Description
It covers topics like income statement, income projection, distribution, targets and Nestles perspective
Akshaya Marketing
Current scenario
? Akshaya Marketing (a distributor of FMCG) is not
making profits ? The Propreitrix Ms. Vidya Arulmany doubted that the capacity utilization of distribution machinery was supposedly below its maximum possible capacity ? 9 lakhs of credit sales added to the debt of the company and hence its interest expense incurred is high
Alternatives available
? The Propreitrix of Akshaya Marketing can choose
between two available options 1. To improve the capacity utilisation of distribution machinery for Nestle and thereby increase profitability 2. To take distribution of Hindustan Lever Limited (HLL) and thus earn 25% ROI after interest.
Present scenario
? Expenses incurred in the year 2000
1. 2.
Salaries to employees: Rs. 32,900 per month Other expenses: Rs. 17,825 per month (as given in exhibit 4)
Income for Akshaya Marketing The income can be split into 3 parts 1. 5.8% on 80% of the total sales 2. 3.8% on 20% of the total sales (Since 2% cash discount is given on 20% sales) 3. 0.5% on the total turnover of the month for stock withdrawals
Income statement for the year 2000 (All figures are in Rs. Lakhs)
80% of 20% of Total Expenses Month Turnover sales sales commision (Exhibit 4) Salaries Income Jan-00 5.96 0.276544 0.04439 0.35073408 0.17825 0.329 -0.15652 Feb-00 5.79 0.268656 0.043124 0.34072992 0.17825 0.329 -0.16652 Mar-00 5.67 0.263088 0.04223 0.33366816 0.17825 0.329 -0.17358 Apr-00 5.6 0.25984 0.041709 0.3295488 0.17825 0.329 -0.1777 May-00 10.25 0.4756 0.076342 0.603192 0.17825 0.329 0.095942 Jun-00 11.96 0.554944 0.089078 0.70382208 0.17825 0.329 0.196572 Jul-00 9.53 0.442192 0.070979 0.56082144 0.17825 0.329 0.053571 Aug-00 12.07 0.560048 0.089897 0.71029536 0.17825 0.329 0.203045 Sep-00 12.21 0.566544 0.09094 0.71853408 0.17825 0.329 0.211284 Oct-00 11.87 0.550768 0.088408 0.69852576 0.17825 0.329 0.191276 Nov-00 10.71 0.496944 0.079768 0.63026208 0.17825 0.329 0.123012 Dec-00 11 0.5104 0.081928 0.647328 0.17825 0.329 0.140078 PBIT 0.540462 Interest 2.31 PBT -1.76954
Income projection with current efficiency
? We see that the turnover for Akshaya Marketing has ?
? ?
?
?
increased since the inclusion of Nungambakam Hence we take the turnover figures from May 2000 onwards and try to extrapolate the income figures for 1 year. We assume the total credit of 9 lakhs at this efficiency We get the total turnover from May to December 2000 equal to Rs. 89.6 lakh The PBIT for 8 months from May to December is Rs. 1.215 lakhs Hence extrapolating the amount for one year we get PBIT= Rs. 1.822lakhs Upon deducting the interest expense of Rs. 2.31 lakh we get a loss of Rs. 48,782
Distribution efficiency
? Given in the case that average value of stocks
?
? ? ?
carried to the market per day by each vehicle in December 2000 is = Rs. 18000 Hence the total potential value of stocks carried in the entire month of December = Rs. 18000*4*26 = Rs. 18,72,000 But actual turnover in December 2000 is Rs. 11 lakh (ie. 58.76% of total goods carried) Hence we see a deficit of Rs. 7,72,000 in the actual sales figures This deficit can be on account of lesser spot sales or due to the standard deviation factor in the non key outlets
Distribution efficiency
? We also see from exhibit 2-b that the total outlets
covered are 1182 ? Out of these 1182 outlets order booking is done in 586 outlets, whereas spot sales account in 596 outlets ? Given in the case that 70% of revenues come from only 120 (nearly 10% of the total outlets) key outlets, we see that only 30% of revenues come from other 1062 outlets
Distribution efficiency
? The total revenue from these non key outlets in
?
?
?
?
December 2000 is Rs. 3.3 lakhs (30% of 11 lakhs) Hence on an average each non key outlet contributes to Rs. 310.7 per month. Hence average weekly sales is Rs. 77.675 The standard deviation for each outlet is Rs. 23.1 per week Thus weekly sales in these outlets can vary from Rs. 54.575 to Rs. 100.775 Thus the present distribution efficiency is low considering the high variance in sales and low
Targets to be achieved
? If Akshaya Marketing is aiming to achieve 25%
ROI from the Sale of Nestle products with the current level of credit ie. 9 lakhs, the turnover should increase ? From trial and error method we get the average monthly turnover at Rs 21,80,880 and daily turnover at Rs. 20,970 by each salesman. ? At this level of turnover the income after adjustment of interest is Rs. 7,00,385 which is 25% of the initial investment of Rs. 28 lakhs
Steps to be taken
? The interest expense can be reduced by settling the
bank debt, which can be achieved by reducing credit. This can be done by offering cash discounts for cash payments ? Turnover can be increased by studying what factors cause the high standard deviation in the non key outlets and thus minimize them ? Currently Akshaya Marketing is holding an inventory of Rs. 11 lakhs. This is equivalent to December monthly turnover. Since Akshaya needs to distribute weekly once at its retailer’s outlets, it need not maintain inventory for more than 2 weeks. ? In case Akshaya Marketing is unable to achieve the required turnover and hence the target ROI of 25% it
What can Nestle’s Sales Manager do?
? If Nestle’s Sales Manager comes to know
about Akshaya’s plans to take distribution of HLL, he/she should try to retain its distributorship as Akshaya generates the maximum turnover in chocolates compared to other Cash distributors ? The sales Manager can take some of the following steps to prevent Akshaya Marketing from taking HLL distributorship
1. Increasing Akshaya Marketing’s Commission rate
What can Nestle’s Sales Manager do?
2. Nestle can also help Akshaya get out of the credit trap by offering discounts to Akshaya thereby Akshaya can offer the same discounts to the retailers for cash payments 3.Nestle can also take care not to dump excess stock in Akshaya Marketing as Akshaya needs to avail bank loans in order to fund for the surplus stock which it is unable to sell 4.Nestle can promote its products more aggressively in the ‘non key outlets’ where demand is varying and hence help Akshaya Marketing in gaining a foothold in those markets
doc_946361456.pptx
It covers topics like income statement, income projection, distribution, targets and Nestles perspective
Akshaya Marketing
Current scenario
? Akshaya Marketing (a distributor of FMCG) is not
making profits ? The Propreitrix Ms. Vidya Arulmany doubted that the capacity utilization of distribution machinery was supposedly below its maximum possible capacity ? 9 lakhs of credit sales added to the debt of the company and hence its interest expense incurred is high
Alternatives available
? The Propreitrix of Akshaya Marketing can choose
between two available options 1. To improve the capacity utilisation of distribution machinery for Nestle and thereby increase profitability 2. To take distribution of Hindustan Lever Limited (HLL) and thus earn 25% ROI after interest.
Present scenario
? Expenses incurred in the year 2000
1. 2.
Salaries to employees: Rs. 32,900 per month Other expenses: Rs. 17,825 per month (as given in exhibit 4)
Income for Akshaya Marketing The income can be split into 3 parts 1. 5.8% on 80% of the total sales 2. 3.8% on 20% of the total sales (Since 2% cash discount is given on 20% sales) 3. 0.5% on the total turnover of the month for stock withdrawals
Income statement for the year 2000 (All figures are in Rs. Lakhs)
80% of 20% of Total Expenses Month Turnover sales sales commision (Exhibit 4) Salaries Income Jan-00 5.96 0.276544 0.04439 0.35073408 0.17825 0.329 -0.15652 Feb-00 5.79 0.268656 0.043124 0.34072992 0.17825 0.329 -0.16652 Mar-00 5.67 0.263088 0.04223 0.33366816 0.17825 0.329 -0.17358 Apr-00 5.6 0.25984 0.041709 0.3295488 0.17825 0.329 -0.1777 May-00 10.25 0.4756 0.076342 0.603192 0.17825 0.329 0.095942 Jun-00 11.96 0.554944 0.089078 0.70382208 0.17825 0.329 0.196572 Jul-00 9.53 0.442192 0.070979 0.56082144 0.17825 0.329 0.053571 Aug-00 12.07 0.560048 0.089897 0.71029536 0.17825 0.329 0.203045 Sep-00 12.21 0.566544 0.09094 0.71853408 0.17825 0.329 0.211284 Oct-00 11.87 0.550768 0.088408 0.69852576 0.17825 0.329 0.191276 Nov-00 10.71 0.496944 0.079768 0.63026208 0.17825 0.329 0.123012 Dec-00 11 0.5104 0.081928 0.647328 0.17825 0.329 0.140078 PBIT 0.540462 Interest 2.31 PBT -1.76954
Income projection with current efficiency
? We see that the turnover for Akshaya Marketing has ?
? ?
?
?
increased since the inclusion of Nungambakam Hence we take the turnover figures from May 2000 onwards and try to extrapolate the income figures for 1 year. We assume the total credit of 9 lakhs at this efficiency We get the total turnover from May to December 2000 equal to Rs. 89.6 lakh The PBIT for 8 months from May to December is Rs. 1.215 lakhs Hence extrapolating the amount for one year we get PBIT= Rs. 1.822lakhs Upon deducting the interest expense of Rs. 2.31 lakh we get a loss of Rs. 48,782
Distribution efficiency
? Given in the case that average value of stocks
?
? ? ?
carried to the market per day by each vehicle in December 2000 is = Rs. 18000 Hence the total potential value of stocks carried in the entire month of December = Rs. 18000*4*26 = Rs. 18,72,000 But actual turnover in December 2000 is Rs. 11 lakh (ie. 58.76% of total goods carried) Hence we see a deficit of Rs. 7,72,000 in the actual sales figures This deficit can be on account of lesser spot sales or due to the standard deviation factor in the non key outlets
Distribution efficiency
? We also see from exhibit 2-b that the total outlets
covered are 1182 ? Out of these 1182 outlets order booking is done in 586 outlets, whereas spot sales account in 596 outlets ? Given in the case that 70% of revenues come from only 120 (nearly 10% of the total outlets) key outlets, we see that only 30% of revenues come from other 1062 outlets
Distribution efficiency
? The total revenue from these non key outlets in
?
?
?
?
December 2000 is Rs. 3.3 lakhs (30% of 11 lakhs) Hence on an average each non key outlet contributes to Rs. 310.7 per month. Hence average weekly sales is Rs. 77.675 The standard deviation for each outlet is Rs. 23.1 per week Thus weekly sales in these outlets can vary from Rs. 54.575 to Rs. 100.775 Thus the present distribution efficiency is low considering the high variance in sales and low
Targets to be achieved
? If Akshaya Marketing is aiming to achieve 25%
ROI from the Sale of Nestle products with the current level of credit ie. 9 lakhs, the turnover should increase ? From trial and error method we get the average monthly turnover at Rs 21,80,880 and daily turnover at Rs. 20,970 by each salesman. ? At this level of turnover the income after adjustment of interest is Rs. 7,00,385 which is 25% of the initial investment of Rs. 28 lakhs
Steps to be taken
? The interest expense can be reduced by settling the
bank debt, which can be achieved by reducing credit. This can be done by offering cash discounts for cash payments ? Turnover can be increased by studying what factors cause the high standard deviation in the non key outlets and thus minimize them ? Currently Akshaya Marketing is holding an inventory of Rs. 11 lakhs. This is equivalent to December monthly turnover. Since Akshaya needs to distribute weekly once at its retailer’s outlets, it need not maintain inventory for more than 2 weeks. ? In case Akshaya Marketing is unable to achieve the required turnover and hence the target ROI of 25% it
What can Nestle’s Sales Manager do?
? If Nestle’s Sales Manager comes to know
about Akshaya’s plans to take distribution of HLL, he/she should try to retain its distributorship as Akshaya generates the maximum turnover in chocolates compared to other Cash distributors ? The sales Manager can take some of the following steps to prevent Akshaya Marketing from taking HLL distributorship
1. Increasing Akshaya Marketing’s Commission rate
What can Nestle’s Sales Manager do?
2. Nestle can also help Akshaya get out of the credit trap by offering discounts to Akshaya thereby Akshaya can offer the same discounts to the retailers for cash payments 3.Nestle can also take care not to dump excess stock in Akshaya Marketing as Akshaya needs to avail bank loans in order to fund for the surplus stock which it is unable to sell 4.Nestle can promote its products more aggressively in the ‘non key outlets’ where demand is varying and hence help Akshaya Marketing in gaining a foothold in those markets
doc_946361456.pptx