SALES AND DISTRIBUTION MANAGEMENT OF

SUBMITTED TO: PROF. A. SRIKANTH

SUBMITTED BY: PRIYANKA MISHRA SARTHAK MONDAL VIDUSHI SHARMA VARUNAGARWAL

Acknowledgement
We would like to acknowledge the help given by our Professor A. Srikanth for all his help and guidance in completing our project. We are thankful for the insights he gave us during various stages of our project.

He gave us the adequate guidelines and the methodology to be followed to ensure the successful completion of our project.

Best regards Priyanka Mishra Sarthak Mondal Vidushi Sharma Varun Agarwal

CONTENTS

1. Introduction.. 4

2. Evolution of HULs sales and distribution network 5

3. Transportation & Logistics...6

4. Channel Design12

5. Initiatives taken for channel member management.14

6. Field force management.......15

1. INTRODUCTION
Hindustan Unilever Limited (HUL), formerly Hindustan Lever Limited (it was renamed in late June 2007 as HUL), is India's largest Fast Moving Consumer Goods company, touching the lives of two out of three Indians with over 20 distinct categories in Home & Personal Care Products and Foods & Beverages. These products endow the company with a scale of combined volumes of about 4 million tonnes and sales of nearly Rs. 13718 crores. HUL is also one of the country's largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India. The mission that inspires HUL's over 15,000 employees, including over 1,300 managers, is to "add vitality to life." HUL meets everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life. It is a mission HUL shares with its parent company, Unilever, which holds 52.10% of the equity. The rest of the shareholding is distributed among 360,675 individual shareholders and financial institutions. HUL's brands - like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's, Sunsilk, Clinic, Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna, Kwality Wall's are household names across the country and span many categories - soaps, detergents, personal products, tea, coffee, branded staples, ice cream and culinary products. These products are manufactured over 40 factories across India. The operations involve over 2,000 suppliers and associates. HUL's distribution network comprises about 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers.

We have analyzed the sales and distribution network of HUL from the following aspects: y y y y y Evolution of HULs sales and distribution network Transportation & Logistics Channel Design Initiatives taken for channel member management. Field force management

2. EVOLUTION OF HULs SALES AND DISTRIBUTION NETWORK

Evolution over Time
The HULs sales and distribution network has evolved with time. The first phase of the HUL sales and distribution network had wholesalers placing bulk orders directly with the company. Large retailers also placed direct orders, which comprised almost 30 per cent of the total orders collected. The company salesman grouped all these orders and placed an indent with the Head Office. Goods were sent to these markets, with the company salesman as the consignee. The salesman then collected and distributed the products to the respective wholesalers, against cash payment, and the money was remitted to the company. The focus of the second phase, which spanned the decades of the 40s, was to provide desired products and quality service to the company's customers. In order to achieve this, one wholesaler in each market was appointed as a "Registered Wholesaler," a stock point for the company's products in that market. The company salesman still covered the market, canvassing for orders from the rest of the trade. He then distributed stocks from the Registered Wholesaler through distribution units maintained by the company. The Registered Wholesaler system, therefore, increased the distribution reach of the company to a larger number of customers. The highlight of the third phase was the concept of "Redistribution Stockist" (RS) who replaced the RWs. The RS was required to provide the distribution units to the company salesman. The second characteristic of this period was the establishment of the "Company Depots" system. This system helped in transshipment, bulk breaking, and as a stockpoint to minimise stock-outs at the RS level. In the recent past, a significant change has been the replacement of the Company Depot by a system of third party Carrying and Forwarding Agents (C&FAs). The C&FAs act as buffer stock-points to ensure that stock-outs did not take place. The C&FA system has also resulted in cost savings in terms of direct transportation and reduced time lag in delivery. The most important benefit has been improved customer service to the RS. The role performed by the Redistribution Stockists includes: Financing stocks, providing warehousing facilities, providing manpower, providing service to retailers, implementing promotional activities, extending indirect coverage, reporting sales and stock data, demand simulation and screening for transit damages.

Detail Overview
The sales and distribution network of HUL is one of the key strengths that help it to supply most products to almost any place in the country from Srinagar to Kanyakumari. This includes, maintaining favorable trade relations, providing innovative incentives to retailers and organizing demand generation activities among a host of other things. Each business of HUL portfolio has customized the network to meet its objectives. The most obvious function of providing the logistics support is to get the companys product to the end customer.

3. TRANSPORTATION AND LOGISTICS

Distribution System of HUL: HUL's products, are distributed through a network of 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers. There are 35 C&FAs in the country who feed these redistribution stockists regularly. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. Hindustan Unilever provides tailor made services to each of its channel partners. It has developed customer management and supply chain capabilities for partnering emerging self-service stores and supermarkets. Around 2,000 suppliers and associates serve HULs 40 manufacturing plants which are decentralized across 2 million square miles of territory.

(Fig. 1 Schematic of HULs Distribution Network)

Distribution at the Villages: The company has brought all markets with populations of below 50,000 under one rural sales organisation.The team comprises an exclusive sales force and exclusive redistribution stockists.The team focuses on building superior availability of products. In rural India, the network directly covers about 50,000 villages, reaching 250 million consumers, through 6000 sub-stockists.

(Fig. 2 Rural Distribution Model of HUL) HUL approached the rural market with two criteria - the accessibility and viability. To service this segment, HUL appointed a Redistribution stockist who was responsible for all outlets and all business within his particular town. In the 25% of the accessible markets with low business potential, HUL assigned a sub stockist who was responsible to access all the villages at least once in a fortnight and send stocks to those markets. This sub-stockist distributes the company's products to outlets in adjacent smaller villages using transportation suitable to interconnecting roads, like cycles, scooters or the age-old bullock cart. Thus, Hindustan Unilever is trying to circumvent the barrier of motorable roads. The company simultaneously uses the wholesale channel, suitably incentivising them to distribute company products. The most common form of trading remains the grassroots buy-and-sell mode. This enables HUL to influence the retailers stocks and quantities sold through credit extension and trade discounts. HUL launched this Indirect Coverage (IDC) in 1960s.Under the Indirect Coverage (IDC) method, company vans were replaced by vans belonging to Redistribution Stockists, which serviced a select group of neighbouring markets.

Distribution at the Urban centres: Distribution of goods from the manufacturing site to C & F agents take place through either the trucks or rail roads depending on the time factor for delivery and cost of transportation. Generally the manufacturing site is located such that it covers a bigger geographical segment of India. From the C & F agents, the goods are transported to RSs by means of trucks and the products finally make the last mile based on the local popular and cheap mode of transport. 7

New distribution channels Project Shakti :

This model creates a symbiotic partnership between HUL and its consumers. Started in the late 2000, Project Shakti had enabled Hindustan Lever to access 80,000 of India's 638,000 villages .HUL's partnership with Self Help Groups(SHGs) of rural women, is becoming an extended arm of the company's operation in rural hinterlands. Project Shakti has already been extended to about 12 states - Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal. The respective state governments and several NGOs are actively involved in the initiative. The SHGs have chosen to partner with HUL as a business venture, armed with training from HUL and support from government agencies concerned and NGOs. Armed with micro-credit, women from SHGs become direct-to-home distributors in rural markets. The model consists of groups of (15-20) villagers below the poverty line (Rs.750 per month) taking micro-credit from banks, and using that to buy our products, which they will then directly sell to consumers. In general, a member from a SHG selected as a Shakti entrepreneur, commonly referred as 'Shakti Amma' receives stocks from the HUL rural distributor. After being trained by the company, the Shakti entrepreneur then sells those goods directly to consumers and retailers in the village. Each Shakti entrepreneur usually service 6-10 villages in the population strata of 1,000-2,000. The Shakti entrepreneurs are given HUL products on a `cash and carry basis.' The following two diagrams show the Project Shakti model as initiated by HUL.

Project Streamline:
To cater to the needs of the inaccessible market with high business potential HUL initiated a Streamline initiative in 1997. Project Streamline is an innovative and effective distribution network for rural areas that focuses on extending distribution to villages with less than 2000 people with the help of rural sub-stockists/Star Sellers who are based in these very villages. As a result, the distribution network directly covers as of now about 40 per cent of the rural population. Under Project Streamline, the goods are distributed from C & F Agents to Rural Distributors (RD), who has 15-20 rural sub-stockists attached to him. Each of these sub-stockists / star sellers is located in a rural market. The sub-stockists then perform the role of driving distribution in neighboring villages using unconventional means of transport such as tractor and bullock carts. Project Streamline being a cross functional initiative, the Star Seller sells everything from detergents to personal products. Higher quality servicing, in terms of frequency, credit and full-line availability, is to be provided to rural trade as part of the new distribution strategy. The diagram in the next page shows the model of Project Streamline.

Hindustan Lever Network (HLN) It is the company's arm in the Direct Selling channel, one of the fastest growing in India today. It already has about several lakh consultants - all independent entrepreneurs, trained and guided by HLN's expert managers. HLN has already spread to over 1500 towns and cities, covering 80% of the urban population, backed by 42 offices and 240 service centres across the country. It presents a range of customised offerings in Home & Personal Care and Foods. The New Compensation plan for HLN partners provides new exciting ways of earning substantial income in addition to offering rewards like revenue sharing through the innovative concept of pools Mother Depot and Just in Time System In order to rationalise the logistics and planning task, an innovative step has been the formation of the Mother Depot and Just in Time System (MD-JIT). Certain C&FAs were selected across the country to act as mother depots. Each of them has a minimum number of JIT depots attached for stock requirements. All brands and packs required for the set of markets which the MD and JITs service in a given area are sent to the mother depot by all manufacturing units. The JITs draw their requirements from the MD on a weekly or bi-weekly basis. Leveraging Information technology HUL customers are serviced on continuous replenishment. This is possible because of IT connectivity across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stockists. This sophisticated network with its voice and data communication facilities has linked more than 200 locations all over the country, including the head office, branch offices, factories, depots and the key redistribution stockists. They have also combined backend processes into a common Shared Service infrastructure, which supports the units across the country. All these initiatives together have 10

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enhanced operational efficiencies, improved the service to the customers and have brought us closer to the marketplace. RS Net Initiative: The RS Net initiative, launched in 2001, aims at connecting Redistribution Stockists (RSs) through an internet based system. It now covers stockists of the Home & Personal Care business and Foods & Beverages in close to 1200 towns and cities. Together they account for about 80% of the company's turnover. RS Net is one of the largest B2B e-commerce initiatives ever undertaken in India. It provides linkages with the RSs own transaction systems, enables monitoring of stocks and secondary sales and optimises RSs orders and inventories on a daily basis through online interaction on orders, despatches, information sharing and monitoring. The IT-powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. Today, the sales system gets to know every day what HUL stockists have sold to almost a million outlets across the country. Information on secondary sales is now available on RS Net every day. RS Net is part of Project Leap. Project Leap begins with the supplier runs through the factories and depots and reaches up to the RSs. This ensures HULs growth by ensuring that the right product is available at the right place in the right quantities and at the right time in the most cost-effective manner. Leap also aims at reducing inventories and improving efficiencies right through the extended supply chain. RS Net has come as a force multiplier for HUL Way, the company's action-plan to not only maximise the number of outlets reached but also to achieve leadership in every outlet. RS Net has enabled stockists to place orders on a Continuous Replenishment System. This in turn has unshackled the field force to solely focus on secondary sales from the stockists to retailers and market activation. It has also enabled RSs to provide improved service to retail outlets. Simultaneously, HUL is servicing the rural market, key urban outlets, and the modern trade as a single concern. Adexa iCollaboration suite In 2000, HUL identified improved supply chain management as a critical business priority and launched a comprehensive initiative, Project Leap, tasked with increasing supplier/distributor responsiveness, reducing inventory buffers, and optimizing planning and scheduling. HUL chose the Adexa iCollaboration suite for facilitating centralized monitoring of the SCM, live customer /supplier collaboration, and integrating demand and distribution planning with production scheduling. With the aggregated view of data provided by the iCollaboration suite, HUL was able to combine sales and distribution efforts on the diverse product lines, which resulted in significant savings on the cost side for inventories and distribution. HUL updates inventory positions, shipments and customer orders on a daily basis with these software packages and can get a pulse on the market real time.

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4. CHANNEL DESIGN

Hindustan Lever Limited (HUL) has two types of channel selling i. Regular (traditional) retail channel, ii. Direct Selling Channel in the name of Hindustan Lever Network (HLN).

HUL has a well entrenched high distribution model which comprises of C&FAs, Redistribution Stockists, wholesalers and retailers (as shown earlier). Hindustan Unilever's distribution network is recognized as one of its key strengths. Its focuses on Product availability, Brand communication, and higher levels of brand experience.

HULs Sales Break-up through different channels:

Channel Structure (Special Focus is on Jamshedpur) Typically, the goods produced in each of the HUL's 40 factories are sent to a depot with the help of a carrying and forwarding agent (C&FA). The company has its depot in every state of the country. The C&FA is a third party and gets servicing fee for stock and delivery of the products. In each town, there is at least a redistribution stockist (RS) who takes the goods from the C&FA and sells them to retail outlets. In Jharkhand the C&FA is in Ranchi and Jamshedpur is serviced by 3 Redistribution Stockists at Sakchi (M/s Om Prakash Agarwal), Bistupur and Parsudih. The HUL management realized certain problems with the existing sales model. First, the model was not viable for small towns with small population and small business. HUL found it expensive to appoint one stockist exclusively for each town. Secondly, the retail revolution in the country has changed the pattern the customers shop. Large retail self service shops are becoming commonplace.

In response of these problems, HUL redesigned its sales and distribution channel and the new system is known as 'diamond model' in the company. At the top end of the diamond, there are the self service retail 12

stores which constitute 10% of the total FMCG market. The middle, fatter part of the diamond represents the profit-center based sales team. In the bottom of the pyramid is the rural marketing and distribution which accounts for 20% of the business. As a result of the new distribution plan the company has planned to reduce the number of RS in small towns.

Redistribution Stockists: Total number of RS in Jamshedpur = 3 (at Sakchi, Bistupur, Parsudih). This is going to be reduced to only one with effect from next month of this year. Sales Margin: 4.76% which includes cash discount, unloading expenses from depot, distribution expenses to retailers, incentive schemes & other incidental expenses. Modes of transport used: Rickshaw, tempo. Incentive schemes: Before 2000 holiday packages and tours but after 2000 no non-monetary incentive for RS. Software systems and Information System: UNIFY 8.3 (Developed by IBM & CMC). This software needs to be synchronized daily and the system updates any information/ incentive schemes / sales figures etc to and from the common shared platform. Areas of Operations: Marked for each of the RS. Selling Operations: RSs sells the goods to o Wholesaler (gets 1.5 % max. discount from RS) o Retailers (gets 1.0% max. discount from RS)

Wholesaler: Gets cash discounts and other schemes promoted by HUL (gets points under Vijeta Scheme).

Retailers: Total retailer base in Jamshedpur: Approximately 1070. Sales Margin: Depends on the product o Soap, detergents - 8% on MRP o Cosmetics o Food items - 10% on MRP - 8% on MRP

Incentive schemes: Company programs (Scheme Discounts + Cash Discounts) TPR schemes based on Sales (1 % to 4 %) Vijeta scheme is not for retailers.

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Field Sales Force: To meet the ever-changing needs of the consumer, HUL has set up a distribution network that ensures availability of all their products, in all outlets, at all times. This includes, maintaining favourable trade relations, providing innovative incentives to retailers and organizing demand generation activities among a host of other things. The important activities that HUL field sales force does are (i) target chasing and (ii) reporting on a daily basis. Account information is maintained on palmtops given by HUL. During our research and informal survey of HUL field sales force, we came to know that for the last two years, training is not being given at all to the sales force. HUL has limited the network channel selling to categories of Home & Personal Care (HPC) and Food products with exclusive brands for this channel. That is, these particular brands (products) are all exclusive to HLN, specifically developed for the Direct Selling channel, and not available in the retail channel. The general trade comprises grocery stores, chemists, wholesaler, kiosks and general stores. Hindustan Unilever services each with a tailor-made mix of services.

5. INITIATIVES TAKEN TO IMPROVE THE SALES AND DISTRIBUTION NETWORK

HUL has taken the following initiatives to improve its distribution network: Setting up of a full-scale sales organisation comprising key account management and activation to impact, fully engage and service modern retailers as they emerge. Servicing Channel partners and customers with continuous daily replenishment. Leveraging scale and building expertise to service Modern Trade and Rural Markets. Delayering of sales force to improve response times and service levels. Revamping of its sales organisation in the rural markets to fully meet the emerging needs and increased purchasing power of the rural population. HULs distribution network in rural India already directly covers about 50,000 villages, reaching about 250 million consumers through about 6,000 sub stockists. Implementation of supply chain system that connects stockists across the country, and also includes a back-end system connecting suppliers, all company sites and stretching right up to stockists. IT tools have been deployed for connectivity across the extended supply chains. Backend processes have been combined into a common Shared Service infrastructure. Launching of Project Shakti through which the company is able to extend its operations in villages. HUL has also included several NGOs and state governments as the initiative helps rural women to improve their financial position.

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Launching of HUL Network to leverage the channel of direct selling by presenting customised offerings in 11 home and personal care and food categories. Started in 2003, it already has a base of 300,000 consultants across the country. Starting of franchised Lakme Beauty Salons and Ayush Therapy centres to offer standardised services, in line with the strategy to leverage the equity of its brands through relevant services. Finding out Innovative ways to reach out to its consumers, particularly in rural areas by leveraging non-conventional media like wall paintings, cinema vans, weekly markets (haats), fairs and festivals. Initiating the concept of Super Value Stores (SVS) in urban areas to partner traditional stores to provide a range of services ranging from managing their inventory to setting up POS (point of sale) banners. In addition to this, to boost up traditional retail in the face increasing in-roads made by large, modern retailing chains like Spencers, Reliance Fresh etc (where HUL is squeezed harder for discounts), HUL started restructuring some of the selected SVSs into the form of self-service retail shops a la modern retails. This is to protect & maintain the competitive advantage that HUL has over its biggest competitors in the other markets (e.g., P&G), with its very deep distribution reach through traditional retail. Launching the Unicare scheme with upmarket pharmacies and retailers to sale its premium brands. Undertaking several initiatives for traditional channels in order to improve its capabilities at the front-end by developing skills for stockists' sales force. Under 'Project Dronacharya', the FMCG major continuously imparted training to over 10,000 stockist salesmen. Launching of several promotional schemes for existing wholesalers and distributors. For instance, it has started the Vijeta - Rishta Jeet Ka scheme last year to provide a platform for the wholesaler and HUL to grow the business by earning points and redeeming them.

6. FIELD FORCE MANAGEMENT

The working cycle of a typical HUL field force member is from 21st of every month to the 20th of the next month. During this period he is given various targets that helps to achieve company objectives and gives him a chance to prove his performance relative to other. To start with the field force member is given a particular area and his responsibility is to cater to all the retailers in that area. While deciding the area for each member of the field force, the company makes sure that the operating area of each field member doesn't overlap with his other colleagues. There are various methods used by the company to incentivize the field force - Monetary and Non Monetary.

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In HUL, the field force is evaluated using QOC (Quality of Contribution). It consists of 4 components 1. Secondary Sale (Max points = 2.5) 2. Eco (Max points = 0.5) 3. Focus (Max points = 0.5) 4. FCS (Max Points = 0.5)

Secondary Sale - Based on the operating area, each member is given a specific target in terms of value (e.g., Rs. 15 lacs) for the operating month (21 20 of next month). If he achieves 100% of the target he gets 2.5 points, if he achieves 95% target he gets 1.5 points. These points are used to add to the total QOC score as well as linked to monetary incentive. ECO / Width pack Target This is used for the penetration/reach of certain products in the existing market. The following is a typical ECO target assigned to a field force agent: Lux International 105 outlets x 1 SKU Pears Soap - 135 outlets x 1 SKU Rin - 104 outlets x 1SKU Breeze Soap - 100 outlets x 1 SKU The outlets mentioned are within the operating area of the person and 1 SKU = Rs. 27/-. Based on this the Field person calculates number of packs he should sell to the retailers. The concerned agent receives this target around 25 of each month and has to complete this target within the 5 day of next month. Upon completion he gets additional 0.5 points added to his QOC score along with monetary incentive associated with it. However if this is not met within 5 , he looses the opportunity.
th th th st th

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Focus / Depth Pack target This is mainly used to increase the sales volume of certain products. A typical Focus target is given below: Lux International Rs 20,640 /- @ Rs 6/- per unit Life Buoy - Rs 70,220 /- @ Rs 10/- per unit Wheel - Rs 99,000 /- @ Rs 10/- per unit Breeze Soap - Rs 27,000 /- @ Rs 10 /- per unit This target needs to be achieved within 20 of next month. Upon achieving the target the field person is awarded 0.5 points which is then added to his overall QOC score. Field Capability Score (FCS) - In this component, the field force persons are required to ensure that the scheduled visit/outlet billing is such that at least 15 items are demanded per order. If this is achieved the retailer gets a discount of 1% on the billed amount and on the other hand the field person gets an additional score of 0.5 which is added to his QOC score. Each scheduled visit per outlet is one per week. For example if there are 100 outlets within the operating area of a field person then the number of visit per week is 100 and total number of visit per month = 100x4 = 400. The sales person is required to achieve 90% success rate to get 0.5 points for his QOC score and at least 65% for a satisfactory performance.
th

Non Monetary Methods The other purpose of the QOC scores is to highlight the performance of the field person among his peers. Based on the QOC various awards are distributed to the field persons at the end of every month. These awards are also known as MOC Star awards. MOC stands for Monthly operating Cycle. If QOC score > 4.5 The person is eligible for 7 star award If QOC score > 4 The person is eligible for 5 star award If QOC score > 3.5 The person is eligible for 3 star award

In the event of exceptional performance, management representatives from the regional office come to the zonal office to distribute the awards. The photograph of the award winners is displayed in the office as a source of inspiration for other sales person.

Target Setting Mechanism and monitoring The regional office monitors the performance of various zones. A thorough analysis is done at the end of each month and based on that the weak products are identified or those for which the demand has weakened. This is the basis of setting ECO and FOCUS targets for the field persons. Each field person is given a palmtop wherein he can feed the entries on the spot where the transaction is done. This solves basically the two purposes

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a) The field person is freed from the tedious task of maintaining cumbersome records and can then concentrate on the job (thus IT is replacing some of the field force or other channel members),
b) The sold item is immediately updated in the company information system.

REFERENCES

1. B. Joseph Pine, James H. Gilmore (1999), The Experience Economy: Work is Theatre & Every Business a Stage, Published by Harvard Business Press, 254 pages.

2. HUL Website (http://www.hul.co.in/)

3. HUL CLSA Conference, Investor Presentation.

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