July 6, 2007

DISTRIBUTION RESTRUCTURING AT UNILEVER PAKISTAN

On Jan 01, 2002, Musharaf Hai presented a new vision at Unilever head quarters in
Blackfrairs London for Unilever Pakistan (UPL). The vision stated to be a Rs 38 billion
company by 2008. This vision required double digit growth from the first year and
Customer & Channel Development (C&CD) had to contribute Rs 30 billion.

On her return Hai was determined to realize her vision and to optimize her resources.
However, Hai’s aides were of the view that to achieve the much coveted ‘double digit’
growth, they needed a turnaround in its structure. The in practice structure was having too
much reliant on primary sales and relations with trade and coverage was not extensive to
deliver the desired results. A new distribution structure was needed. Hai launched a
project which was named ‘FERRARI’ (taken from the brand of car which symbolizes for
outstanding performance with fastest speed, premium image).

Hai’s Background

Musharaf Hai joined Unilever in 1983 in its Research Department. Alumni of Boston
University, Hai was fortunate to move into new assignments after every three to four
years. Hai’s real success came as Marketing Manager and she was posted to the
Headquarters in detergents coordination for East Asia Pacific and Africa/Middle East
region. Her exposure of more than 30 countries improved her strategic thinking. Hai’s
strength was her unwavering focus, determined attitude and high level of energy. On
these strengths Hai was made chairman UPL in 2001 to add vitality to the untapped
potential of Pakistan. Disposable income in Pakistan’s economy was increasing as
political conditions improved and economy showed vibrancy.

Scenario at Unilever Pakistan

UPL was going through post merger synergy after the acquisition of Polka and Rafhan
Best Foods (RBF).

Hai and her team with their vision started off by analyzing the industry and emerging
markets. They found out that new innovation levels were needed. Previously companies
were able to achieve global leadership by acquisitions and concentration on core brands
and categories. Also further cost cutting was not possible from global purchasing and
growth cannot be fueled solely from centralized supply chain or information technology.

This case was written by Zunair Khan under the supervision of Mr. Ekhlaque Ahmed, Faculty CBM as the basis for
class discussion rather to illustrate either effective or ineffective handling of an administrative issue. For confidentiality
reasons dates, figures & some facts have been hypothesized but without distorting the learning on processes.

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The consumer industry in the emerging markets needed the local touch. The success
formula required innovation in value creation and service levels. UPL with the help of its
regional team also looked into the practices in other emerging markets like Malaysia,
Bangladesh and Brazil. They concluded that companies which lacked service levels could
not achieve the success they had aimed at. Also only innovations in the service levels to
the retailers and customers increased returns for the companies.

Hence, the distribution model had to be redesigned and its structure was studied in four
domains namely: 1 Geographic Distribution 2 Distributor Operations 3 Sales Hierarchy,
and 4 Sales Monitoring System and Reporting.

Company Background

UPL formerly Lever Brothers Pakistan Limited was established in Pakistan in 1958. The
town of Rahimyar Khan was the site chosen for setting up a vegetable oil factory.
Unilever Pakistan is the largest FMCG company in Pakistan as well as one of the largest
multinationals operating in the country now operating with six factories located at
different locations around the country. Its head office was shifted to Karachi from
Rahimyar Khan in mid 60’s.

Business Areas

Restructuring and consolidating activities at Unilever includes the decision to sell or

withdraw many brands and concentrate on those with the biggest potential. Restructuring
created the following core business areas:

1 Home and Personal Care

2 Foods
3 Beverages
4 Ice Creams
5 Best Foods

Meeting every day needs of nutrition, hygiene and personal care Unilever has the
following distribution of share in its product portfolio:

Home Care 18%

Personal care 26
Ice cream 16
Beverages 8
Spreads 11
Savory & Dressing 8
100%

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Mission

• Leading consumer Product Company in Pakistan, a multinational with deeps roots

in the country.
• Attract and develop highly talented people to empower double digit growth
• Serve the everyday needs for foods, hygiene and beauty of all consumers
• Produce breakthrough innovation in brands and channel
• Managing responsive supply chain maximize value from suppliers to customers
• Exemplary through commitment to business ethics, safety, health, environment
and involvement in the community

Conventional System of Sales & Distribution

Conventional system of distribution of sales in the company was focused primarily

towards urban market. The growing rural and suburban markets were being ignored in
terms of needed attention to get improved results. Primary sales and quantitative
achievements were the key objectives and accountability in the sales team.

Geographic distribution

Pakistan was divided into three regions namely, Karachi, Lahore city and Islamabad.

Karachi region covered Karachi, Hyderabad, few cities of Sindh rural, Lower Punjab e.g.,
Multan and Coastal belt and parts of Balochistan province. Karachi contributed 25% in
the overall sales and 20% of the coverage was done by Karachi. Karachi region had 82
distributors to manage. Most distributors were sole distributors of Unilever and credit
was given to these distributors.

Lahore city covered Lahore and nearby towns. Lahore had the biggest potential in terms
of sales. The population was concentrated and dense. Lahore had 34 distributors to
manage.

Islamabad region had a vast area to cover but had less potential as compared to Lahore. It
covered Islamabad, NWFP and northern cities of Punjab. It had 57 distributors to
manage.

Sales Hierarchy

Sales hierarchy consisted of Director C&CD, National Sales Manager (NSM), three
Regional Sales Managers, 20 Area Managers and 45 Field Managers.

Field Managers used to report to their Area Managers. Field Managers looked after
corporate business which means managing all categories. In the urban cities, Field
Managers had only one distributor under its control. However, in the rural towns one
Field Manager used to look after 13, 15 or even 22 distributors at one point in time. Field
Manager’s responsibility was to verify distributor’s redistribution claims. Administrative
and commercial documentation was heavy in his job description. Even at times Field

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Managers used to receive claim by post because of his inability to reach the distributor in
three months time.

The Area Managers and Regional Managers were posted in their respective cities. Their
duties included co ordination of market and head office and Brand Managers for such
activities which may expedite target achievements like extension of trade offers, launch
and re launch of various brands etc., They ensured that customers orders are logistically
executed on time so that products are available in the area and region. They also used to
compile sales figures received from the Field Managers. Also related to sales support
e.g., traveling expenses were managed by staff at the regional offices. (Exhibit 1 shows
the Sales Organization and Hierarchy of the company)

Sales Monitoring & Reporting

Sales monitoring was done by the staff at the region. Since there was not ay automated
database all records were maintained either on manual registers or self maintained excel
sheets.

Sales bill or records from remote locations were sent by distributors or Field Managers by
post attached with their redistribution claims. Field Managers used to compile data for
week manually on record maintaining sheets. Since sales reporting was manual and time
consuming often essential criteria for service levels were ignored.

Distributors Operations

The distributor operations revolved mainly around concentrated markets and volume
delivery. It operated in three major categories i.e., beverages, home and personal care and
Spreads. Distributors in the urban cities had three different teams working for a specific
category. Distributors always had an inclination towards brands which gave more
margins. Also they used to support brands which enjoyed better brand franchise in their
surroundings.

Since Field Manager used to look after distribution affairs of all categories, often
potential and opportunities remain unexplored because of focus on primary and volume
sales. This gave a free hand to the distributor to only focus on volume delivery.

Hence van operations were also guide towards delivery to concentrated markets. Vans
used to visit other markets once a week whereas markets which derived volume were
visited twice or even thrice a week.

FERRARI

Hai after analyzing the distribution structure of the general trade (GT) started to
restructure the company’s distribution and channel. Based on the remodeling of four
factors i.e., geographical distribution, distribution operations, sales hierarchy, sales
monitoring and reporting, a new structure was launched. FERRARI came into being.

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Ferrari was launched with a vision of generating $30 billion. The FERRARI design
needed a paradigm shift and Hai with her determination jumped into the campaign
launch.

Geographical Distribution

Pakistan was divided into six regions namely: Karachi, Hyderabad, Multan, Lahore city,
Lahore Outer and Islamabad. Number of distributors was increased from 176 to 205.

Karachi region now only had Karachi city to manage. Karachi had 8 distributors. Karachi
was still the most contributing region in terms of volume. Karachi being the biggest city
needed a focused distribution structure to penetrate.

Hyderabad region now looked after Hyderabad city, Sukkhar and rural Sindh and Quetta.
Hyderabad region had 51 distributors. Beverages were the cash cow for distributors in the
region. Hence this made it easier to generate volume and value from the potential.

Multan region covered lower Punjab and lower Baluchistan. Multan had now 29
distributors under it.

Lahore city was recognized as the most potential area for UPL. It now had 12 distributors
to service the urbane population.

Lahore outer was detached from Lahore city and now it looked after the untapped
markets of central Punjab. It had 43 distributors to manage the whole area.

Islamabad looked after Northern Punjab and NWFP. It also started to cater to a new
market Afghanistan. It had 62 distributors in the region.

Sales Hierarchy

The role of Customer and Channel Development (C&CD) was redefined. It was made
responsible for managing relationships with retailers and wholesalers with an objective to
successfully manage the sales management function at UPL.

Role model of C&CD was two fold:

1 distributor management till sharp end of retailer and wholesaler

2 sales force management till sharp end of customer satisfaction

Sales hierarchy of GT remained the same at the top level. Director C&CD was reported
by General Sales Manager (GSM). But now six Regional Sales Managers were present
followed by 30 Area Managers. (Exhibit 2 contains the restructured Sales Organization
chart).GT Sales organization covered product categories of Home and Personal Care,
Beverages. Rafhan Best Food products were also merged in GT for synergistic benefits.

The post of Field Managers was abolished. They were replaced by Territory Managers.
To increase focus nearly 200 Territory Manager posts were identified. These TMs now

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looked after a specific category. Thus one distributor was looked after by at least two
TMs responsible for two different categories Home and Personal Care and Beverages.
This increased the pace of reporting and also the frequency of visit of UPL officials at
distributors increased. Now one TM of a specific category had to manage only three to
five distributors.

This increased focus on service levels of the distributor and also vigilance on distributor’s
investment, coverage, market servicing and expenses were kept by the TM. TMs job
description had adequate focus on product availability and visibility. His job included
monitoring of sales, monitoring of merchandising activity, stock management and
monitoring of DSRs working under him. Regular market visit is the main factor in
performing these functions. TM adopts various methods to visit the outlets including
Route Riding (with DSR) i.e., in simple words accompanying the DSR while he is going
for order collection, back check (checking outlets with PJP to ensure working of DSR),
going with van during launches and re launches of product.

A dedicated organization (see Exhibit 3) was created to look after the Modern Trade or
Key Accounts to prepare for and avail of the opportunities coming up in emerging
phenomenon of supermarkets, self service stores, and departmental stores. Modern Trade
was overall looked after a Departmental Head (GSM level) who is reported by a Business
Development Manager. Customers/outlets were divided into two distinct categories: one
commercial supermarkets and upcoming international retail chain and two Utility Stores
and CSDs. Separate Accounts Managers were looking after these two segments on
national level. Assistant Managers were positioned in Karachi, Lahore and Islamabad to
service these customers on regional levels.

Another steps taken to capture the market with a dedicated approach was of Horeca
products like Mayonise, Corn oil and Ketch up (bulk) in the institutional level i.e., hotels,
restaurants, school canteens etc., Sales organization of this segment (see Exhibit 4) was
headed by a Business Development Manager who was reported by Assistant Marketing
Manager. On regional level Junior Managers were appointed to look after this business.

Ice Cream business sales structure was completely independent due to its very nature and
channel exclusivity.

C&CD Core Function

In order to improve company turnover, profit and market share, C&CD looked after the
following core function:

1 setting up sales targets and planning for achievement

2 monitoring of sales functions
3 recruitment and rewards of sales force
4 distribution management
5 performance appraisal of distributors

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Target Setting

Target setting was expanded to include more scientific parameters and leading indicators.
It focused on overall objectives of organization making sure of maximum utilization of
organizational resources and available opportunities. Two distinct components of target
setting were identified and worked upon:

1- Volume setting: volume setting is based on the number of units that has to be
sold. Its is planned on product level and within the product on SKU levels as per
potential. The target volume for sales is planned on annual basis and is broken
down on quarterly basis as per seasonal split. For instance, Surf is sold in SKUs
of 30gm, 80 gm, 125 gm, 400 gm, 1 kg, and 2 kg. Its total target is 32000 tons in
2007. Now 32000 tons will be broken into six different variations assigned to
different SKUs as per their selling potential.

2- Net Proceed on Sales (NPS): a new parameter to ensure balanced product

portfolio in the sales mix was the introduction of NPS which is calculated on the
basis total profit figure of the products sold rather than just revenue generated.
When setting targets, it is calculated that on the achievement of volume how
much profit will be made. There may be SKUs which are relatively fast moving
and easy to sell within the range but contain very low profit margin. Hence, even
the volume achievement is not getting optimal profit to the company. To avoid
this practice, the company introduced the policy of NPS. While assigning targets
to distributor or company sales force, they are provided with both the components
of the target i.e., volume and NPS and they performance assessment is based on
both these components. This tremendously reduced the sales mindset of push for
greater volume dismantling quality in selling.

Basis for target setting

The target setting process is based not only on the past sales but also on the basis of
the market potential.

Potential analysis: potential analysis considered no. of households in the town,

consumption level per household, competitors’ activities and such other factors.

Channel level considerations included factors like number of POP (point of

purchase), historical sales, trade offers, consumer promotion planned, trade activation
through new advertising campaigns and such other factors.

Planning for achievement of sales targets

The plan to ensure achievement of sales targets included following actions:

• ensuring availability of stock to distributors according to targets

• breaking targets to individual TSO
• monitoring sales in weekly buckets to avoid end of month shocks

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 • follow up of marketing actions to support sales and ensuring channel level
coordination to get optimum results
• monthly informal appraisal of TSO to ensure target completion by ASM

Sales Reporting

Hai and her team realized that market data availability and analysis is a must to plan for
the required distribution efficiency at all levels. They realized that automation was
needed for sales reporting. A database customized to the needs of UPL was developed.
Unilever Trade Resource Automation (ULTRA) was developed with related reports and
customer information. This worked as an Enterprise Resource Planning (ERP).
Hand Handled Technology (HHT) devices were given to distributors for free. These
devices were insured by the distributors. This automated the order booking and generated
booking based and delivery based sales report for each distributor per categories and also
on SKU level. (See Exhibits 5, 6 & 7 for specimen of reports). Cost of computers and
networking was borne by distributor. Training related to ULTRA was given to
distributors’ staff.

ULTRA produced reports and analysis to document secondary (retail and wholesale)
level sales. Reports were available covering important areas to monitor effectiveness of
market variables. These were:

• Productivity per route / DSR (see Exhibit 8)

• Distributors’ stock level per product category and SKU level (see Exhibit 9)
• POP Productivity Per Distributor Per SKU (see Exhibit 10)

Sales Monitoring

With the help of ULTRA a new monitoring system was developed to track the ground
level parameters of distributors’ performance. KPIs (key performance indicators)
encompassing distributor’s coverage was developed. Targets for weighted and numeric
distribution were set to get availability and stock depth. These KPIs had following three
basic components:

1- Strike rate: the number of outlets made productive by the distributor per day and
per month
2- SKU per call: the number of stock keeping unit per bill per category
3- Value per call: average amount on a bill per category
For example target set on these parameters could be: the distributor had to achieve 90%
in strike rate, 15 in SKU/call and Rs. 300 in vlau/call in Home and Personal Care.
Exhibit 11 shows a sample report to monitor these KPIs

These KPIs were measured from a base of Permanent Journey Plan (PJP) made by the
company according to the data available from ULTRA. PJPs consisted of details of
number of outlets per section. Each section had a minimum of 40-60 outlets in rural areas
and 70-80 outlets in urban locations (covering order booked by two order booker and
delivered by one van).

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A project by the name of CENSUS was started with the help of AC Nielsen in Pakistan.
New outlets were identified and added into the ULTRA and incorporated in the PJP after
verification by distributors.

Slow moving SKUs were identified and were labeled as ‘Growth Drivers’. Special focus
was given to these SKUs by the TM. Its monitoring results were presented and reviewed
in monthly sales meetings. (See Exhibit 12 for sample of Monitoring Sheet of Growth
Drivers & Special SKUs)

Distributor’s Profit Monitoring

Exhibit 13 gives a sample of excel sheet which is used to monitor route-wise

distributors’ profit. The red zones are discussed for bringing in improvement by
modifying Sales of SKUs & inducting SKUs with better profits.

Recruitment and Rewards for Sales Force

A policy for inducting young, educated and fresh candidates at DSF and Territory
Managers level was adopted in order to ensure the enthusiasm and young approach
towards sales function. Opportunities were also given to in-house employees to get
rotated in sales job. Open job posting is being provided to in-house employees to get
trained and work for sales at UPL. Cover up plan against possible turnover was done by
hiring of young and fresh candidates. Hence the company does not face turnover issue as
replacements are kept ready and inducted on regular basis.

Company adopted attractive reward policy to attract high caliber sale team. TM level
staff are hired at salary level of Rs. 25000 plus. Taking into account the safety level while
going for market visit, they are given Mehran car as company adopted ‘No Bike’ policy.
Petrol, cell phones, computers are provided to TMs for a convenient working and
monitoring of results.

Monthly awards are given within the region for best TM with incentives. Quarterly
awards are given on national level for best TM.

Training & Development for Sales Staff

Training & Development for Sales Staff is another very important area at UPL. Training
needs are identified at basic & grow level skills of junior level staff & improvements
effected as a result of training imparted are followed up meticulously. (See Exhibit 14
for Training Evaluation Form)

Performance appraisal is done against a number of key areas. This includes a summary of
target review commenting on the delivery of results, how the results were achieved, the
extent to which LGP behaviors were demonstrated, feedback from Differentiation tool
discussions, key strengths and future development needs. It takes into account both
results made in the year under review and goals set for the next year. And takes into
discussions the development needs for future performance achievements and

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development. An environment of optimal motivation to yield perfect involvement with
inner feeling of loyalty and attachment with the brand was vitally recognized and created.
(See Exhibit 15 for PDP Summary format introduced for Performance appraisal)

The Results

The process re engineering in sales and distribution functions which was started off
by Musharaf Hai in pursuit of her project FERRARI continued despite Hai decided
to move out of UPL at the end of 2006 to take up another assignment at Citicorp.
The new management consolidated the restructuring efforts and further innovated
around it by coming up with more projects of increasing coverage, new channel
development programs, route improvements as per area potential. No of
distributors over time increased from 205 to more than 400 (almost double).
Systems & processes were made stronger & stronger. All this gave UPL a marvelous
sales turnover achievement of Rs. 22 billion in 2007 and the growth pattern that has
resulted out of this reengineering of core processes in channel management gives
them all the more confidence to hit the target of Rs. 30 billion in year 2008.

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