3. What grade would you give Ingersoll for its management of distribution policy?

Ingersoll-Rand faced many difficulties in their distribution channels because of its broad line and multiplicity of channel, the
management of I-R's Stationary Air Compressor Division (SACD) had been confronted periodically since 1960 with issues
regarding what air compressor types and sizes should be marketed through which channels. There were many reasons for the
difficulties they faced such as:

1. Different types of products

I-R deals with different types of products that are distributed through different distributions channels according to their
requirements. Large compressors were generally sold by direct sales force, majority of medium and small compressors were
sold by independent distributors. Industry distribution channels consisted of 600 large specialist distributors (called air
house), and over 5,000 small general- line dealers. The products that I-R's deals with were Recipe, Rotary and Centrifugal.

2. Technical and Service Support

Different products had various requirement some products needed technical and service supports that were provided by Air
Centres and distributors. The larger compressor required more repair and spare part. But the case was different for smaller
one. However, users of the larger compressors were frustrated because of delay in spare parts deliveries and procured parts
from "pirate parts" vendors.

3. Customizations

 The larger compressor required more customization and interaction with customer than smaller one. This was done
by sales force of the company. Customers were distributed across the country had to be reached by different
distributors.

 The areas that were covered by independent distributors and air centres were almost same geographically while
independent had a primary responsibility of representing 70% potential. Both set their own resale prices. Typically,
distributors and air centres earned a gross margin of 10-15% on compressors, and 30-35% on spare parts and
services.

 Before 1960 I-R used to sell all their products through their sales reps directly to OEM's and users. In 1968 the
company introduced centrifugal technology in some of its larger-than-500 hp compressors. These were sold by the
direct sales teams. But in 1971 the SACD managers introduced 150 hp recip to distributors and by 1973 these
products were made exclusively distributors class products, since distributors shown their ability to service the
larger units.

 To reduce the interchannel competition, I-R mangers introduced the Full partner Program: if the Sales rep referred
an inquiry to air centre/distributor, he got a commission of 1-2%. Similarly, if Distributor/air centre referred an
inquiry to sales rep, he got a commission of 2-5%. In Full Partner Program, the company paid out $70,000 in 1984.
The effectiveness of the program was too early to judge as the Salesman and Distributors were buddies, they can
pass on their commission to each other and the company would end up paying more commission for the same level
of work

 The company faced certain problems in channels because of its multiple mode of reaching the market. Even
though the products line were well defined still company channels at times competed with each other's. Even
though the company has implemented a sales policy for its different channels. Independent distributors contented
that Air Centres were favoured by the company and provided with better price, better information and services. On
the other hand, Air Centre felt that distributors were favoured because separate sales territories kept air centres out
of competitions.
  Overall, we can say that I-R needs to improve its policies to satisfy the interest of both parties and should cater all
the party. Only then this disparity can be reduced. We can grade the management distribution between "Below
Average - Average"

4.How should Ingersoll-Rand distribute Centac-200? Why?

Upsides:

 Direct Sales Category has minimum cost to the company that is 11% of sales when compared to other categories
where Independent Distributors have 21% of the Sales and Air Centers have 19% of the sales.
 Direct Sales Category has well established service capabilities
 D Direct Sales Category is also a good addition to the shrinking line of products

Downsides:

 Direct Sales Category has major risk of sales reps ignoring the centac-200 as they tend to be elephant hunters,
Centac 200 would be at bottom of their line.
 There are high chances that Centac 200 would get the least attention.
 Direct Sales Category also adds to inventory cost.

Upsides and Downsides of Independent Distributors

Upsides:

 Ingersoll-Rand has well established network of the Independent Distributors.

 Independent Distributors are consistent with hp portfolio.
 Loyal distributors had good rewards.
 Independent distributors had better and quick service
 Unlike direct sales, here the attention towards Centac 200 is high.
 This has the major upside of being easily accessible for the customers.

Downsides:

 This might take distributors attention away from the smaller compressors.
 Low profit margin for the company
 The product needs intensive distributor training.
  There is risk of being dependent on the channel on which company would have less control.

Upsides and Downsides of Air Centres

Upsides:

 Air Centres were established to target the regions where distributors were not successful.
 Air Centres are company owned, company has more control
 Air Centres had availability of inventory transfer facility and centralized order entry system.

Downsides:

 Air Centre overheads are generally high.

 Increased number of Air Centres can demoralize the independent distributors

Cost Analysis for Contec-200

Parameters Total Cost

Cost of Centac- 200 $225*200= $45000
Installation Cost 12% of $45000=$5400
Spare Parts and Maintenance Cost 2% of $45000=$900
Gross Margin on Compressors 15% of $45000=$6750
Gross Margin on Spare Parts 30% of 900=$270

Direct sales Independent Distributors Air Centers

Gross Margin Per Unit 6750+270-5400= $1620 6750-5400= $1350 6750+270-5400= $1620
Sales 30% of 200= 60 35% of 200= 70 20% of 200 = 40
Gross Margin Per
Market 60* 1620 = $97200 70 * 13500 = $64500 40 * 16200 = $64800
Sales Unit 0.22 * 200 = 44 0.32* 200=64 200* 0.46=92
Total Sales 44* 45000=$1980000 64* 45000=$2880000 92* 45000=$4140000
Cost to Company 0.11*1980000=$217800 0.21*2880000=$604800 0.19*4140000=$786600