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Distribution is one of the four elements of the marketing mix, the other three being product, pricing and promotion. This marketing mix is also referred to as the four Ps of marketing; distribution is here called physical distribution or place. Simply put, distribution is the process of delivering the products manufactured or service provided by a firm to the end user. Various intermediaries are involved in this process. This chain of intermediaries which helps in transferring the product from one intermediary to the next before it reaches the end user is called the Distribution Chain or Distribution Channel. Each intermediary has a specific role and need which the marketer caters to. Distribution channels are not limited to products only even the services provided by a producer may pass through this channel and reach the customer. Both direct and indirect channels come into use in this case. For instance, the hotel industry provides facility for lodging to its customers, which is a non-physical commodity or a service. The hotel may provide rooms on direct booking as well as through indirect channels like tour operators, travel agents, airlines etc. Distribution chain has seen several improvements in the form of franchising. Also there has been link ups between two service sectors like travel and tourism which has made services available more accessible to the customer. For instance hotels also provide cars on rent. FUNCTIONS OF A DISTRIBUTION CHANNEL
The primary function of a distribution channel is to bridge the gap between production and consumption. A close study of the market is extremely essential. A sound marketing plan depends upon thorough market study.
The distribution channel is also responsible for promoting the product. Awareness regarding products and other offers should be created among the consumers. Creating contacts or prospective buyers and maintaining liaison with existing ones. Understanding the customer's needs and adjusting the offer accordingly. Negotiate price and other offers related to the product as per the customer demand. Storage and distribution of goods Catering to the financial requirements for the smooth working of the distribution chain. Risk taking for example by stock holding
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Three Levels of the Distribution Channel
Retailer buys products from manufacturers. In level (2) one intermediary or retailer is used. they market their services directly to their customers without taking the help of any retail intermediary (travel agent). .In level (1) there are no intermediaries involved. Various hotels prefer direct-marketing. the manufacturer is selling directly to the customer. Levels (2) and (3) are examples of 'indirect-marketing' channels. He sells these products in smaller quantities to retailers. He is the wholesaler. A Retailer sells goods/services directly to the end users. A wholesaler buys and stores products in bulk from manufacturers. Examples of direct marketing channel can be seen at factory outlet stores. In level (3) along with retailer a second member is added to the distribution chain. This is called the ‘direct-marketing' channel.
Why should a producer not indulge in selling his product directly to the consumer? The reason is that the intermediaries manage the distribution costs efficiently. vending machines. more sales) with the cost incurred in achieving the profit. hotels and more. LEVEL OF DISTRIBUTION COVERAGE A marketer needs to consider various factors before he decides upon the right level of distribution coverage. A part of this cost is covered by the customer for instance shipping costs but the rest cannot be passed on to the customer. Selective Coverage . Mass coverage is suitable for low priced products with huge consumer demand. An example of such a product is Coca Cola. grocery stores. The product is available at all kind of stores. Their scale of operation is large as compared to the manufacturer alone which means the scale of sales reached would be higher. There are three levels of distribution coverage: 1. As the name suggests in this level of distribution coverage the product is distributed to nearly all the locations where that type of product is sold. The distribution cost for such products is very high however huge sales volume keeps the profits running high for the marketer. While there are various organizations which operate their own distribution channel or do not take any help from channel members. Mass Coverage Mass coverage is also known as intensive distribution. The marketer can determine the right level of distribution by comparing the profit made (example. It is well understood that distribution always increases company costs. there are others who are in need of some level of channel partnership. They are experienced and have potential contacts which add to their productiveness. 2. convenience stores.
These may not be high-end products or very expensive but since they are found only in select outlets they are distributed exclusively. ISSUES IN ESTABLISHING DISTRIBUTION CHANNELS A manufacturer must conduct a thorough market research before deciding upon the distributive method he wants to employ.cars) Efficient and well-trained customer service is essential for satisfying and helping such customers. These products are more than often purchased by customers who satisfy most of their needs with high quality. With the advent of internet the effectiveness of these three levels of distribution coverage has been severely challenged. Therefore these three distribution levels are best options for distribution of products that are physically purchased by a customer. Exclusive Coverage Exclusive coverage is ideal for products that target relatively smaller markets. expensive products (example. 3. Factors can be either related to marketing decisions which . Like all marketing decisions this too requires lot of thought and study. for instance high-end products have small customer size. Another kind of product which gets exclusive coverage is the one found only in company owned outlets. These factors can be grouped into two.In selective coverage the product distribution is limited to certain selected locations. This is the case with products with a smaller market size. There are various factors which determine his choice of a distribution system. This is so because all products sold on internet are distributed by mass coverage. Due to these characteristics of the product as well as its buyers the marketer sells his products at select stores or exclusive group of resellers. As the market size is small the number of locations needed to support the distribution of the product is also smaller.
Product Issues The nature of the product often determines the distribution option. Channel Relationship Issues MARKETING DECISION ISSUES Various marketing decisions regarding the product help in establishing its distribution channel. Here the marketer will choose an appropriate channel on the other hand a marketer selling tough or durable products like steel beams will have other kinds of distribution channels in mind. Marketing Decision Issues 2. Promotional Issues Apart from issues like whether a product needs special handling or not the marketer also needs to keep in mind how the product needs to be promoted before he chooses a distribution channel for it. Pricing Issues The price at which the marketer wants to sell his product is another factor to be kept in mind before choosing a distribution system. 1. B. The . For instance the following factors: A. C. Various products which need to be distributed are very delicate and fragile for instance flowers.determine a distribution channel or the kind of relationship that exists between channel members. On the other hand a product like bread will need a different distribution channel as its buyers require no help from salesmen. Certain products need extensive salesperson-to-customer contact for instance automobile purchase.
D. Channel Power A distribution channel usually has several members. This phenomenon is known as channel power. Distribution coverage is measured in terms of the intensity by which the product is made available to the end user. In such a situation they start demanding for terms and conditions more favorable to them.number of resellers involved in the distribution channel affects the final price of the product. . Among these members some may hold a stronger position than the others. Therefore more the number of channel members the marketer has to increase the product price to maintain his profit and the distribution channel. each having a set of duties to perform and each add on to the value of the product. Target Market Issues The primary motive of utilizing a distribution channel is to ensure the products reach the end user. In this regard it is beneficial to determine the distribution coverage needed effectively customerâ€™s needs. Relationship issues can be broadly studied under the following three heads: A. The nature of the target market is another level of important point to consider while to deciding upon the meet distribution channel. This is so because each channel member tries to make some profit for their contribution to the sale of the product. This member/s tries to influence the rest of the distribution chain. CHANNEL RELATIONSHIP ISSUES Apart from marketing decisions the marketer must consider the quality of relationship that exists between distribution channel members. Relationship between channel members just like marketing decisions has the potential to effect product sales.
Channel power can be exerted in the following ways: • Backend or Product Power Backend or product power usually lies in the hand of manufacturers whose products enjoy high consumer demand. Or would demand other members for instance to do more marketing to customers etc. The rest of the channel members have to carry forward the product in the chain or else they are at the risk of losing their customers. DISTRIBUTION CHANNEL ARRANGEMENTS A distribution channel is made up of various channel members like retailers and wholesalers. • Middle or Wholesale Power Here the power lies in the hands of the wholesaler who is in the commanding position in the distribution chain. will sell only if the prices are higher. For a smooth working of this channel the relationship between the members must be strong. This state is reached when the retailer generates a high percentage of sales and therefore the rest of the channel members are dependent on them. Often a wholesaler distributes products among several smaller retailers and he himself obtains products from various manufacturers. • Front or Retail Power Front or retail power as the name suggests stays in the hands of the retailers. they would buy more products only if the prices are lowered.Like. The small retailers cannot buy products in bulk or variety because of cost constraints therefore is dependent on the wholesaler who can exert channel power in this situation. . Trust and understanding between the members go a long way into successful working of the chain.
Similarly the wholesaler expects the retailer to buy products on a regular basis and make payments on time. There is no binding or unity in the group as each member functions selfishly.A retailer often buys products from a wholesaler and expects him to deliver products on time so that the retailer can meet the consumer demands. Independent Channel Arrangements 2. They form a more stable distribution channel. There is more unity. Channel arrangements are of two types: 1. Relationship between channel members is a function of the arrangement that occurs between the channel members. In this system a single member cannot make changes in the way the product is distributed in the channel. As a result the chain suffers as a whole as its objectives are not achieved. This form of arrangement is also called the "vertical marketing system". Dependent Channel Arrangements In this kind of arrangement the channel members feel they are bound together and working together towards a similar goal. Dependent channel arrangements Independent Channel Arrangements In this kind of arrangement the channel members prioritize their own objectives and are not concerned about the chain as a whole. The members in this kind of arrangement enjoy the freedom of moving away from a relationship they feel is not advantageous. . It is a more conventional form of arrangement where the members are free to take decisions which are in their own interest.
Starbucks sells coffee by first importing it. 3. c. 2. It should be mentioned that Starbucks uses a multi-channel approach to market its product. Contractual In this kind of arrangement the supplier provides a legal document to his distributors who are supposed to stick to its contents. This arrangement is commonly seen in the retail industry. This arrangement can be a. Retail-sponsored: here again several independent retail stores come together but the retailers are themselves responsible for managing the channel. Administrative . For instance coffee is also distributed through grocery stores and mail orders. For instance Starbucks operates a chain of retail stores. Corporate In this form of arrangement the supplier maintains his own distribution channel. Wholesaler-sponsored: where a wholesaler brings together and is responsible for the working of several independent retail stores. The legal document clearly mentions which member of the chain is permitted to perform what and what not. It is then processed by them and sold under their brand name in their retail stores. Franchised: In this arrangement there exists a central organization which is responsible for controlling the activities of all channel members. b.The dependent channel arrangement can be further divided into three categories: 1. The retailers here are supposed to use the same name as well.
These benefits can be the following: • Cost Saving The members of distribution channel are specialized in what they do and perform at much lower costs than companies trying to run the entire distribution channel all by itself. The store may not have enough space for storing all their products and this would add to the chaos. time of delivery is also reduced due to efficiency and experience of the channel members. availability etc which are directly influenced by channel members. • Time Saving Along with costs. If a grocery wholesaler is included in the distribution chain then the problem is almost solved. Similarly. For example if a grocery store were to receive direct delivery of goods from every manufacturer the result would have been a chaos. This is possible when a single channel member attains a very powerful position.In this arrangement a single member controls the activities of all channel members. a marketer too while choosing his distribution members must access what value is this member adding to the product. Factors like its delivery. This channel member may be the manufacturer who has attained this position as his products are enjoying high consumer demand. Everyday hundreds of trucks would line up outside the store to deliver products. He must compare the benefits received to the amount paid for using the services of this intermediary. ADVANTAGES OF A DISTRIBUTION CHANNEL When a customer is considering buying a product he tries to access its value by looking at various factors which surround it. Or it may be the retailer because of his size and market coverage. This wholesaler will have a warehouse .
In this way cost as well as time is saved. The grocery store now receives deliveries from the wholesaler in amounts required and at a suitable time and often in a single truck. If every manufacturer owned its own grocery store then customers would have to visit multiple grocery stores to complete their shopping list. They often . • Customer Convenience Including members in the distribution chain provides customer with a lot of convenience in their shopping. This would be extremely timeconsuming as well as taxing for the customer.where he can store bulk shipments. which means they purchase from many suppliers the various goods that a customer may demand. This is more cost effective than buying in small quantities. • Resellers help in boosting sales Resellers often use persuasive techniques to persuade customers into buying a product thereby increasing sales for that product. Secondly. The customers therefore have the benefit of buying in smaller quantities and they also get a share of the profit the retailer makes when he buys in bulk from the supplier. However they resell in smaller quantities to their customers. channel distribution is time saving as the customers can find all that they need in one retail store and the retailer • Customers can buy in small quantities Retailers buy in bulk quantities from the manufacturer or wholesaler. Thus channel distribution provides accumulating and assorting services. This phenomenon of breaking bulk quantities and selling them in smaller quantities is known as bulk breaking.
buy using a payment plan etc. Direct Distribution Systems In direct distribution system the marketer reaches the target consumer directly without the use of any intermediary. The distribution chain is small and no other party can take ownership of the product being distributed. The direct distribution system can be further sub-divided on the basis of the methods of communication that takes place during sale between marketer and consumer. • Customers receive financial support Resellers offer financial programs to their customers which makes payment easier for the customer. These methods are: issues). DISTRIBUTION SYSTEMS Before settling for a distribution system the marketer has too keep in mind various factors affecting distribution system (like marketing decision and relationship distribution system: 1. The following distribution designs are available to the marketer for his . High-level channel members often provide sales data. • Resellers provide valuable information Manufacturers who include resellers for selling their products rely on them to provide information which will help in improving the product or in increasing its sale. On all other occasions the manufacturer can always rely on the reseller to provide him with customer feedback. Customers can buy on credit.make use of various promotional offers and special product displays to entice customers into buying certain products.
• Direct Retail System In this type of system the marketer operates his own retail stores. This order may not be handled by the salesperson but through websites or toll-free telephone numbers. • Assisted Marketing System In this form of distribution system the marketer handles the distribution of his product and helps it reach directly to the end user. An example of assisted marketing system is e-bay.• Direct Marketing Systems In this system the consumer buys the product based on information gained from impersonal contact with the marketer like by visiting the marketer's website or ordering from the marketer's catalog. here the buyers and sellers are brought together for a fee. Agents and brokers can also be included in this category. Or he buys based on information gathered through some personal communication with a customer service personnel who is not a salesperson and can be reached through a toll-free number. He persuades the buyers into placing an order. . A perfect example of this system is Starbucks. However he needs assistance from others to spread awareness about his product among the customers. The sales person plays a vital role here in generating sales. • Personal Selling Systems In this system the distribution of the product is carried forward by people whose main responsibility is creating and managing sales (for instance a salesperson).
In this case the distribution system is also referred to as trade selling system. Indirect methods include the following: • Single-Party Selling System In this system the marketer involves another party to sell and distribute his product to the end user. However the reseller may sell products on a consignment basis wherein the reseller pays for the product only when the product is sold. This is most likely to happen when a wholesaler buys the product from the manufacturer and then sells it to the retailer. These resellers make sure the product reaches the end user. • Multiple-Party Selling System In multiple-party selling system the distributor involves two or more reseller in the distribution process before the product reaches the end user. Indirect Distribution System In indirect distribution system the marketer includes intermediaries or other members in his distribution chain. 3. An example of single-party selling can be when the product is sold through large store-based retail chains or through online retailers. Multi-Channel (Hybrid) Distribution System . The resellers may be expected to take up a few responsibilities to help boost the sales of the product. while performing their duties they take complete ownership of the product.2.
It uses a direct retail system when it sells its products in company-owned stores. (1) Directly imported from the overseas manufacturers (official import) (2) Imported through overseas dealers (parallel import). ISSUES: Criteria in selecting channel members. . but parallel import is for both new and used cars. The possible disadvantage again is channel conflict of which the marketer should always be cautious. Multi-Channel distribution system is advantageous as it expands the distribution system and more customers can be reached. As we have studied earlier in the example of Starbucks.A marketer is said to be using a multi-channel or hybrid distribution system when he utilizes more than one distribution design. it would not be cost effective for Procter & Gamble and Wal-Mart to involve a third party to move their merchandise—Wal-Mart has been able to develop. the most important consideration whether to include a potential channel member is the cost at which he or she can perform the required functions at the needed level of service. The official import is only for new cars. Typically. it will be much less expensive for a specialty foods manufacturer to have a wholesaler get its products to the retailer. multiple distribution designs are put to use in the distribution of its product. a more efficient distribution system. For example. based on its information systems and huge demand volumes. a direct marketing system by selling via direct mail and single party selling system is put to use when its products are sold through grocery stores. On the other hand. Apart from these other distribution systems are also put to use. Imported cars Vehicles are either.
Evaluating Channel Performance. Finally. (2) presenting the merchandise as being slightly irregular. changes in technology or in the market place may make it worthwhile to shift certain functions to another channel member (e. and it is simply not efficient for Colgate to sell directly to pathetic little "mom and pop" neighborhood stores. the extent to which compensation is awarded in proportion to performance should be reassessed . Thus..g. Most manufacturers find it useful to go through at least one wholesaler in order to reach the retailer. performance level (service outputs) and costs should be evaluated. Thus. It may be possible to minimize this contract by precautions such as (1) having outlet stores located in vacation areas not within easy access of most people. a distributor has expanded its coverage into another region or may have gained or lost access to certain retail chains). we have a "parallel" distribution network whereby some retailers buy through a distributor and others do not. in practice be able to live up to promises. However. Further. However. large retail chains such as K-Mart and Ralph’s buy toothpaste and other Colgate products in such large volumes that it may be efficient to sell directly to those chains. Note that we may also be tempted to add a direct channel— e. many clothing manufacturers have factory outlet stores. Parallel Distribution. to pick up products into an existing channel.g. and/or (3) emphasizing discontinued brands and merchandise not sold in regular stores.. (This can be either because of complacency or because the channel member simply did not realize the skills and resources needed to perform to standards). note that the full service retailers will likely object to being "undercut" in this manner and may decide to drop or give less emphasis to the brand. The performance of channel members should be periodically monitored—a channel member may have looked attractive earlier but may not.A manufacturer enlists another manufacturer that already has a channel to a desired customer base.
Compaq threatened by Dell Is it compatible with my business model e. Dell in China these internal considerations have a bearing on type of channel Legal Considerations • a manufacturer cannot insist that they sell their own products only (unless in case of a franchisee) • a manufacturer cannot tie the sale of certain goods to certain others • “you buy 100 crates of Vanilla Coke. a distributor that ends up holding inventory longer or taking on more returns may need additional compensation.g. IBM.—e. if you want 500 crates of Coke” • I am sure. high volume company will have many channel members • a high profit margin.g. that this is happening • Cost and Profit Considerations • a low profit margin. though.. Internal Considerations • do I have enough money to add another channel member ? • is it compatible with my other businesses ? • will any change cause more problems than solutions ? • for example. low volume member will have only a few members Channel Conflict • This is defined as tension/clashes between channel members as a result of perceived unfairness .
2008). a little conflict is good • manufacturers must be fair Case 1 TATA NANO Profile: Tata Motors Limited is India’s largest automobile company. the need for an innovation like Nano has got to do something for the people of India and transport. Thus. According to Ratan Naval Tata (Chairman of Tata Group). with this in mind Tata Nano was created as a safer form of transport. In March 2008.48 crores (USD 8. It is the leader in commercial vehicles in each segment. father driving with elder child standing in front and wife behind holding a baby is norm in this country. . partisanship etc • conflict can be potentially dangerous and can snowball • McDonald’s franchisees for instance. Tata Motors acquired Ford’s UK based car brands Jaguar and Land Rover (BBC News. Unavailability and poor quality of mass transport is a common problem in India.35651. In a two wheeler. and among the top three in passenger vehicles with winning products in the compact.• vertical conflict arises when there is a clash of interests between members at 2 different levels (like wholesaler and retailer) • horizontal conflict is between members at the same level Retailer A Vs. if care is not taken. The company is the world’s fourth largest truck manufacturer. this is a relatively an unsafe mode of transporting a family. Retailer B • conflict can be caused by unfair manufacturer policies. and the world’s second largest bus manufacturer. the grumbles might become a roar • however. Thus. midsize car and utility vehicle segments.8 billion) in 2007-08. a few “rotten” apples. with revenues of Rs.
Distribution review Just like in India. 30 sales offices will be opened throughout Malaysia. By this way we can save more cost and maintain the cheapest purchasing price rather than through retailers or resellers. send to the customers directly. From here. Finally. Selangor and Pasir Gudang. Tata Nano will be introduced in Malaysia. we will assemble a car at the workshop. Customers can deal directly with our dealers and make the booking for Tata Nano by visit our sales office or at any special event/campaign. Tata Nano will be positioned as an affordable car even in overseas markets. we can often provide faster delivery to customers because we are closer to the customers. . After that. It will be then redistributed to showrooms that will be set up based on region. ‘Easy-to-assemble kits’ will be imported from Tata in India.As one of its objectives is to become an Indian business conglomerate operating in many countries. can know that Tata Nano will send the paths to the Malaysia after received the order from the sales office. The proposed locations are Shah Alam. Johor Bahru. The car then will be assembled at pre-defined locations. Physical flow: From the diagram. Direct marketing channel (zero-level channel) We perform the Tata Nano in Malaysia by selling it directly to customers.
Fiat has produced more than 85 million passenger cars and light commercial vehicles. Tata Motor also can collect the payment more efficient. Italy. Case 2 TATA – FIAT Profile About Fiat One of the pioneer companies in the automobile industry. and comfort. economy. Tata Motor can more understanding customer's needs when receiving customers. when the company was founded in Turin.Payment flow: Customers can pay bills by cash or do the financing from bank. and innovation and whose mass produced cars are distributed over almost the entire price class spectrum. Lancia (acquired in 1969) means prestige cars noted for their elegant styling. The Fiat Group’s Automobiles Sector operates world-wide with the following brands: Fiat. price development and so on. celebrated for value. If customers have any need or complaint. we can satisfy them immediately by deal with customers directly. response calls and mailings or through internet blog. Information flow: Customers can get the information directly from Tata Motor such as new product. Some of them have represented milestones in the automotive industry. since 1899. Alfa Romeo (acquired in 1986) is famous as a . including no less than 400 models. Customers pay less by this diagram due to not need to pay extra commission to third party such as wholesalers or retailers.
well renowned for unsurpassed design. along with service and sales of spare parts. is focused on the premium end of the B & C category in the growing automobile sector.Fiat Dealer Network Tata Motors and Fiat India Private Limited today announced the commencement of the new Tata-Fiat dealer network to sell both Tata and Fiat branded cars.7 billion. with revenues of US$ 4. Africa. safety.4 litres by the Jury of the “International Engine of the Year” award. Tata.K. The company has manufacturing operations in South Korea and Spain. South East Asia.maker of sport and luxury vehicles of style and distinction. in 11 cities across India. the Middle East. is a legendary automobile that imparts special cachet to its owner. The company is a market leader in commercial vehicles in India and is the second largest passenger car company in the domestic market. and a Technical Centre in the U. Fiat’s superiority in design and technology has been re-emphasized from the fact that its 1. engine and performance. performance. the 28 . Fiat Adventure Sport is the latest offering targeted at the new generation of customers who enthusiastically seek out the latest trends in style. Fiat India Private Limited. About Tata Motors Tata Motors is India’s largest automobile company. The Tata-Fiat dealer network comprises 25 existing Tata Motors Passenger Vehicles dealers and 3 existing Fiat India dealers. Tata Motors vehicles are being marketed in several countries in Europe. Starting today. South Asia and Australia. and luxury. Ferrari (acquired in 1969). with its renewed brand strategy for the Indian market. Maserati (acquired in 1992) represents a landmark in the history of the automobile.3-multi jet has been chosen as the “Engine of the Year 2005” in the 1 to 1. It is the world’s fifth largest medium and heavy commercial vehicle manufacturer.
Pune. 1.65 lakhs. 1. 2006. Managing Director of Fiat India Private Limited. The after sales support that comes with the Tata trust will complement this.8 lakhs onwards (all prices ex-showroom Delhi). The 28 Tata-Fiat dealers. after sales support and more convenience to Fiat customers. announced by the Fiat Group and Tata Motors on January 13. The execution of the distribution arrangement is the first initiative post the signature of the Memorandum of Understanding signed between the Fiat Group and Tata Motors in September 2005. Chandigarh. the Tata Indigo. The 1.6 Sports) and the Fiat Adventure (1. and Fiat is confident of serving its customers . Mr.2 ELX. Kochi and Kolkata. Ludhiana. The Fiat Palio range will now be available from an attractive price of Rs. Discussions are on to explore other areas of cooperation. Rajiv Dube. the Tata Indigo Marina. Between the Tata and Fiat brands. “The coming together of Tata and Fiat through the dealer network sharing signifies better service.6 Sports). Vice-President (Manufacturing & Commercial – Passenger Cars Business Unit). are located in 11 cities – Mumbai. the Tata Sumo and the Tata Safari. on which specific announcements can be expected once their feasibility is established. said. Sr. “Tata Motors is delighted to be partnering Fiat India in bringing a larger portfolio of products under a single roof at our joint dealerships. said.” Mr. Giovanni de Filippis. NCR Delhi.3. and all Tata Motors Passenger Vehicles – the Tata Indica.2 EL PS. Our customers have always been delighted with the superior build quality of our cars. Ahmedabad. to cooperate on dealer network sharing. Hyderabad.6 litre Adventure Sports is now available at a new uniform price across the country at Rs.5. who together have 44 outlets. Chennai. Tata Motors. The beginning of operations of the Tata-Fiat dealer network follows the agreement. Bangalore. Commenting on the commencement of the Tata-Fiat dealer network.Tata-Fiat dealers will sell the Fiat Palio (1. the company is in a position to offer one of the widest product offerings in the Indian market with the promise of several exciting options to come.
S. and “sticking” accelerator pedals. Ind. however. 21 recall. Case 3 Toyota calls back cars It began with two separate issues – floor mats that interfere with the accelerator.) More recently. And that doesn’t even allow for the long-term effects from this blow to Toyota’s carefully burnished image. Elkhart.-based CTS Corp. There’s an extra twist to this story. So much for the fundamentals of crisis management.000 Prius and Lexus models worldwide for a braking problem which stems from the software that runs the control system. we’ve witnessed the recall of nearly 500. causing the car to speed up or the pedal to return too slowly to the idle position.” Existing Fiat dealers will continue to retail the full range of Fiat offerings.better. The discovery has caused Toyota to issue a recall on more than 7 million cars. Industry experts are always telling companies about the importance of focusing on major suppliers. (Toyota didn’t move fast enough on the recalls for public taste. including the Fiat Petra. D&B’s Lawton quotes an estimate by investment banker UBS that the event will cost the company $155m a week to fix. But automotive business reportedly accounts for less than a third of the . the combined effect of those flaws could be devastating enough to the world’s number-one automaker. including models of the popular RAV4.000 units for both January and February. is the maker of the pedal assemblies that prompted the Jan. It has been suggested that the company was forced into initiating the action by the U. Camry. government. Corolla. Assuming Toyota isn’t sitting on more bad news. Yet the smaller ones can cause the biggest headaches. IHS says Toyota is likely to lose sales of some 10. Highlander and Sequoia.
And Toyota contributes about 3 percent of that.company’s sales. Are your vendors working with liens against them? Have they been charged with violations of environmental or worker-safety laws? Are there issues related to their financial stability? Buyers and suppliers “need to create an environment from a technology perspective where it’s easy and costeffective to share information.” Lawton says.” It went on to say that the two are “actively working” to develop a new pedal that meets tougher specifications. but important” customer. the boilerplate “Safe Harbor” language tacked on to the end of the CTS press release is longer than the statement itself. Maybe the screwup can be fixed before the public finds out. The lapse is hardly rare. when partners in the chain pare back resources to an absolute minimum. top executives might reason. According to a report by the CFO Executive Board .) Was it CTS’s fault? In a rather chilly statement on Jan. The issue becomes even more critical in tough economic times. But the failure to act quickly and decisively often does more damage than the original flaw. Do the words “Ford” and “Firestone” ring a bell? Lawton says it’s vital that companies review their suppliers on a regular basis. The price of failure is high. In fact. there appears to have been too little communication between Toyota and CTS. And that’s about it. Lawton says there are numerous “natural barriers” in any corporate environment that prevent businesses from discovering and coming clean about product defects. (CTS calls Toyota “a small. 27. to flush out problems related to financial condition or product quality. the company stated that its products “have been manufactured to Toyota’s design specifications. Regardless of where the blame ultimately falls. Or perhaps we’d better run it by Legal first.
executiveboard. but “sorry” by itself doesn’t cut it. 7-percent decline in sales growth and 35-percent plunge in shareholder returns. Says Lawton: “The clock is ticking.aspx). costs continue to mount. 5 news conference (although observers have been debating the depth of his bow). Typical results include an 11-percent increase in costs. the number of supply disruptions has been on the rise.(https://cfo.com/Public/Default. Company president Akio Toyoda finally got around to apologizing to customers at a Feb.” . Meanwhile. Real results will come from a commitment to better supplier relationships within the Toyota organization. So we’re left with a major automaker that must accelerate from a slow start in reassuring consumers and regulators of its commitment to safety.
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