viewpoint Emerging markets, distribution imperatives and strategies

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1 viewpoint Emerging markets, distribution imperatives and strategies How collaboration and automation ensure your distributors operate in lockstep with you Abstract You want to capitalize on the promising growth opportunities of emerging markets. But the complex and varied nature of the distribution set up in these markets is one of your biggest challenges. In this scenario, imagine the efficiencies you could gain if you had timely insights on the expected peaks and troughs in consumer demand for a particular product in a particular region and time, or perhaps first-hand impact of change in price strategy, or if your distributors knew which products to stock in bulk, in advance. Such insights are possible only if you build a strong distributor ecosystem one where your distributors work collaboratively with you at all times. And the next level of collaboration is automation that gives your distributors the tools and solutions to capture, record, relay and analyze critical data and information.

2 Impressive economic growth = Explosive opportunities With over 85% of the world s population and a young population at that, higher economic and per capita income growth, the emerging economies provide explosive opportunities for businesses. These exciting and dynamic countries in Asia Pacific, Eastern Europe, Africa, and Latin America are expected to outgrow the mature markets. Infact, the emerging economies growth story has only started to unfold. These emerging markets are expected to see a tremendous increase in the annual consumption and purchasing power more spending power means healthier economies and better growth opportunities for businesses. Emerging markets A different ball game altogether Although attractive, to capitalize on the emerging economies growth opportunities, global companies must understand the fundamental difference in the way emerging and mature markets operate. Most emerging markets follow the more traditional mode of trade wherein businesses rely on channel intermediaries to provide the last mile connectivity and reach retail outlets (mom and pop stores) or wholesaler, unlike the big supermarkethypermarket formats that exist in the mature markets. One striking feature of the emerging markets distribution landscape is that the distribution network consists of different channel partners distributors, carrying and forwarding agents, stockists, and dealers who help businesses break the bulk, reach diverse consumers, increase their market footprint, and service a heterogeneous and growing set of market demands. For simplicity, we will refer to these different channel partners as distributors in this paper. While this distribution setup has its advantages, it gives rise to challenges, typical to emerging economies.

3 High cost to serve a fragmented market High distribution cost; low visibility to demand signals Limited technology adoption Difficulties in distributor collaboration Unreliable infrastructure Difficulties in onboarding distributors rapidly Unavailability of critical market insights for decision making That is why, what worked in mature markets is unlikely to work in emerging markets. Rethink distribution structures and processes In emerging markets, optimizing the dynamic distribution network matters. In our experience of working with distributors in various emerging markets Rwanda, India, China, Indonesia, Thailand, Saudi Arabia, Brazil, Mexico, Russia, to name a few we have found a stark contrast in the level of expertise and experience of distributors. Their backgrounds and levels of maturity in the adoption and use of technology is varied and range from highly mature to nil. The highly mature distributors use globally or locally available technology to guide their day-day decision making, while the least mature distributors rely on manually jotted down notes on sales to make critical inventory decisions. Between these contrasting extremes, there are also distributors who use a mix of automated processes and manual data to drive decisions. To a large extent, the level of technological maturity depends on the availability of electricity, computers, internet connectivity, local solutions, technology adaptability, and the prevailing laws and mandates of the region. We have found that typically, a 20:60:20 ratio of high maturity, no maturity, and medium maturity is prevalent in most emergent nations. While some countries rank higher on the evolution scale and thus have a higher penetration of IT enabled distributor operations, in others, global companies adopt mandatory practices (especially for exclusive distributors) which dictate the use of software, possibly very early in the game. But visibility and standardized operations for most global companies remain a hybrid mix. These companies must therefore rethink their distribution structures and processes to accommodate the varying levels of distributor capabilities and technological maturity. Change the mindset - Devise strategies that foster collaboration As cliched as it may sound, success in emerging markets demands close collaboration with distributors. For global companies, distributors are their eyes and ears not just giving them the much needed market visibility and reach but also helping them understand the pulse of the consumer. Grooming a distributor network where individual distributors, whether large or small, work closely to implement corporate strategies on the ground and provide data on customer tastes and preferences is therefore imperative. Distributors too stand to gain from this collaboration through improved processes and knowledge to operate more professionally and expand their operations. Two of our global engagements demonstrate the mutual benefits.

4 A global beverage company in Africa is using collaboration to its advantage. The company has rolled out initiatives such as solutions and tools training and development programs for its distributors, successfully increasing distributor efficiency and effectiveness. A global consumer product goods (CPG) leader gained significant value by implementing a distributor collaboration solution across the various global markets it caters to. Key business benefits realized include: Revenue growth by up to 12% in less than two years Optimized costs by 4-5% Improved fill rates in the range of 8-12% Reduced non-productive inventory by 3-4% Improved distributor data accuracy by 50-60% Improved timeliness of daily secondary sales and inventory data by 6-8 days Without doubt, collaboration improves operational efficiency in emerging markets. However, the collaboration strategy must focus on changing the distributor mindset about the need and benefits of collaboration. It will require clear and effective strategies to on-board new distributors and virtually hand-hold distributors, especially the ones who are struggling to move ahead in the technology growth curve. Global companies will need to take a step back and first assess the collaborative requirements of their distributors their maturity and existing capability. Once assessed, the collaboration initiatives must be customized to bring all the distributors small, medium and large scale to a level playing field.

5 A clear development plan One way to foster collaboration is by devising a development plan. Such a plan would provide the basic tools, software, training to leverage prevailing technology, and possibly even explore and adopt new ways of working with innovative thinking and technological use. For instance, use the ever-growing mobile-device base to groom the distributor network. These development programs lay the foundation to hand-hold small distributors, train, enable and help them adapt to established best practices. Such development programs should be comprehensive and include: Definition of roles and responsibilities Rollout across markets Feedback mechanism for sustained growth A clear vision and strategy for distributor development based on the growth and sales targets for the market - For short to medium terms (next 3 to 12 months) - For medium to long terms (next 1 to 3 years) Introduce roles within the organization for distributor development Assign clearly defined targets for these roles and distributor growth Provide training to enable resources to take up these roles Align internal departments such as country sales, supply chain, and information technology for distributor development Assess distributors and segment them according to - Availability / access to laptop / PC, internet / alternatives to internet access through mobile phones, etc. - Technological know-how and usage capability Pilot with select distributors to - Ensure an understanding of the business benefits of data sharing initiatives - Assist in technology usage, for e.g., with simple workbook based templates for managing inventory or providing training on software that can be leveraged by larger revenue earning distributors - Provide insights and possible actions to increase revenue, for e.g., insights obtained from sales trend of a particular product performing better in a local area Course correction and rollout plan for the whole market Regular follow ups for sharing data and insights on distributor sales and product Enable better inventory management to increase stock turns Enable better product mix, etc. Enable actionable insights, for e.g., by defining reorder levels and reorder quantities based on sales pattern Once distributors begin teaming up to reach an adaptive position in the technology maturity curve, global companies can begin strategizing on how to arm them with automation tools and solutions.

6 Bring in automation, an extreme form of collaboration The distribution challenges in emerging markets are unique across the value chain. While global companies struggle to obtain critical sales data, the distributor ecosystem deals with non-standardized, primitive set ups leaving room for improving efficiency. Typical challenges that the three key players face include: Principal company Difficulty in getting reliable and timely secondary sales data Unavailability of critical market insights for decision making Difficulty in planning and measuring the effectiveness of promotions, campaigns and new products Low distribution reach, low service levels and fill rates Slow pace of distributor onboarding Low sales force productivity primarily due to lack of a datadriven sales approach Non-standardized distributor operations Distributor ecosystem (Stockists / Distributors / Dealers / Retailers) Chaotic, unorganized and fragmented distributor ecosystem Hesitancy of channel partners and retailers to modernize and invest in / adapt technology Low visibility to retail outlets instore demand signals Consumer Unavailability of right product at the right time and in the right place Unavailability of accurate product information Improper product pricing While these challenges plague all B2C companies, they are especially critical for the consumer packaged goods (CPG) industry as success in this industry heavily depends on a robust supply chain network to distribute products with high volume inventory turns. Technology is therefore increasingly essential for competitive advantage in the CPG industry and leading global companies are adopting IT strategies to address these challenges. In our view, an extreme form of collaboration is automation. Automation creates an environment that helps maximize communication and information flow essential ingredients for effective collaboration. A case in point is our engagement with a CPG giant in India. A CPG giant identified the need to automate processes for its distributors in India through a distributor ERP solution. This company foresaw several key benefits stemming from rolling-out such a solution Automated daily operations Standardized business processes Deeper visibility into distributor sales and inventory Ability to rapidly on-board new distributors in growing markets Technological consistency among distributors Closer engagement with distributors and effective collaboration

7 Selecting the right automation solution While looking for an automation solution, mapping the main challenges with the benefits derived from the solution can help choose the right solution. First, global companies need to assess their distributors capabilities in the technologymaturity curve. This assessment will help them map the automation tools and solutions to the needs. A host of newbreed automation solutions can act as catalysts in standardizing distributor operations and in optimizing business processes. Here s an analysis of some of the new breed distributor automation solutions that can be useful to global companies in emerging markets: On-field challenges Distribution automation solution(s) Business benefits Non-productive inventory High inventory carrying costs Poor order fill rates Automated ordering, replenishment and forecasting tools Optimized inventory levels Improved order service levels Lack of market visibility and planning Visibility and automation solutions to onboard distributors and trade partners on a single platform thus enabling secondary visibility Increased market visibility Actionable insights for better business planning Heterogeneous distributor operations Inability to execute speed-to-market while achieving global scale Long claims closure cycle leading to blocked cash flows Long cycle time for new product launch, promotions Distributor ERP solutions that provide end-to-end pre-built distribution ERP processes hosted on the cloud Automated and standardize distributor operations across markets Rapid on-boarding of new distributors Faster claims settlement to free-up cash flows Easy rollout / rollback of promotions and products Long order to cash lead times Poor market reach High cost of covering emerging markets Mobility solutions, enabling order acquisition on mobile phones Sales force automation solutions automating real-time ordering Shrinks order acquisition and payment lead time Provides retail outlets the ability to order through mobile phones, enabling greater market coverage Improved sales force productivity Winning in the new battleground Of course, there is no onesize-fits-all solution to win in the new emerging markets battleground. But a customized approach that focuses on distributor collaboration and automation can address several challenges and bring in immense operational efficiencies, helping both distributors and global companies grow.

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