.5 rotation of average SDS deposit of the quarter for which TOD is being paid.0% 1.a NIL 2.07 QTR. b.5% . TOD will be payable through credit note generated on quarterly basis as per Table A given in this policy.00 of Avg.5% 2.00 2. Minimum 2. Additional Incentive and TOD Table Table A For Dealers with < 12 Lacs SDS as on 28/2/07 SDS growth on base Rotation deposit of 28. 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.5 rotations.99 >= 3. The base security deposit for TOD purpose will be the deposit showing in the company books as on 28th February 2007. 10. Thus. The minimum rotation of 2. This growth rate will be considered for TOD/Additional incentive on SDS eligibility.

75 NIL NIL NIL NIL Table B For dealers with 12> Lac SDS as on 28/2/07 SDS growth on base Rotation deposit of 28. 2.0% 1. 5.SDS More than 5% More than 5% 0%. proportionate rotation for this set of dealer will be on number of months.5% 1.75-2. Turnover and additional incentive of 9% p.99 above <2. subject to 3 rotations or proportionate rotations as the case maybe.5% 2. he has to do one rotation.2.07 QTR.5% NIL NIL New Dealer 1.a on SDS deposit.00 2. New dealer with an average SDS deposit of less than 5 Lac in the first quarter shall qualify for 2.99% Less than 0% Less than 0% Any of the condition >=3.a NIL NIL NIL 2.99 >= 3.00 2.a 9% p.5% 2. Calculation of average SDS base for new dealer will be the average of month-end deposits in a quarter.99 above <2. New dealer with an average SDS deposit of Rs. 4. For example. if a dealer is appointed in June then for Q1. All other qualification criteria applicable to existing dealers will be applicable to new dealers also. shall qualify for 2.75-2.5% TOD on Qtr.a 9% p. he .99 >=3. Additional Incentive TOD on QTR. 6.5% TOD on Qtr.a 24% p. Turnover and additional incentive of 24% p.00 2. T/O ON SDS Deposit 24% p.Less than 0% Any of the condition 2. subject to 3 rotations or proportionate rotations as the case maybe. In the first quarter. If he is appointed in May. in the first quarter of operation.99% 0%-4. the dealer has worked in the quarter of his appointment.a on SDS deposit.75-2.75-2.75 of Avg.4. 3. the SDS base will be the average deposit of the first quarter during which he is appointed. For new dealers appointed on or after 1st March 2007.5 Lac and more in the first quarter.

NIL 9% p. he will have to do 3 rotations in Q1. these set of dealers will be treated at par with existing dealer for TOD/Addl. SDS the Qtr. 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.00 >=3.00 <3. 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 From 2nd 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 SDS in Rotation of Avg.will have to do 2 rotations in Q1. .50*6= 9. for base and ATOD purpose will not include sale of Sludge.5% 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. If he is appointed in April. 7. in H1 the base will be 1. Incentive purpose.a. This means that if the average sale of the previous year is 1.00 <3. 8.5% NIL 2. T/O on SDS Deposits 24% p.00 lacs. Test and Claim tyres (TTF) This discount will be paid on half yearly basis. 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. NIL 2.50 lacs per month. Qtr. On this base the growth in H1 will be calculated for the ATOD purpose. Of appointment More than 5 lacs More than 5 Lacs Less than 5 lacs Less than 5 lacs >=3.00 Additional Incentive TOD on Qtr.a.

HO can re-activate all such accounts. H1 average would form the base in this case.e. In H2. where no transaction takes place for 60 days. New dealers appointed on or after 1/4/07 will be entitled for 1% ATOD without any target in H1. 2. If a VP visits that region he . They are invited to all tyre promotions.ATOD discount on non-truck value will be calculated on the net taxable value (i. 3. subject to availability of duly filled up dealer form along with required documents with company. Non-Monetary methods Platinum club: Ceat has formed a platinum club which consists of its top dealers. Their feedbacks are considered important for deciding the marketing strategies and for deciding the margins. multiplied by 6 for the H1 base.0% ATOD on Non-Truck Sales Value To New Dealers 1. New dealer appointed on or after 1/10/2007 will be entitled for 1% ATOD without any target in H2. Sludge and claim Tyres as defined in the in the policy policy >20% 1. the base of the dealer appointed in September. dinners and other events that happen in the region. shall have the target base on the number of months. one has worked with the company from the date of his appointment. incentives and discounts that are given to all the dealers nationwide. 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 Test. For example. System will automatically de-activate all such accounts. These dealers are given special importance. Any new appointment during 2006-07. he will be treated as existing dealer and all the qualification criteria applicable to existing dealer will be applicable for base and target. There are currently about 50 of India’s top dealers in this club. 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. Growth on this base will be required for ATOD as per table D. 2006 will be the monthly average non-truck off-take of 7 months.

00 – 20 tyres.20 size tyres but both these fall in the Truck tyre segment. E. . 5 lakhs. LCV Tyres Rs.00.g. 3 lakhs. These productwise targets are then summed up and this becomes the target for the regional manager to fulfill. These productwise targets are then divided among the different regions by the product managers in consultation with the regional managers of those regions. the targets for the platinum club dealers and Rhino gold club dealers and trader dealers are decided and given to them. The area managers will further divide their targets among the sales associates under them. Rhino Gold club: The Rhino Gold club of dealers is a toned down version of the platinum club. The quarterly targets are also decided at this time. The territory leader does not have a target for 9.00 – 20 and 200 tyres in 10. hence the target for the territory leader is in terms of the value of the tyres in the truck segment. The quarterly targets are also specified for the regional manager. 30 lakhs for the year. Thereafter the targets are on the total value in different customer segments.also visits the Dealers shop. Productwise sales targets are given only till the regional manager level. The potential of the region and the company’s position in the region and the past sales performances are considered while assigning these targets. Bus Tyres Rs. 10 lakhs.00-20 ir 10. These annual conclaves are held in foreign countries where the dealers are given fully paid trips. In Truck tyres if the target for the region is Rs. The regional manager receives a target of 100 tyres in 9. Once the regional manager receives these quarterly targets he divides it among the Territory leaders and Area managers. E. After the territory leaders get their targets.g. 5 lakhs and 3 wheelers Rs 5 lakhs then the total target for the regional manager is Rs. 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. 2 wheelers Rs 2 lakhs. passenger cars Rs. These targets are based on the prevailing market conditions and market potentials. Target Setting Mechanism Ceat follows a top down Target setting mechanism. There are currently 120 dealers in the Rhino gold club. The product managers for the Different sizes of tyres are given their targets for the year. These targets are decided in a meeting by the product managers and the VP’s and senior managers together. The last annual conclave was at Istanbul and lasted 3 days. 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. It is for the dealers who show promise but yet are not big enough to be accommodated in the Platinum club.

Also the best TL’s are assigned Sales trainees to be trained under them. Shortfall in sales and the reasons for the same are discussed and if needed the sales targets are revised. The performance of all the territory leaders is judged at this time. product managers and VP’s participate. This performance also counts in the ratings given in the Quarterly appraisal and are thus linked to the monetary compensation also. Identifying the common defects in tyres. Also a performer of the month is adjudged. The Ceat soppe being a single brand outlet is used for claim processing and after sales service too. FIELD FORCE MANAGEMENT Monetary methods Also Quarterly appraisal of the Territory leaders is done. Each segment is given a weightage say Truck 45%. The TL’s are given quarterly targets in the Truck. Target Setting Mechanism Target setting mechanism is the same as detailed above. They are also trained in the different tyres available for the passenger car segment and 2 wheeler segment. Commercial settlement matters. In each of this segment the TL is rated based on the sales figure achieved and the challenges faced in the same. Training and HR inputs provided to Channel Members No training or HR inputs are provided to the dealers except to the Ceat Shoppe. Monitoring Mechanism At the regional office level a monthly review is conducted before reporting the sales to the head office. Non-Monetary methods Every month one TL from each region is chosen to be the performer of the month. Given a customer’s requirement they should be able to suggest the right tyre to them. Bus 15% etc. Bus. 3-wheeler etc segments. Hence the Ceat shoppe personnel are trained in Claim procedure.Monitoring Mechanism Monthly sales data is reported by every Regional office. An MOR (Monthly operations review meeting) is conducted wherein the regional managers. . 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. Based on his total score his monetary incentives for the next quarter are decided.

A K Sood and Mahesh Gupta .Training and HR inputs provided to Channel Members Given below is the training program for the sales trainees.Plan for the future b)Plant Visit 1. 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 . The sales trainees undergo a probation period of one year after which they are confirmed as Territory leaders.Brief about company and job profile 2.Carrer path 3. Bhandup plant visit c) Commercial (2 days) Commercial Policy (Policy detailing the margins. a)Induction and Orientation( 1 day) 1.

Parts of the Tyre 4.Segmentation on load / operation 9.Service Failure – Manufacturing and Non-12.Our tyres vis a vis competition 10.Claim Policy 14.Different patterns of the Tyre 7.Entire range and salient features of our Tyres 8.Nomenclature of Tyres 2.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.Claim Procedure – CL1 to CL3 .Vehicle-wise Tyre Size 5.Manufacturing 13.Function of a Tyre 3.Brief on Manufacturing 6.Tyre Care and Maintenance 11.

Study of Fleet Working 3. Visibility Audits Responsilbility: Regional managers . Understanding of retraders and dealers Responsibility : Regional Managers Passenger Segment (2days) 1. Cost Per Kilometer 8. Understand key issues 3. Comparison of CEAT brands Vs benchmarks 7. In store visibility for all categories at MBDs 5. Route Planning 4. Fitment Survey 2. Truck Meets 5. Understand Sales and Stock Pattern 2. LCV Stand Meets 4.Follow up on Tyres in OE and FA Responsibility : Customer Service Managers Practical Understanding Customer Interface (3days) 1. Actual work on enhancing visibility 6.15. Understanding Selling Styles to customers 6.Claim Inspection 16.

Also Trucks are usually owned in fleets. Hence one cannot neglect the number of truck tyres sold through the dealers. THE ANALYTICAL FRAMEWORK For the Purpose of this part of the study we are limiting to the Truck Tyres segment. At the same time the number of small fleets and single trucks is also large. However this category of buyers does not require too much technical specs to be given and the purchasing is over the counter. For smaller tyres often LCV’s (Tempo’s) are used. hence all the transportation documents are generated on SAP. The same has been detailed in the documents used section. There are large fleets of 100 to 200 trucks owned by a single transport company which form major customers for any tyre manufacturer. The TL’s are required to know the right tyre for the right customer. Often sales orders are also obtained directly by these Territory Leaders instead of the customers buying through the Tyre Dealer. Tyres are transported by Train to Guwahati RDC which is the only RDC which is linked by train.TRANSPORTATION AND LOGISTICS Modes of Transportation till Dealer The Tyres are transported mostly by road from the Factory to the RDC. At times company’s Territory Leaders visit these transport companies directly and advise them on selection of the right tyres for their fleets. SAP BW (Business warehouse) module also generates the analytical report which give the dealerwise and regionwise sales reports. Also most of the dealers in this . Hence a good brand pull is essential in this segment. Hence the trade incentives. Usually trucks are used for the transport of these tyres. Truck tyres segment is the largest customer segment for any tyre company accounting for over 50% of the customers. However as of today Ceat does not have a very good brand pull. It is also required out of the TL’s to develop a relationship with the transport companies to obtain repeat sales. Use of Information Technology Ceat has recently shifted to SAP. This helps in availability of live information to all the regional and product managers for taking decisions at any time. training etc also matter. 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. RDC to CFA and from CFA to the 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.

Hence the number of intermediaries is not too high. Also they go into in-depth calculations of mileage.segment have been loyal to MRF brand for years. They would even have tried the different brands of tyres in the past. Moreover the tendency of retreading tyres in India brings the frequency of purchase down to once in 2 years or even 3 years. 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. Hence the number f intermediaries is not too high. Also before every monsoon the tyre companies go into aggressive advertising and conduct many vehicle check-up camps. 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. hence Ceat has had to approach the large fleets directly to obtain sales. Variable 6 Degree of Brand loyalty: The degree of brand loyalty in the Truck tyre segment is not too high. Infact first sales occur to the dealer and the offtake is taken from the dealer. Hence the intensity of transport in the last mile is not high. . Hence the field force is important. Hence the margins given to the channel members are important. This is the time when maximum number of customers could be convinced to purchase new tyres. The field force shuld be an expert at problem solving in these cases. 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. Variable 3 Frequency of purchase: Tyres have a life of atleast one year. This behavior totally avoids the need of a last mile transport. Also the customers are willing to travel some distance to buy tyres which is usually an annual or biennial purchase. Variable 5 Level of Familiarity/ Product knowledge: The truck fleet owners have a very high degree of product knowledge. 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. There are little or no secondary sales. Often the same truck has 4 different brand tyres on 4 different wheels. Another factor contributing to this is the tendency of bringing the vehicle to the shop and getting new tyres fitted on to it. profit etc before actually purchasing the tyres.

Also Dealers often have huge godowns in which they store a lot of tyres. Variable 13 Element of Risk Aversion: There is high amount of risk aversion for the Truck dealers in the Tyre purchase.Variable 7 Purchase on Impulse: Tyres are never purchased on impulse. Hence availability of tyres aong major highways becomes important. Variable 15 Time band associated with purchase: There is no time band associated with the purchase of tyres. Wrong tyres could lead to early wear-outs. Variable 14 Perishability: Tyres are not a perishable item and have a very high shelf life. Variable 12 Elements of Crisis Purchase exist: Tyres are crisis purchased only when there is a bad accident. Hence the speed of delivery is not a constraint. Variable 10 Speed and Complexity of decision making process: The decision making process though slow is pretty complex. Hence tyres companies often offer monetary/ non-monetary incentives to the influencers like free T-shirts. Variable 8 Level of Involvement: The level of involvement is high as the tyres affect the mileage and profitability of the Truck fleet directly. Variable 16 Fungibility: Tyres do not exhibit Fungibility. Variable 9 Purchased as a basket of goods: Tyres are not purchased as a basket of goods. 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. free watches etc. Hence the field force has to be technically competent and has to give the correct information to the customers. Hence the Channel member can unsell the brand. A delay of one or two days in the tyre delivery to dealer is acceptable. Thus the Dealers margins and their ROI becomes important. wall paintings at their shop. Also Ceat tyres are perceived to give very low number of retreads.

. Variable 20 Value/ Volume Ratio: This varies for the different sizes of tyres. Tyre is a standard product which is supplied across the country.Variable 17 Importance of Search costs: Truck fleet owners indulge in a lot of search before buying the tyres. Due to these reasons the usage of IT in information search is low. They are asked to use a particular tyre to ensure better grip and lesser accidents. Variable 18 Degree of customization possible: Tyres are not customized. earth movers. Typically the 2 and 3 wheelers have a low value/ volume ratio. Also they are used to company TL’s visiting them and providing information. Variable 19 Negative/ Positive Reinforcements: Tyres usually use negative reinforcement. tractors etc.). Custmers are asked to replace a tyre lest they have an accident. The largest value/ volume ratio is for Off the Road tyres (ones used for mining equipment. Transport cost is critical in these. However most of the tyre dealers do not have computers or internet connections.

23 259.59 200.41) 99.29 (36.THE FINANCIAL ASPECT Financial Data of MRF 2007 Gross Sales/Income from Operations (including Export Incentives) Less: Excise Duty Net Sales/Income from Operations Other income Total income Total Expenditure a) (Increase/Decrease in stock in trade and work in progress) b) Consumption of raw materials c) Purchase of traded goods d) Staff cost e) Depreciation f) Other Expenditure Total Interest Exceptional Income Profit before tax Provision for Tax Net Profit after tax (63.49 89.24 145.35 20.34 3751.72 4433.20 4413.11 170.23 154.04 4124.96 16.29 10.46 3738.06 509.03 743.34 49.30 .54 2006 4248.34 19.64 3033.93 240.41 630.95 12.85) 5043.06 49.70 6.73 667.16 3639.05 79.38 2608.

81 114.82 0 1163.01 1787.73 57.94 0 1691.58 21.33 -16.5 109.1 122.55 1307.45 0 156.06 0 95.23 77.87 287.28 0 1359.51 10.63 -20.54 48.94 17.63 22.29 944.47 12.59 1430.44 73.97 1505.59 22.32 0 1471.26 86.86 22.7 PBDIT Interest PBDT Depreciation Other Written Off 143.45 72.12 94.24 115.01 240.06 0 .42 1246.78 -7.44 0 1993.33 31.33 118.05 1230.74 1431.79 16.79 54.09 Mar '04 Mar '05 Mar '06 Mar '07 1672.18 22.53 275.78 1495.53 2139.37 201.59 70.99 1499.72 73 128.68 62.64 17.79 1523.6 60.49 2150.48 43.08 2.87 59.85 1061.27 28.1 171.1 0 52.22 72.72 8.16 86.06 33.25 257.87 1958.26 80.57 1753.33 -29.68 14.08 204.63 1787 2397.Financial Data of CEAT Mar '03 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 791.84 0 70.89 65.88 31.17 22.05 157.69 157.

92 21. Even with respect to market spend per unit of sales. Lower brand pull of Ceat results in the following: Ceat has to give higher margins to its dealers. Lower brand pull also translates into higher selling expenses for Ceat. 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.27 60.14 5. Hence the employee cost/sales is high.41 -38.9 18.74 2.49 22.7 0.085 which is significantly higher than MRF. .1 This shows that MRF has a better brand pull than Ceat.Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit 26.5% or more.52 55. Ceat is currently in a growth phase wherein it is looking at aggressively expanding its sales. Also the number of promotions. Hence the salaries at MRF are comparatively low.33 10. Typically MRF gives 1% Turnover discount to the dealers while Ceat gives 2.87 0.21 4. The amount of BTL advertising required for Ceat is significantly higher.69 -38.59 29.03054 As we can seen from the ratio figure above.55 -1 -1.06 -42.67 39. demonstrations and service camps that Ceat has to conduct is significantly higher.07 5. In comparison MRF is already the market leader.27 5. 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. the employee cost/sales of Ceat is higher than that of MRF by approximately 75%.05349 MRF 0.24 3.16 14. Hence the employee cost/sales is low.22 8. Hence Ceat is in need of talent and wants to retain its existing talent. Ceat spends more than MRF.25 Comparison Ceat Employee Cost/Sales 0. The selling expenses per unit sales for Ceat are about 0.65 60.

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