Effective Distribution Process – A case of Asian Paints (AP)

AP creates a large Network of Dealers:

An extensive network of dealers and matching physical distribution infrastructure play a crucial role in the decorative paints segment. This is essential for ensuring easy accessibility of the product to customers. In this, Asian Paints scored over its competitors with a massive network of 15,000 dealers spread over 3,500 towns across the country. AP had the largest distribution network among all the players. Goodlass among all the players has a network of 8,000 dealers.

AP establishes a Network of Company Depots:

AP established a large chain of company operated depots/stock points throughout its vast marketing territory from where the retail dealers could conveniently pick up their requirements. AP’s basic strategies explained in the earlier sections necessitated a liberal approach in the matter of stock points/depots. It also meant that the depots has to be company operated. After all, AP did not have any wholesale distributors to whom the responsibility for operating the stock points could possibly have been assigned. AP established a network of 30 company run depots, spread through out the country and serviced its retailers from them. The number of depots varied from city to city. For example, Bangalore had just one depot while Mumbai had four depots. The depots typically supply to about 200-300 dealers.

AP creates a Marketing Organizations that matched its Distribution intensity:

Effective control of the large number of depots each having substantial stocks of 2,000 odd distinct items necessitated a matching marketing organization structure. AP set up a marketing organization consisting of four regional sales offices, 35 branch sales offices and a large number of sales supervisors and sales representatives spread all over the country. The marketing organization of the company is presented. It can be seen from the chart that a very extensive structure has been created in the consumer division. It is primarily meant for taking care of the massive distribution task involved in this sector. Each branch sales office has its own depots and the various items are stocked in the depots under the control of the concerned branches. The branches service the dealers and customers in their territories.

These are supported by six regional distribution centers, which cater to 55 depots. Each depot has a branch for supervision of several salespersons catering to more than 14,500 dealers in the more than 3,500 big and small cities all over the country.

AP successfully resolves the cost service conflict in Distribution:

Managing the cost service conflict was the main challenge that AP faced in the implementation of its distribution strategy. AP met this challenge successfully.

We have seen that AP has over 15,000 dealers in 3,500 towns in India. AP caters to all of them directly. As a result, for AP, the distribution task gets tremendously extended and distribution cost becomes a significant business parameter.

Demand for decorative paints is characterized by seasonality. Demand drops during monsoons and picks up around a month and a half before the festive the festive seasons. Major part of the sale takes place in the second half of the financial year. Manufacturers have to carry huge inventories during the lean period. As a result distribution cost becomes all the more significant.

Naturally distribution cost emerged as a major hurdle that AP had to cross. The strategy adopted by AP necessitated expensive distribution. In addition, AP took another basic decision. It went in for a very high service level in distribution. Service level is measured in terms of the number of stock keeping units (SKUs) available in stock as a percentage of the number of SKUs that should have been in stock. AP’s service level is more than 85 per cent whereas that of other large paint companies falls between 50 and 60 percent. This meant a further rise in AP’s physical distribution costs. AP had to resolve this cost service conflict.