Changing the Distributors Relationship Management. Maxim Hamaliy, Supply Chain Director JSC Chumak

Transcription

1 Changing the Distributors Relationship Management System in ТОС Logic Maxim Hamaliy, Supply Chain Director JSC Chumak

2 About Chumak" Chumak is a national foods manufacturer It is founded in 1996 by Sweden entrepreneurs The company plans for are to double its revenues 2

3 About Chumak Production capacities, logistic centre and headquarter are based in Kakhovka (Kherson region) 3

4 Assortment Assortment is represented by the following categories: ketchups, mayonnaises, tomato pastes, sauces, canned vegetables, macaroni 4

5 Distribution System The products are shipped all over Ukraine The system of distribution: and to export markets In Ukraine there are 9 distributors plus their branches in each region and about 400 exclusive sales representatives. Large retail chains like Fozzy, Metro, Auchan, Velyka Kyshenia get direct shipments The export markets possess representative offices in Belarus and Moldova. The products are also shipped to Russia, Baltic states, Kazakhstan, Armenia, Canada, England, the USA, Mongolia, Israel, Georgia and other foreign markets 5

6 Why did we come to changes in distributors relationship management system??? 6

7 Problems in the Distribution System Distribution UDEs: 1. Very often the need arises to deliver products urgently 2. Constantly changing priorities 3. Frequent deficits 4. Very high level of stock of many SKU s 5. Ageing of products 6. Very high level of returns 7. Very high level of cross transportation 8. The cost of transportation is very high UDEs consequences for other functions of the company 1. Loss of sales 2. Delayed introduction of the new products 3. Lower profit 4. Low income from investments 5. Loss of customers 6. Changed priorities 7

8 The Core Problem Uneven outflow from the central warehouse (as the Sales System gets bonuses for shipments) The 3 rd decade of the month. We ship 60% of the month volume Everybody is working in urgent mode (warehouse, logistics, sales) The central warehouse is experiencing lack of products. As a result the shipment is making by everything what is available right now The problems occur with debts receivable for shipped products The 1 st decade of the month. We ship 10% of the month volume The resources are standing idle Waiting until the distributor will free up his warehouse and ship the products to retail stores The 2 nd decade of the month. We ship 30% of the month volume The shipments are getting alive Working with late debts receivable 8

9 Uneven Outflow from the Central Warehouse 1 st decade 2 nd decade 3 rd decade 15 ( ) 16 ( ) 17 ( ) 18 ( ) 19 ( ) 20 ( ) 21 ( ) 22 ( ) 23 ( ) 24 ( ) 25 ( ) 26 ( ) 27 ( ) Shipments 9

10 Steps in Changes 10

11 1 st STEP To grant bonuses to Sales Department for real sales rather than for shipments Sales Plan fulfillment became the Sales Department performance indicator The interest in shipments stayed in Distributors So the need arose to motivate a Distributor to maintain required stock in its warehouses 11

12 2 nd STEP To grant bonuses to Distributors for stock balance Balanced stock means no Out of stock and no Over stock at the warehouse Over stock frozen cash Out of stock lost sales As the 2 nd indicator was more important for us and it is unprofitable for a distributor to freeze its money, the initial stage stops at granting bonuses for Out of stock indicator only 12

13 3 rd STEP The company on its own replenishes the stock in distributors warehouses Decision to work with distributors through Consignment Warehouses provided the opportunity to independently replenish the distributors warehouses Why Consignment Warehouses? Because in this scheme Chumak has the title to the items stocked in Consignment Warehouses and bears replenishment risks. 13

14 4 th STEP To present this decision to the Sales System The Sales Department and Distributors have been: presented Current Reality Tree demonstrated the identified Undesirable Effects for current system operations demonstrated advantages of introducing the Core Change replenishment of distributor warehouses through the Consignment Warehouse 14

15 Trade Credit Warehouses. Current Reality Tree. Chumak 119. The profit is going down 134. The company loses sales 123. There are situations at Distributors warehouses some SKU s s are in OOS, some of them are in overstock 122. Distributors do not order products until the indicator gets to its normal size 120. The indicator stock turnover of the full product portfolio is higher than the normal is in some particular periods 117. Distributors replenish and control the stock by themselves with such indicator as stock turnover summarized by product portfolio in general (total amount of all SKU s) 104. Distributors naturally are tended to decrease their financial obligations via stock optimization at their warehouses 126. Chumak experience some cash flow deficits 125. The payments from distributors for products are coming not regular 127. Stock replenishment of Distributors warehouses by Chumak (or shipments from Chumak warehouse are not smooth end regular (there are some pick periods) 118. Distributors replenish the stock above their real need in some particular periods 115. Chumak gives to distributors additional benefits like additional delays in payments, discounts, etc. for additional volume 133. There is some deficit in some SKU s 131. The need in cash is growing 130. The costs are raising up 129. In a pick periods in shipments it is necessary to attract additional recourses for increase in raw materials and finished goods stocks, for in-time shipment from the central warehouse 114. At the end of the period we need to put to distributors warehouses much more stock than really needed by distributors 132. The company is not always able to pay in time for raw materials in order to produce FG 102. In accordance with the contract the right for ownership and financial obligations in a way of delays in payments are becoming valid from the moment of shipment from Chumak warehouse 103. Distributors are supporting stock via scheme the warehouse of payments due 109. It is important for the company to fulfill each month the plans for shipment 112. The plans as usual are ambitious and not always are in accordance with second level sales

16 Trade Credit Warehouses. Undesirable Effect. CHUMAK DISTRIBUTOR 1. Loss of sales due to distributors warehouses being Out of Stock. 2. Loss of sales due to the central warehouse being Out of Stock. 3. Uneven cash flow of proceeds from distributors. 4. Higher expenses (stock) during peak shipment periods. 5. Offering distributors extra discounts and deferments. 1. Loss of sales due to its warehouses being Out of Stock. 2. Loss of sales due to Chumak central warehouse being Out of Stock. 3. High stock balance, the need in extra working assets for timely payment. 4. Peak periods/days in paying Chumak for its products 5. Cross transportation 16

17 The Core Change Distributors holds particular stock via scheme of the warehouse of debts receivable To replenish Distributors warehouses via scheme of consignment warehouses 17

18 Consignment Warehouse. What will change? Chumak will make orders, replenish distributors warehouses and control stock balances Distributors stock balances are monitored on the daily basis Stock in warehouses are replenished by the principle Daily orders periodic replenishment 18

19 Consignment Warehouse. What will change? Region Distributor Branch East Sinaps Plus Lugansk TO THE MAIN Deepness, days Wideness, days Days Calculated order Category Product group Product SKU 19

20 Consignment Warehouse. What will change? To manage balances using the following indicators out of stock the items that should have been shipped to the warehouse, but have not been dispatched over stock the items that should not have been shipped to the warehouse, but have been dispatched!!!(over stock) It is unprofitable for Chumak to increase the stock balances at the distributors warehouses, in other words, to freeze working capital 20

21 Results. Chumak

22 Results. Chumak Replenishment of the stock at distributors warehouses through consignment warehouses resulted in: 1. Decreased Out of Stock at distributors warehouses. 2. Better inventory turnover rate. 3. More even outflow of products from the central warehouse. 4. Decreased expenses, stock of finished products and raw materials at Chumak warehouses to provide for peak shipments. 5. Better Cash Flow. 6. Decreased Out of Stock at the central warehouse. 22

23 Results. Chumak Decreased Out of Stock indicator at the Central Warehouse and distributors warehouses Out of Stock before implementation 5% Consignment Warehouse Out of Stock after implementation 1% Sales Increase 4% 23

24 Results. Chumak Improved Inventory Turnover Rate Stock balance at distributors warehouses - 14 days Return cash flow from retailing - 14 days Return cash flow from Chumak distributors -14 days Where is the benefit? The sales volume generating branches are replenished almost on the daily basis, that is why it is sufficient to keep on stock only 7-10 days at their warehouses Thus, we get improvement of inventory turnover rate by 3-4 days 24

25 Results. Chumak More even outflow from the Central Warehouse 32 ( ) 33 ( ) 34 ( ) 35 ( ) 36 ( ) 37 ( ) 38 ( ) 39 ( ) 40 ( ) 41 ( ) 42 ( ) 43 ( ) Shipments to Trade Credit Warehouse Shipments to Consignment Warehouse 25

26 Distributor.

27 Results. Distributor Replenishment of distributors warehouse stock through consignment warehouses resulted in: 1. Decreased Out of Stock in distributors warehouses. 2. No Over Stock. 3. Payment only for the products actually sold in retail outlets. 4. Relieved working capital. 5. Better Cash Flow. 6. Less cross transportations. 27

28 Results. Distributor Decreased Out of Stock indicator in the Central Warehouse and distributors warehouses Out of Stock before implementation 5% Consignment Warehouse Out of Stock After implementation 1% Sales Increase 4% 28

29 Results. Distributor No Over Stock It is unprofitable for Chumak to increase the stock balance at the distributors warehouses, in other words, to freeze working capital Stock at distributor s warehouses Prior to the transfer to Consignment Warehouse system - 21 days Upon the transfer to Consignment Warehouse system - 14 days We get 7 days of released frozen resources 29

30 Results. Distributor Distributor pays only for the products actually sold in retail outlets. Even Cash Flow. Daily payments only for the sold out products!!! Lower expenses for cross transportations 30

31 Results Increment of Sales + 32% nine months of 2010 nine months of

32 Thank you for attention!!!