SWOSTI FOODS

Decoding Distributor Financial Metrics

SDM 3 – Group 5
 Introduction
• Swosti Foods has two lines of products, namely, cakes, biscuits and common baked snacks (perishable vertical) and edible oil, which included
sunflower, groundnut, vegetable and soya bean oils (non-perishable vertical)
• The company is quite well-established, well-managed company with forward-looking management practices
• The company followed a typical multilevel intensive distribution. The factory output is sent to Carrying and Forwarding Agents (C&FA) located
in different states who act as the front end of the company without the ownership of the product.
• Swosti Foods had a decent consumer pull; hence, channel partners wanted to have long-term business relationship with the company.
• Sachin, is the general manager (GM) sales, supervising a set of area sales managers (ASM). ASM is in charge of a state and the sales executive
(SE) is assigned different districts. The SE handles typically three to six distributors. Normally, around four to seven SEs report to the ASM. The
distributors have their own sales team called distributor sales representatives (DSR), which supervises retail and wholesale market based on
the beat plan. SE of Swosti Foods has considerable direct and indirect control over the DSRs.

GM

ASM ASM

SE SE SE
Swosti Foods Sales Organization
 Problems
• Lack of implementation of sales processes, monitoring and control. The sales team of Swosti Foods lacked desired control over distributors.

• Retailers getting the product at a better rate from wholesalers than distributors

• Lack of effort for institutional sales

• Improper resource utilization by the distributors. The overtrading distributors resort to price cutting, unauthorized stock movement,
inadequate inventory control, insufficient and irregular service to retailers and unhealthy borrowing practices. The undertrading distributors
have low sales, high stock level, inefficient operations and underutilization of sales potential. All these could lead to serious disturbances in
channel

Problems 1 and 4 are interlinked and are related to the control mechanism.
The mandate for Sachin is to figure out whether the distributors are adhering to the company performance norms. He picked up the financial
reports of two distributors Haribabu Sales Corporation (HSC) and Kantibhai Shantibhai and Sons (KSS).
 Interpretation of Exhibit 3 and Analysis
• Turnover ratio for baked products of HSC (36.44) is way above the norm of 20, whereas it is below the norm for KSS (18.91). By comparing
the quarterly sales figures of both distributors (Exhibit 3), it may be concluded that working capital employed by HSC is quite less for baked
products of Swosti Foods. By increasing working capital, HSC may improve its service to retailers and thereby achieve higher sales. For the oil
product portfolio, both distributors are above norm and close to it.
• Gross profit/sales for oils for KSS (4.08) is below the norm (5). However, the gross profit/sales for both the distributors in baked products
and oil is quite less than their overall business figures. It may so happen, these distributors will focus on other businesses where the margin is
high.
• Return on own capital is quite exorbitant for HSC (baked products 65.1) and for KSS (oils 64). For both the distributors, this indicator is
above the norm. The Swosti Foods sales team should persuade the distributors to employ higher working capital (in the form of dedicated
sales representatives, exclusive vans, smaller sales beats and high frequency of servicing). The distributor should pass on the excess profit to
the channel and to the final consumers which will result in higher sales and better reputation in the market.
• For HSC, the average stock level for baked product (6.01) is almost half of the Swosti Foods norms. HSC should be persuaded to keep
adequate stock to prevent stock-out and opportunity loss of sales. By doing so, Swosti Foods can reduce the inventory at its C&FA, and hence
the inventory holding cost. For KSS, the average stock level for baked product should be reduced from 13.24 to 12, by increasing service
frequency to retailers.
• HSC is not extending the desired credit to retailers for baked products (4.3 against the norm of 7). By increasing the credit limit to retailer
volume sale to high potential retailers with higher footfalls will increase. Simultaneously, KSS should restrict the credit sales for oils.
 Recommendation
• Problem 3 is linked to the policy-level decision. In the current organizational structure, there is no SE who is directly responsible for
institutional sales. Since the institutional sales require rate contract, tendering and so on, the sales effort (business-to-business) is quite
substantial. In the long run, the institutional sales will result in high volume ‘straight rebuy’, and will strengthen the brand value of Swosti
Foods in the market.
Recommendation: Assign a separate SE for institutional sales in industrial districts, although it can be directly serviced by the distributor to
start with. If the volume picks up, the institutions can be catered directly by the company through C&FA.

• Problem 2 arises mostly by the discount schemes (quantity-based) given by ASM. Normally, in the FMCG scenario, in order to achieve the
sales target, the company sales people resort to additional discounts and promotional support to distributors. However, the distributors try
to resort to distress/easy sale by dumping it in the wholesale market. The wholesalers, in turn, resort to heavy undercutting to get rid of the
excess stock, resulting in unauthorized stock movement and landing price fluctuations in the retail market. This can lead to channel conflict
(between distributors and retailers) and loss of high potential and good selling retailers.
Recommendation: While giving schemes in the market for high volume sales, care should be taken for the infiltration of stocks into different
zones because of the landing cost differential. In such situations, instead of cash discounts to distributors or wholesalers, the bundling of
products is recommended. The company sales force should monitor the physical stock movements, with the stocks separately marked, and in
case of any unauthorized stock movements, the concerned distributor should be financially penalized.
THANK YOU