SALES AND DISTRIBUTION MANAGEMENT SYSTEM
Contents
1.1 1.2 Common Definitions and Vocabulary.............................................................................. 3 Sales Budgeting ................................................................................................................ 4 Market Segmentation ................................................................................................ 5 Customer Segmentation ............................................................................................ 6 Product Segmentation ............................................................................................... 7
1.2.1 1.2.2 1.2.3 1.3 1.4
Sales Flow ........................................................................................................................ 8 Customer Enquiry and Preparation of Quotation ............................................................. 8 Customer Enquiry ..................................................................................................... 8 Preparation of Quotation ......................................................................................... 10
1.4.1 1.4.2 1.5
Customer Order Processing ............................................................................................ 11 Purchase Order (PO) ............................................................................................... 11 Sales Order (SO) ..................................................................................................... 13 Invoice (or bill) ....................................................................................................... 14 Steps in order processing ........................................................................................ 15
1.5.1 1.5.2 1.5.3 1.5.4 1.6
Pending Customer Orders .............................................................................................. 15 Procedure to handle Pending Orders....................................................................... 16
1.6.1 1.7
Sales Analysis ................................................................................................................ 16 Importance of Sales Analysis.................................................................................. 16 Computerized Sales Analysis: ................................................................................ 17
1.7.1 1.7.2 1.8
Sales Management.......................................................................................................... 17 Functions of Sales Management ............................................................................. 18 Objectives of Sales Management ............................................................................ 18 Principles of Sales Management ............................................................................. 18 Problems in Sales Management .............................................................................. 19
1.8.1 1.8.2 1.8.3 1.8.4 1.9
Distribution Management System .................................................................................. 20 Marketing (Distribution) Channel........................................................................... 20 Different intermediary channels ............................................................................. 21
1.9.1 1.9.2
1.9.3 1.9.4 1.9.5 1.10 1.11 1.12
Different forms of channels .................................................................................... 21 Importance (or need) of Distribution Channels ...................................................... 22 Challenges of Distribution Channels ...................................................................... 22 Components of designing Sales Management System ............................................... 23 Case Study on Sales and Distribution Management System ...................................... 25 Model Question Bank ................................................................................................. 26
Objective: Sale and distribution form an important part of every industry. The objective of this chapter is to understand the different aspects of sale and distribution process like sales budgeting, sales forecasting, segmentation, order processing, sales analysis, sales management and channels of distribution which would provide the building blocks of building an effective Sales and Distribution Management System.
1.1 Common Definitions and Vocabulary
Let us first understand the common definitions and terminologies used in the world of sales and distribution management:
? ? ? ? ? ? ? ? ? ? ? Company: Any entity engaging in business, such as a proprietorship, partnership, or corporation. Product: The end result of the manufacturing process, to be offered to the marketplace to satisfy a need or want. Market: A public place where buyers and sellers make transactions, directly or via intermediaries. Supplier/Vendor: A company which supplies parts or services to another company. Customer: A person, company, or other entity which buys goods and services produced by another person, company, or other entity. Raw Material: Unfinished goods consumed by a manufacturer in providing finished goods. Inventory: A company's merchandise, raw materials, and finished and unfinished products which have not yet been sold. Enterprise Resource Planning (ERP) system: Integrated computer based system used to manage internal and external resources. Pricelist: List indicating rates payable for different goods. Either on sheet of paper, online, booklet etc. Catalogue: Book/e-Book containing description of goods for sale along with price, features and technical specifications. Price Current: Price current is the price for which goods usually sell in the market. A printed newspaper containing a list of such prices is also called a price current. Generally astatement or list of the prevailing prices of merchandise is published at regular intervals. Firm Order: An order to a broker to buy or sell a security, where the order is not dependent on later confirmation by the client. Rather, the client makes the order and the broker fills it. Consumer Product: Merchandise or other item of common or daily use, ordinarily bought by individuals or households for private consumption. Expenses incurred: In terms of distribution mode, it can be elaborated as the expense paid against storing the goods, packing, shipping, taxes, freight etc.
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Sale: It is an activity involved in the selling of products or services in return for money or other compensation. It is an act of completion of a commercial activity. Distribution: It is the process of making a product or service available for use or consumption by a consumer or business user, using direct means, or using indirect means with intermediaries. Each of the elements in the distribution chain will have their own specific needs, which the producer must take into account, along with those of the all-important end-user. Channels: They are sets of independent organisations (called intermediaries) involved in making the product available for consumption like distributors, retailers, etc.
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1.2 Sales Budgeting
A sales budget is a detailed schedule showing the expected sales for the budget period; typically, it is expressed in both revenue and units of production. It is the starting point in preparing the master budget. All other items in the master budget including production, purchase, inventories, and expenses, depend on it in some way. The sales budget is constructed by multiplying the budgeted sales in units by the selling price. Importance of Sales Budget: It helps you to answer questions like: 1. How much can you realistically sell next year? 2. How much will you charge for your goods or services? 3. How much will it cost to produce your product? 4. How much are your operating expenses? How to control expenses? 5. Do you need to hire employees? If so, how many, and how much will you pay? 6. Improve distribution channels if possible. 7. Improve overall sales and marketing strategies.
Sales forecasting: Prediction of the future sales of a particular product over a specific period of time based on past performance of the product, inflation rates, unemployment, consumer spending patterns, market trends, and interest rates. In the preparation of a comprehensive marketing plan, sales forecasts help the marketer develop a marketing budget, allocate marketing resources, and monitor the competition and the product environment. Thus the budget sets the minimum requirements whereas a forecast is usually an
expectation of what is likely to happen.
Companies that implement accurate sales forecasting processes realize important benefits such as: 1. 2. 3. 4. Enhanced cash flow Knowing when and how much to buy In-depth knowledge of customers and the products they order The ability to plan for production and capacity
5. The ability to identify the pattern or trend of sales 6. Determine the value of a business above the value of its current assets 7. Ability to determine the expected return on investment The combination of these benefits may result in: ? ? ? ? Increased revenue Increased customer retention Decreased costs Increased efficiency
Segmentation is important process as part of defining the sales budget. The different forms of segmentation are:
1.2.1 Market Segmentation
Market Segmentation is defined as the process of splitting customers, or potential customers, in a market into different groups, or segments, within which the customers share a similar level of interest in the same or comparable sets of needs satisfied by a distinct marketing proposition. It is also explained as a marketing technique that targets a group of customers with specific characteristics, i.e. a particular group that has its own distinct customer profile and buyer characteristics so that for marketing purposes, it can be targeted separately from other segments of the market.
1.2.1.1 Benefits of Market Segmentation
1. 2. 3. 4. 5. 6. 7. Helps in better understanding of the customers’ needs and wants Better targeting and position of the product Encourages two-way communication among the potential buyer and the organization Maintaining effective relationship with the customers Retaining the existing customers and attracting new ones Improving service delivery standards Reducing cost / expenses on various marketing activities and increasing market share; resulting in higher profits
1.2.1.2 Conditions for effective Market Segmentation
? ? ? ? ? Measurable: It should be possible to determine the values of the variable used for the segmentation. Relevant: It should justify the expected profits and the growth potential. Accessible: The target customers must be reachable and servable for the organization. Distinguishable: The target audiences must be diverse and able to show different reactions to different marketing mix. Feasible: The firm must have an ability to draw an effective marketing program for its customers.
1.2.2 Customer Segmentation
Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, and so on. Using segmentation allows companies to target groups effectively, and allocate marketing resources to best effect. With Consumer Segmentation the market is divided on the basis of: 1. Geography 2. Demography 3. Psychological 4. Buying behaviour
1.2.2.1 Geographic Segmentation Geographic Segmentation divides markets into different geographical units like: 1. Regional Population Distribution: Segmented on the basis of region 2. Urban, Suburban and Rural Distribution: Segmented on the basis of city size or population concentration 3. Size of Metropolitan Area: Segmented on size of population drawn along country lines and may cross state borders. Further classified as: a. Metropolitan Statistical Area (MSA): Population of 50,000 to 1,00,000 b. Primary Metropolitan Statistical Area (PMSA): Large MSA population at least 10,000,00 c. Consolidated Metropolitan Statistical Area (CMSA): Giant urban centre consisting of two or more adjacent PMSA’s. 1.2.2.2 Demographic Segmentation
Demographic Segmentation divides the population based on following variables:
1. 2. 3. 4. 5. 6. 7. 8. Age (e.g.: Baby Foods) Gender (e.g.: Lipstick for females) Family size (e.g.: Big size car) Income (e.g.: Credit Cards) Occupation (e.g.: Medical/Surgical Instruments) Education (e.g.: Pens/Pencils/Dissection boxes to students) Ethnicity/religion (e.g.: God idols and frames) Nationality (e.g.: Amul Taste of India)
1.2.2.3 Psychographic (Psychological) Segmentation Psychographic Segmentation divides market based upon: 1. Activities (e.g.: dividing based on leisure activities, driving preferences, eating out habits, etc.)
2. Opinion (e.g.: growth of demand for organic foods or products that are (or are “perceived” to be) environmentally friendly) 3. Interests (e.g.: musical instruments, sports goods etc.) 1.2.2.4 Behavioral Segmentation Behavioural Segmentation divides the markets based on customer buying behaviour: 1. Benefits (e.g. Toothpaste, for example, is not only bought to maintain healthy teeth and gums, but also because of its taste and in order to help combat bad breath) 2. Usage (e.g. use of cell phones for different functions) 3. Brand Loyalty (e.g.: customers buy the same hand wash for years) 4. Occasional/Festival (e.g.: Umbrellas, firecrackers etc.)
1.2.3 Product Segmentation Product Segmentation can be classified into: 1. Consumer product 2. Business product Consumer product is further classified into:
a. Convenience Goods (Soap, Toothpaste, Cooking gas): Consumer is already aware of it. b. Shopping Goods (Furniture, Automobiles): Consumer tends to look before buying. c. Speciality Goods (Electronic Appliances/Health Products – Exercise Machines): Consumer generally buys preferred brands, is ready to wait and sacrifice. d. Unsought Goods (Cell phone, PDA): New in the market and consumer is not aware, or is aware but not sure.
Business product is further classified into: a. b. c. d. e. Raw materials: Goods that become part of another tangible product Major equipment: Like CNC machines Accessory equipment: Like Cash counting machines in shops Component parts: Like Tyres in automobile industry Process materials: Classification of goods bought by organizations for incorporation into a product; the process materials cannot be recognized in the finished product f. Operating Supplies: Fabricating Oil, Pencils g. Service: Like housekeeping services
1.3 Sales Flow
Following are the steps involved in a typical sales flow: ENQUIRY
QUOTATION
ORDER
DELIVERY & INVOICE And
SALES ANALYSIS
Figure 1: Steps in a Sales Flow
1. 2. 3. 4. 5. 6.
Customer Enquiry: Seeking information about the availability of certain goods Preparation of Quotation: Answer to the enquiry Placing an Order: Asking for the goods with exact specification Order processing: Delivering the goods and raising an invoice Pending Orders: The orders which cannot be completed Sales analysis: For improving the process of sales
We will study the above steps in detail.
1.4 Customer Enquiry and Preparation of Quotation
1.4.1 Customer Enquiry
Customer Enquiry is the first step in commercial transaction. Prospective buyers have a choice on what to buy, whom to buy from and what price to buy at. It is defined as the process of seeking information about the availability of certain goods and the terms at which they are offered for sale. ? Enquiry letter must consist of following salient features: 1. Must specify the exact type of goods required to buy (size, style, shape, colour, quality, brand, etc.)
2. 3. 4. 5. ?
Specify quantity for purchase Provide samples if available Catalogue if provided Clearly state the terms and conditions (discount, payment terms, etc.)
Types of enquiries: Enquiries can be created through: 1. Sellers website 2. Telephonic 3. Email 4. Direct walk-in Follow up: A sellers nominated customer care executive does the follow up of a buyer’s enquiry. Number of times many a follow ups are required, these are generally logged for the performance of the customer sales department, product demand and buyers interests. Closure: An enquiry is to be handled, either completed or cancelled as closed.
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Example of Customer Enquiry letter: Consider a scenario where ABC computers assembles and sell computers. REDsoft is a software company and they require buying 5 computers from ABC Computers. So they send in an enquiry form to ABC computers, clearly stating what exactly they are looking for in buying.
Figure 2: Format of an Enquiry Letter
Details in above Enquiry Letter: 1. Address of REDsoft: The location where goods (computers) will be delivered. If delivery address is different than the address on letter head, it must be specified 2. Ref: ENQ10090: This is for reference purposes for REDsoft and ABC when they start discussion. e.g.: With reference to your enquiry# ENQ10090. This can be a unique number (primary key) in REDsoft’s EMS - Enquiry management system. 3. No of computers stated - 5 4. Details of the configuration 5. Estimated time for 30 days from order. Thus, REDsoft has clearly adhered to the rules of an ideal enquiry process. Now ABC computers is interested to sell the computers to REDsoft, so it will answer to this enquiry.
1.4.2 Preparation of Quotation
The answer to the enquiry is called as a quotation. It is the second step in a commercial transaction. The seller (in our example, ABC Computers) has to give immediate attention to the prospective buyers, by quoting the terms of sale on goods covered in the enquiry letter (form) Quotation must consist of following salient features: 1. Thank the enquirer 2. Specify price of goods asked in the enquiry 3. State terms of sale 4. Payment terms 5. Specify delivery schedule: Time, place and delivery locations 6. Provide samples/ catalogues if possible Example of Quotation:
Figure 3: Format of a quotation
Details in above quotation: 1. Address of ABC Computers - From where goods (computers) will be dispatched 2. Address of REDsoft Corp - where goods (computers) will be delivered 3. QTn# 190078 - A unique (primary key) assigned as the serial number to the quotation for all further references to ENQ#10090. This is mapped in the EMS software 4. Description of the goods to be dispatched 5. Payment terms 6. Delivery terms 7. Other terms and conditions like Tax/VAT etc.
1.5 Customer Order Processing
1.5.1 Purchase Order (PO)
A purchase order is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. The buyer uses it to request products and services from suppliers instead of calling them to request their purchase.
In our example, once REDsoft is happy with what ABC offers, it sends ABC Computers a Purchase Order. Example of PO form:
Figure 4: Purchase Order form
Thus on the PO form you describe: 1. What it is that you require (product details) 2. When you want it and (timelines for the order to materialize) 3. Where do you want it (shipping name and address) 4. How much you expect to pay for it By using this Purchase Order template, you can ensure you receive exactly what you have ordered, at the right time and the right price.
1.5.2 Sales Order (SO) A sales order is an internal document of the company, meaning it is generated by the company itself. A sales order should record the customer's purchase order which is an external document. The customer's PO is the originating document which triggers the creation of the sales order. A sales order, being an internal document, can therefore contain many customer purchase orders under it. In a manufacturing environment, a sales order can be converted into a work order to show that work is about to begin to manufacture, build or engineer the products the customer wants. The SO from ABC Computers is raised against PO raised by REDsoft.
Below is a sample screen shot of a SO:
Figure 5: Sales Order form
Thus on the SO form you describe: 1. What it is that you will provide (product item details with price and quantity) 2. When will you ship it (Customer Required Date (CRD) or Delivery Date) 3. Where will you ship it (shipping name and address)
4. Expected money for the sale 5. Reference to the PO, Quotation, etc. 6. Terms of payment, delivery, taxation etc. Once goods are ready for dispatch, a Delivery Note (DN) is sent to the warehouse along with description of scheduled items to ship out. The warehouse then takes care of packing the goods and dispatching them by the terms of delivery attached in the Delivery note/Sales Order. An Invoice (Bill) will be sent along with the shipment.
1.5.3 Invoice (or bill)
An invoice (or bill) is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms. The buyer has a maximum amount of days to pay these goods and are sometimes offered a discount if paid before.
Figure 6: Invoice
Thus on the Invoice you describe: 1. Invoice number and date 2. Customer details (name, address, etc.) 3. Delivery details (number, date, shipping/unloading point, transporter, etc.) 4. Reference Sales Order/Purchase Order 5. Product details 6. Cost and Taxes 7. Payment terms, other terms and conditions
1.5.4 Steps in order processing To summarize, following will be the steps as part of customer order processing:
1. As a first step a potential buyer raises a customer enquiry to eligible sellers. This can also be called as process of procuring by the buyer. Procuring can be done by a voluntary offer, advertisement or through selling agents. 2. The interested sellers provide a quotation to the buyer. 3. The buyer compares the different quotation on different parameters like cost, quality, terms and conditions, etc. and chooses a particular seller 4. The buyer then sends a Purchase Order (PO) to the seller 5. The seller raises a Sales Order (SO) in response to the PO and converts purchase order information to an actual order. Before that he checks if it is possible to execute the order according to terms and conditions and checking other aspects (like stock, quality, etc.) 6. The seller also generates customer invoices and ships the goods to the buyer. The seller also sends the buyer the receipts or documents which entitle him to claim the goods.
1.6 Pending Customer Orders
Pending orders are orders which are normally pending with the seller, and are not completely/partially delivered to the buyers. The reasons could be: 1. Lack of manpower to execute orders in hand 2. Lack of skilfully doing a job, time is wasted 3. Shortage of inventory 4. Too many orders in hand 5. Orders are complete but distribution channel is slow 6. Customer credit issues: Payment problems from customers/buyers 7. Sudden price raise or change in taxation rules 8. Priority changes for certain products, slowing other products completion 9. Other considerable factors like natural disasters - fire, earthquake etc. at manufacturing units
1.6.1 Procedure to handle Pending Orders
1. Such situations tend to disappoint customers; this has to be handled with proper customer relations and communications. 2. Explain the reasons for delay, so the buyer/customer is aware of the delayed delivery schedule. 3. Expedite order creation: As a next process, a proper plan to be implemented to continue efficient delivery schedule and avoid orders to wait. 4. Age wise analysis for corrective action: A report according to time will scrutinize the situation of the orders age wise, to determine which orders are required to be pushed at priority. 5. Lack of product/part availability: All inventories to be warehoused/stocked properly to avoid out of status, this can be attained using the concept of EOQ: Economic Order Quantity. 6. Respect Customer Required Date (CRD) and improve process to maintain: The customer frames a CRD because it is planned, thus the seller should respect and do his best to deliver the same on the CRD mentioned.
1.7 Sales Analysis
It is determination of the extent to which a sales force has met its sales objectives within the specified timeframe. Through sales analysis, a business will become familiar with emerging trends in the marketplace. When sales fluctuate, it implies new trends manifesting that a company needs to master to keep sales on par with those of the competition. A company needs to know which products competitors are selling more of to draw its own strategy. Sale analysis can be done: 1. By territory: Geographical area and quotas. E.g. Northern/Western/Eastern/Southern 2. Sales person: Problems faced and ways to work out individual problems faced in selling the product 3. Product line: In case of multi products, the company analysis its force on sale depending how particular product performs in the market. E.g. Tata Motors: Cars/SUV/Trucks/Insurance/Salt etc. 4. Customer: Compares loyal customers with shifting customers
1.7.1 Importance of Sales Analysis
It will be help the companies to find following critical information: 1. Cost of goods revenue of sale / Profit per revenue 2. Cost per segment / Cost per territory 3. Cost per sales person / Cost per channel member 4. Average cost / order Sample Sales Analysis:
Western Region Sales (Q4 Oct to Dec 2011) ABC Computers Sales Area Pune Mumbai Goa Total Planned 10000 25000 5000 40000 Actual 12500 22000 1400 35900 P/L 2500 -3000 -3600 -4100 %Quota 125 % 88 % 28 % 89.75 %
Figure 7: Region/territory sales of ABC Computers
1.7.2 Computerized Sales Analysis:
Using simulation provided with a database of product related data to analyse the sales is called Computerized Sales Analysis and it uses: 1. Basic statistical measures of average (mean, median) 2. Basic statistical measures of spread (variance and standard deviation) 3. Histogram 4. Correlation Analysis 5. Pareto Analysis Computerized Sales Analysis can be used to perform the following: 1. Organise and analyse data 2. Define reports 3. Modify data 4. Select groups of records 5. Summarise data 6. Compare data
1.8 Sales Management
Sales Management is the art of meeting and exceeding the sales goals of an organization through effective planning, controlling, budgeting and leadership. It is an important business function as net sales through the sale of products and services and resulting profit drive most commercial business. These are also typically the goals and performance indicators of Sales Management. Sales Management can involve any of the following activities: 1. Formulation of sales strategy through development of account management policies, sales force compensation policies, sales revenue forecasts and sales plan. 2. Implementation of sales strategy through selecting, training, motivating, and supporting the sales force, setting sales revenue targets.
3. Sales force management through development and implementation of sales performance, monitoring, and evaluation methods, and analysis of associated behavioural patterns and costs. Thus, Sales Management helps the organization to achieve the sales targets efficiently.
1.8.1 Functions of Sales Management The following are important functions performed by Sales Management:
1. Size of Sales Force: Determine how much resource in terms of size of sales force is required to sell the product. 2. Determine Sales Organization: Determine the number of sales offices required and their organization to function and cater customers. 3. Determine Sales Regions (Territory): Combine sales offices under various regions to monitor sales volume and profits. 4. Recruitments/Trainees: To recruit sales people as and when required, train them if necessary with company made sales policy and regulations. 5. Task Allocation and Target Setting: Assign sales tasks to region/office/individually and target volume and profit for calculating sales budgets and management related reports. 6. Appraisals/Compensations/Commissions: Perform appraisals and calculate compensations and commissions, which help, sell products faster due to increase in team morale. 7. Feedback mechanism: Interact with customers and generate an improvement in sales functions. 8. Distribution channel management: Manage distribution channels so that the product reaches well in time, at correct place and price.
1.8.2 Objectives of Sales Management The following are objectives of the Sales Management from company’s viewpoint:
1. 2. 3. 4. Achieving target goals by acquiring sufficient sales volume. Providing contribution to profits Help continuous growth of the product life cycle Reduce expenses and raise gross margins to convert loss into profit
1.8.3 Principles of Sales Management
Following are the principles to be followed by sales managers to efficiently perform their role: 1. Lead by example: A successful sales manager has higher standards and stricter policies than the company requires. 2. Instil discipline in your organization: People must be told the discipline measures to be followed. 3. Let them know what’s expected: Sales managers must let people know exactly what’s required of them.
4. Manage your people individually: While training, giving constructive criticism, taking disciplinary action it must be done one to one with people 5. Be goal oriented: People should know that hitting the goals and targets is the primary purpose of being in business. 6. Treat others as you want to be treated: People must be treated with due respect. 7. Catch them doing something right: Providing positive feedback on a regular basis makes it easier to deliver negative feedback when necessary. 8. Manage on objective information: The decisions must be based on information and not bias. 9. Get on the floor: Sales managers should always ready to be on the floor if the situation demands so 10. Be direct and to the point: The sales managers must be direct, clear, and concise in their conversations. 11. Don’t settle for the status quo: Sales managers need to keep on improving the different processes and targets. 12. Be firm but fair: Everyone must be treated with same process for a given action.
1.8.4 Problems in Sales Management It is important to understand the problems faced by Sales Management. For better understanding let us take an example where a company CREATIVE EDUCATIONAL PRODUCTS (CEP) wants to launch a new pen for students in market called Wonder Pen and decides to sell it for Rs.5. Let us see what are the different problems faced by the company:
1. Introduction to a new Product: This happens when a new product comes in the market and the customer/buyer is reluctant to buy it. At this time sales management decides to promote the product through different advertising channels like: ? ? ? ? ? Television Radio Cinemas Newspapers Banners and hoardings in public places
? Internet etc. Buyers are thus introduced to the product brands. Sometimes samples are distributed free of charge as samples for the buyer to use and feel comfortable with the use of the product. CEP will market their pen in stationary stores nearby to colleges, schools and institutes using hoardings. Also it could publish advertisement in newspapers. 2. Demand Creation: As the product is now known in the market, the manufacturer/seller identifies who are the potential buyers and creates a need of the product making it a demand. The problem which they may face is customers sticking to existing products and non-accepting of new product. Thus, after students start using Wonder Pen, they may realise that they are getting good worth for Rs.5, but it is important to convince them to use it for first time.
3. Market Research: For the manufacturer/seller to gain profitability, it is necessary for him to know how good the product is doing in the market. He thus carries out a market research depending on the following factors: ? ? ? Volume of sale region wise. (What is quantity of Wonder Pen sold in different areas?) Customer reaction toward the usage. (Do students like using Wonder Pen?) Efficiency of products distribution on time and correct price. (Is the Wonder Pen available on time and correct price?)
? Dealer behaviour towards the products sale. (What is shopkeepers view about Wonder Pen?) 4. Sales Forecast and Product Development: Depending on the market research, the seller can study and find out how well the product is doing in the market. It will help to understand whether any modifications are required to boost up sales. It also helps him to know in which region the product responded well, so he can focus on more distribution in that particular area. Thus if Wonder Pen manufacturer find that pens are getting sold higher in particular area, they will double the shipments to that area. If Wonder Pen overall is a success, then CEP can think of manufacturing a new series of gel pens called Wonder Gel Pen and sell for Rs.5.00. 5. Managing distribution channels: This is major problem for Sales Management to efficiently manage the distribution channels to keep the overall costs low. Thus, if pens can be reached at correct places in time and at low cost shipping a box of 500 pens and there are many boxes to be shipped to many stores, CEP has to think of a perfect route of distribution, so that the vehicle will move straight in one direction distributing the boxes efficiently, without making round trips.
1.9 Distribution Management System
1.9.1 Marketing (Distribution) Channel
Marketing Channel is a set of practices or activities necessary to transfer the ownership and move goods, and from the point of production to the point of consumption and it consists of all the institutions in the marketing process. The different roles played by marketing channels include: 1. Linking producers to buyers 2. Performing sales, advertising and promotion 3. Influencing the firm's pricing and product strategy 4. Customizing profits, offering credit, etc. Activities involved in the marketing channel are wide and varied and include 1. Ordering 2. Handling and shipping 3. Storage
4. 5. 6. 7.
Display Promotion Selling Information feedback
1.9.2 Different intermediary channels
There are different intermediary channels between the producer and the consumer which add unique value at each level. Let us look at their value additions: 1. Resellers: These organizations, also known within some industries as intermediaries, distributors or dealers, generally purchase or take ownership of products from the marketing company with the intention of selling to others. These organizations can be classified into several sub-categories including: ? ? ? Retailers – Organizations that sell products directly to final consumers. Wholesalers – Organizations that purchase products from suppliers and in turn sell these to other resellers, such as retailers or other wholesalers.
Industrial Distributors – Firms that work mainly in the business-to-business market selling products obtained from industrial suppliers. 2. Specialty Service Firms: These are organizations that provide additional services to help with the exchange of products but generally do not purchase the product (i.e., do not take ownership of the product). These organizations can be classified into several sub-categories including: ? ? ? Agents and Brokers – Organizations that mainly work to bring suppliers and buyers together in exchange for a fee. Distribution Service Firms – Offer services aiding in the movement of products such as assistance with transportation, storage, and order processing. Others – This category includes firms that provide additional services to aid in the distribution process such as insurance companies and firms offering transportation routing assistance, or software companies providing distribution management software.
1.9.3 Different forms of channels Distribution channels are primarily of two types: 1. Direct Marketing Channel or Zero level 2. Indirect Marketing Channel Let us see the examples of each: ? 0 Level : Also called Direct Marketing Channel Producer ??????????????????????Consumer E.g. Eureka Forbes
Indirect Marketing Channels can be further classified depending on the number of intermediaries: ? 1 Level Producer ???????Distributor / Retailer???????Consumer E.g.: Most commercial products, perishable items - milk, bakery etc. ? 2 Level Producer ????Wholesaler???Retailer????Consumer E.g.: Distribution of drugs, FMCG, etc. 3 Level Producer ??Distributor??Wholesaler??Retailer??Consumer E.g.: Convenience products, appliances etc. ? 4 Level Producer?Agent?Distributor?Wholesaler?Retailer?Consumer E.g.: Consumer durable products, etc.
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1.9.4 Importance (or need) of Distribution Channels It is impossible for a company to handle all aspects of distribution including shipping, reselling, promotion, etc. by themselves and they would definitely need the services of other channel partners. The importance of the distribution channels is because of the numerous benefits they add to the consumer experience of buying a product: 1. The different channel partners are specialist in their own areas and they help to bring down the costs along with providing best of service to the customers. 2. The channel members perform their job more rapidly resulting in faster product delivery. It also helps that the channel members like shipping companies can collect goods from different companies and provides it to the target destinations. 3. By handing over the responsibility of some of functions to channel intermediaries, the manufacturers are themselves able to concentrate on their core business. 4. The channel members like retailers help the customers to get all the products they want conveniently at a single location. 5. Resellers can help you to generate demand and create sales by marketing and educating the customers about your product 6. Some channel partner offer financial support to the customers by providing purchase on credit, easy instalment plans, etc.
1.9.5 Challenges of Distribution Channels 1. Sometimes the cost of different channel partners may start spiraling upwards due to various issues.
2. The manufacturer has no control on the communication about his products and has to depend on how the retailers project the products. 3. The overall success of the product would not depend on just the quality of the product but also how fast the product is provided, the buying experience of the customer, etc. which in turn is dependent on the efficiency of the channel intermediaries.
1.10 Components of designing Sales Management System
Consider a simple scenario where ABC computers is providing multiple quotations to its multiple buyers about the different computers it has to offer. ABC computers can raise multiple bills or raise multiple sales orders. Buyers can themselves place multiple sales orders.
Figure 8: Entity Relationship Diagram
The different entities of a Sales Management System supporting the above ER diagram would be: Customer Data Element Customer_id Name Gender Date_of_birth E-mail Passport no. Password Phone Data Type Autonumber Text Text Date/Time Text Text Text Text Size 10 50 1 40 10 20 15 Description Primary Key Customer name Customer gender Customer date of birth Customer e-mail Customer/Passport Customer Password Customer phone no. Validation No duplicate M/F dd/mm/yyyy e-mail format Number
Affiliate Data Element Affiliate_id Name Phone E-mail Password Service Data Type Autonumber Text Text Text Text Text Size 10 50 15 40 20 30 Description Primary Key Affiliate name Affiliate phone no. Affiliate e-mail Affiliate Password Affiliate service Validation No duplicate Number e-mail format -
company’s -
Order Data Element Order_id Date Customer_id Affiliate_id Payment_id Schedule Data Element Schedule_id Date Available Data Type Autonumber Date/Time Text Size 10 30 Description Primary Key Available date Affiliate company available on a date Validation No duplicate dd/mm/yyyy Data Type Autonumber Date/Time Integer Integer Integer Size 10 10 10 10 Description Primary Key Order’s date Customer’s id Affiliate id Order’s payment id Validation No duplicate dd/mm/yyyy Valid id Valid id Valid id
Payment Data Element Payment_id Type Status Due date Amount Customer_id Goods Data Element Goods_id Goods_type Goods_name Goods_cost Data Type Autonumber Text Text Number Size 10 10 50 10 Description Primary Key Goods type Goods name Goods cost Validation No duplicate Data Type Autonumber Text Text Date/time Number Integer Size 10 10 50 10 10 Description Primary Key Payment type Payment Status Payment due date Amount of payment Customer’s id Validation No duplicate dd/mm/yyyy Numeric Valid id
Bills Data Element Bill_no Bill_date Customer_id Item name Qty Rate Amount Data Type Autonumber Date/Time Integer Text Integer Number Number Size 10 10 50 10 10 10 Description Primary Key Bill date Customer’s id Item name Qty Rate Amount Validation No duplicate dd/mm/yyyy Valid id -
Quotation Data Element Quotation_no Quote_date Customer_id Item name Qty Rate Amount Data Type Autonumber Date/Time Integer Text Integer Number Number Size 10 10 50 10 10 10 Description Primary Key Quotation date Customer’s id Item name Qty Rate Amount Validation No duplicate dd/mm/yyyy Valid id -
1.11 Case Study on Sales and Distribution Management System
Problem Statement: Allchem Solutions Pvt. Ltd. is an antibiotic manufacturing company located at Pune that deals with production and sale of medicines. The sales and order processing department of the company deals with the sale of medicines to different medical shops within Pune, as well as to medical shops outside Pune. The order processing for medical shops outside the city is done through dealers. Each city has three dealers, who accept orders from the medical shops within their area and forward it to the sales department of Allchem Solutions. The medicines are sent to the dealer site and from there it is distributed to the corresponding medical shops. It has been found that, there is a lot of time lapse, between the placing of orders and obtaining the medicines, for the medical shops outside Pune. Due to this, most of the medicines remain out of stock for a longer time, in these shops. Suggest a suitable business process, to model the above situation, so that order processing for medical shops outside Pune can be faster, even though it has to go through a dealer (as per the sale rules of Allchem Solutions). Specify the different input documents (detailed documents) that are necessary for your specified business process and also suggest any supporting reports that can be obtained from your specified business process.
Approach to solve the Case Study: The Case Study deals with improvement of the Sales and Distribution Management System for a company. 1. First collect the direct stated facts: ? Allchem Solutions Pvt. Ltd. sells its products through its dealers ? There is lot of time lapse, between the placing of orders and obtaining the medicines ? The effect is medicines remain out of stock and the overall sale is reduced
2. Then collect the unstated facts: ? The new order processing system needs to be put in place ? Also a system has to be put in place to keep a track of all the dealers and their stocks/bills receivable needs to be improved 3. Specify the input documents that can be used to improve the process. Draw the document formats wherever possible: ? Allchem Solutions must provide a standard Quotation to the dealers specifying the exact terms and conditions (provide standard Quotation format) ? Each of dealers should use a standard Purchase Order form to provide the order (provide standard Purchase Order format) ? Allchem Solutions must use the Purchase Order form to convert into a Sales order as well as generate an Invoice (provide standard Sales Order and Invoice format) ? Dealers must maintain inventory and Allchem Solutions must provide ideal inventory levels when the dealers must raise a purchase order 4. List output reports which can be generated from the Sales and Distribution Management System like: ? List of orders received with details ? Total quantity of different products required on periodic basis ? Status of delivery and payment
1.12 Model Question Bank
Answer in brief (1-2 lines): Define: 1. Market Segmentation 2. Product 3. Consumer Product 4. Enquiry 5. Quotation 6. Pricelist 1 mark
7. 8. 9. 10. 11. 12. 13.
Catalogue Firm Order Price Current Expense incurred Order Sales Analysis Pending Customer orders 3 marks
Write Short Notes on: 1. Geographical Segmentation 2. Demographic Segmentation 3. Psychological Segmentation 4. Consumer Products 5. Enquiry 6. Order Placing 7. Pending Customer Order 8. Order Procurement 9. Purchase Order 10. Sales Order 11. Invoice
Answer the following in detail: 5 marks 1. What are the factors considered while formulating Sales Budget? 2. Pending orders need to be attended promptly. Explain. 3. Explain Sales Analysis. 4. Explain the benefits of Market Segmentation? 5. Describe the classification of Consumer Segmentation? 6. What is the main function of Sales and Distribution Management System? List any four key decision areas of sales management. 7. What is market segment? State the factors, based on which market segmentation is done. 8. What is a budget? What is sales budget? 9. Explain the process of computerized sales analysis? 10. What do you mean by Sales Forecasting? 11. What is channel management? Explain with examples different types of channel. 12. Why do we need Sales Analysis? What are the different steps involved in sales analysis? 13. What do you mean by enquiry? Explain the functioning of the Enquiry Management System. What is reply to enquiry called? 14. Define quotation. Write the features of quotation? What are the essential things to be specified while writing the quotation?
15. Explain customer order processing. 16. List the principles of Sales Management.
doc_226310799.docx
Contents
1.1 1.2 Common Definitions and Vocabulary.............................................................................. 3 Sales Budgeting ................................................................................................................ 4 Market Segmentation ................................................................................................ 5 Customer Segmentation ............................................................................................ 6 Product Segmentation ............................................................................................... 7
1.2.1 1.2.2 1.2.3 1.3 1.4
Sales Flow ........................................................................................................................ 8 Customer Enquiry and Preparation of Quotation ............................................................. 8 Customer Enquiry ..................................................................................................... 8 Preparation of Quotation ......................................................................................... 10
1.4.1 1.4.2 1.5
Customer Order Processing ............................................................................................ 11 Purchase Order (PO) ............................................................................................... 11 Sales Order (SO) ..................................................................................................... 13 Invoice (or bill) ....................................................................................................... 14 Steps in order processing ........................................................................................ 15
1.5.1 1.5.2 1.5.3 1.5.4 1.6
Pending Customer Orders .............................................................................................. 15 Procedure to handle Pending Orders....................................................................... 16
1.6.1 1.7
Sales Analysis ................................................................................................................ 16 Importance of Sales Analysis.................................................................................. 16 Computerized Sales Analysis: ................................................................................ 17
1.7.1 1.7.2 1.8
Sales Management.......................................................................................................... 17 Functions of Sales Management ............................................................................. 18 Objectives of Sales Management ............................................................................ 18 Principles of Sales Management ............................................................................. 18 Problems in Sales Management .............................................................................. 19
1.8.1 1.8.2 1.8.3 1.8.4 1.9
Distribution Management System .................................................................................. 20 Marketing (Distribution) Channel........................................................................... 20 Different intermediary channels ............................................................................. 21
1.9.1 1.9.2
1.9.3 1.9.4 1.9.5 1.10 1.11 1.12
Different forms of channels .................................................................................... 21 Importance (or need) of Distribution Channels ...................................................... 22 Challenges of Distribution Channels ...................................................................... 22 Components of designing Sales Management System ............................................... 23 Case Study on Sales and Distribution Management System ...................................... 25 Model Question Bank ................................................................................................. 26
Objective: Sale and distribution form an important part of every industry. The objective of this chapter is to understand the different aspects of sale and distribution process like sales budgeting, sales forecasting, segmentation, order processing, sales analysis, sales management and channels of distribution which would provide the building blocks of building an effective Sales and Distribution Management System.
1.1 Common Definitions and Vocabulary
Let us first understand the common definitions and terminologies used in the world of sales and distribution management:
? ? ? ? ? ? ? ? ? ? ? Company: Any entity engaging in business, such as a proprietorship, partnership, or corporation. Product: The end result of the manufacturing process, to be offered to the marketplace to satisfy a need or want. Market: A public place where buyers and sellers make transactions, directly or via intermediaries. Supplier/Vendor: A company which supplies parts or services to another company. Customer: A person, company, or other entity which buys goods and services produced by another person, company, or other entity. Raw Material: Unfinished goods consumed by a manufacturer in providing finished goods. Inventory: A company's merchandise, raw materials, and finished and unfinished products which have not yet been sold. Enterprise Resource Planning (ERP) system: Integrated computer based system used to manage internal and external resources. Pricelist: List indicating rates payable for different goods. Either on sheet of paper, online, booklet etc. Catalogue: Book/e-Book containing description of goods for sale along with price, features and technical specifications. Price Current: Price current is the price for which goods usually sell in the market. A printed newspaper containing a list of such prices is also called a price current. Generally astatement or list of the prevailing prices of merchandise is published at regular intervals. Firm Order: An order to a broker to buy or sell a security, where the order is not dependent on later confirmation by the client. Rather, the client makes the order and the broker fills it. Consumer Product: Merchandise or other item of common or daily use, ordinarily bought by individuals or households for private consumption. Expenses incurred: In terms of distribution mode, it can be elaborated as the expense paid against storing the goods, packing, shipping, taxes, freight etc.
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Sale: It is an activity involved in the selling of products or services in return for money or other compensation. It is an act of completion of a commercial activity. Distribution: It is the process of making a product or service available for use or consumption by a consumer or business user, using direct means, or using indirect means with intermediaries. Each of the elements in the distribution chain will have their own specific needs, which the producer must take into account, along with those of the all-important end-user. Channels: They are sets of independent organisations (called intermediaries) involved in making the product available for consumption like distributors, retailers, etc.
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1.2 Sales Budgeting
A sales budget is a detailed schedule showing the expected sales for the budget period; typically, it is expressed in both revenue and units of production. It is the starting point in preparing the master budget. All other items in the master budget including production, purchase, inventories, and expenses, depend on it in some way. The sales budget is constructed by multiplying the budgeted sales in units by the selling price. Importance of Sales Budget: It helps you to answer questions like: 1. How much can you realistically sell next year? 2. How much will you charge for your goods or services? 3. How much will it cost to produce your product? 4. How much are your operating expenses? How to control expenses? 5. Do you need to hire employees? If so, how many, and how much will you pay? 6. Improve distribution channels if possible. 7. Improve overall sales and marketing strategies.
Sales forecasting: Prediction of the future sales of a particular product over a specific period of time based on past performance of the product, inflation rates, unemployment, consumer spending patterns, market trends, and interest rates. In the preparation of a comprehensive marketing plan, sales forecasts help the marketer develop a marketing budget, allocate marketing resources, and monitor the competition and the product environment. Thus the budget sets the minimum requirements whereas a forecast is usually an
expectation of what is likely to happen.
Companies that implement accurate sales forecasting processes realize important benefits such as: 1. 2. 3. 4. Enhanced cash flow Knowing when and how much to buy In-depth knowledge of customers and the products they order The ability to plan for production and capacity
5. The ability to identify the pattern or trend of sales 6. Determine the value of a business above the value of its current assets 7. Ability to determine the expected return on investment The combination of these benefits may result in: ? ? ? ? Increased revenue Increased customer retention Decreased costs Increased efficiency
Segmentation is important process as part of defining the sales budget. The different forms of segmentation are:
1.2.1 Market Segmentation
Market Segmentation is defined as the process of splitting customers, or potential customers, in a market into different groups, or segments, within which the customers share a similar level of interest in the same or comparable sets of needs satisfied by a distinct marketing proposition. It is also explained as a marketing technique that targets a group of customers with specific characteristics, i.e. a particular group that has its own distinct customer profile and buyer characteristics so that for marketing purposes, it can be targeted separately from other segments of the market.
1.2.1.1 Benefits of Market Segmentation
1. 2. 3. 4. 5. 6. 7. Helps in better understanding of the customers’ needs and wants Better targeting and position of the product Encourages two-way communication among the potential buyer and the organization Maintaining effective relationship with the customers Retaining the existing customers and attracting new ones Improving service delivery standards Reducing cost / expenses on various marketing activities and increasing market share; resulting in higher profits
1.2.1.2 Conditions for effective Market Segmentation
? ? ? ? ? Measurable: It should be possible to determine the values of the variable used for the segmentation. Relevant: It should justify the expected profits and the growth potential. Accessible: The target customers must be reachable and servable for the organization. Distinguishable: The target audiences must be diverse and able to show different reactions to different marketing mix. Feasible: The firm must have an ability to draw an effective marketing program for its customers.
1.2.2 Customer Segmentation
Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, and so on. Using segmentation allows companies to target groups effectively, and allocate marketing resources to best effect. With Consumer Segmentation the market is divided on the basis of: 1. Geography 2. Demography 3. Psychological 4. Buying behaviour
1.2.2.1 Geographic Segmentation Geographic Segmentation divides markets into different geographical units like: 1. Regional Population Distribution: Segmented on the basis of region 2. Urban, Suburban and Rural Distribution: Segmented on the basis of city size or population concentration 3. Size of Metropolitan Area: Segmented on size of population drawn along country lines and may cross state borders. Further classified as: a. Metropolitan Statistical Area (MSA): Population of 50,000 to 1,00,000 b. Primary Metropolitan Statistical Area (PMSA): Large MSA population at least 10,000,00 c. Consolidated Metropolitan Statistical Area (CMSA): Giant urban centre consisting of two or more adjacent PMSA’s. 1.2.2.2 Demographic Segmentation
Demographic Segmentation divides the population based on following variables:
1. 2. 3. 4. 5. 6. 7. 8. Age (e.g.: Baby Foods) Gender (e.g.: Lipstick for females) Family size (e.g.: Big size car) Income (e.g.: Credit Cards) Occupation (e.g.: Medical/Surgical Instruments) Education (e.g.: Pens/Pencils/Dissection boxes to students) Ethnicity/religion (e.g.: God idols and frames) Nationality (e.g.: Amul Taste of India)
1.2.2.3 Psychographic (Psychological) Segmentation Psychographic Segmentation divides market based upon: 1. Activities (e.g.: dividing based on leisure activities, driving preferences, eating out habits, etc.)
2. Opinion (e.g.: growth of demand for organic foods or products that are (or are “perceived” to be) environmentally friendly) 3. Interests (e.g.: musical instruments, sports goods etc.) 1.2.2.4 Behavioral Segmentation Behavioural Segmentation divides the markets based on customer buying behaviour: 1. Benefits (e.g. Toothpaste, for example, is not only bought to maintain healthy teeth and gums, but also because of its taste and in order to help combat bad breath) 2. Usage (e.g. use of cell phones for different functions) 3. Brand Loyalty (e.g.: customers buy the same hand wash for years) 4. Occasional/Festival (e.g.: Umbrellas, firecrackers etc.)
1.2.3 Product Segmentation Product Segmentation can be classified into: 1. Consumer product 2. Business product Consumer product is further classified into:
a. Convenience Goods (Soap, Toothpaste, Cooking gas): Consumer is already aware of it. b. Shopping Goods (Furniture, Automobiles): Consumer tends to look before buying. c. Speciality Goods (Electronic Appliances/Health Products – Exercise Machines): Consumer generally buys preferred brands, is ready to wait and sacrifice. d. Unsought Goods (Cell phone, PDA): New in the market and consumer is not aware, or is aware but not sure.
Business product is further classified into: a. b. c. d. e. Raw materials: Goods that become part of another tangible product Major equipment: Like CNC machines Accessory equipment: Like Cash counting machines in shops Component parts: Like Tyres in automobile industry Process materials: Classification of goods bought by organizations for incorporation into a product; the process materials cannot be recognized in the finished product f. Operating Supplies: Fabricating Oil, Pencils g. Service: Like housekeeping services
1.3 Sales Flow
Following are the steps involved in a typical sales flow: ENQUIRY
QUOTATION
ORDER
DELIVERY & INVOICE And
SALES ANALYSIS
Figure 1: Steps in a Sales Flow
1. 2. 3. 4. 5. 6.
Customer Enquiry: Seeking information about the availability of certain goods Preparation of Quotation: Answer to the enquiry Placing an Order: Asking for the goods with exact specification Order processing: Delivering the goods and raising an invoice Pending Orders: The orders which cannot be completed Sales analysis: For improving the process of sales
We will study the above steps in detail.
1.4 Customer Enquiry and Preparation of Quotation
1.4.1 Customer Enquiry
Customer Enquiry is the first step in commercial transaction. Prospective buyers have a choice on what to buy, whom to buy from and what price to buy at. It is defined as the process of seeking information about the availability of certain goods and the terms at which they are offered for sale. ? Enquiry letter must consist of following salient features: 1. Must specify the exact type of goods required to buy (size, style, shape, colour, quality, brand, etc.)
2. 3. 4. 5. ?
Specify quantity for purchase Provide samples if available Catalogue if provided Clearly state the terms and conditions (discount, payment terms, etc.)
Types of enquiries: Enquiries can be created through: 1. Sellers website 2. Telephonic 3. Email 4. Direct walk-in Follow up: A sellers nominated customer care executive does the follow up of a buyer’s enquiry. Number of times many a follow ups are required, these are generally logged for the performance of the customer sales department, product demand and buyers interests. Closure: An enquiry is to be handled, either completed or cancelled as closed.
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Example of Customer Enquiry letter: Consider a scenario where ABC computers assembles and sell computers. REDsoft is a software company and they require buying 5 computers from ABC Computers. So they send in an enquiry form to ABC computers, clearly stating what exactly they are looking for in buying.
Figure 2: Format of an Enquiry Letter
Details in above Enquiry Letter: 1. Address of REDsoft: The location where goods (computers) will be delivered. If delivery address is different than the address on letter head, it must be specified 2. Ref: ENQ10090: This is for reference purposes for REDsoft and ABC when they start discussion. e.g.: With reference to your enquiry# ENQ10090. This can be a unique number (primary key) in REDsoft’s EMS - Enquiry management system. 3. No of computers stated - 5 4. Details of the configuration 5. Estimated time for 30 days from order. Thus, REDsoft has clearly adhered to the rules of an ideal enquiry process. Now ABC computers is interested to sell the computers to REDsoft, so it will answer to this enquiry.
1.4.2 Preparation of Quotation
The answer to the enquiry is called as a quotation. It is the second step in a commercial transaction. The seller (in our example, ABC Computers) has to give immediate attention to the prospective buyers, by quoting the terms of sale on goods covered in the enquiry letter (form) Quotation must consist of following salient features: 1. Thank the enquirer 2. Specify price of goods asked in the enquiry 3. State terms of sale 4. Payment terms 5. Specify delivery schedule: Time, place and delivery locations 6. Provide samples/ catalogues if possible Example of Quotation:
Figure 3: Format of a quotation
Details in above quotation: 1. Address of ABC Computers - From where goods (computers) will be dispatched 2. Address of REDsoft Corp - where goods (computers) will be delivered 3. QTn# 190078 - A unique (primary key) assigned as the serial number to the quotation for all further references to ENQ#10090. This is mapped in the EMS software 4. Description of the goods to be dispatched 5. Payment terms 6. Delivery terms 7. Other terms and conditions like Tax/VAT etc.
1.5 Customer Order Processing
1.5.1 Purchase Order (PO)
A purchase order is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. The buyer uses it to request products and services from suppliers instead of calling them to request their purchase.
In our example, once REDsoft is happy with what ABC offers, it sends ABC Computers a Purchase Order. Example of PO form:
Figure 4: Purchase Order form
Thus on the PO form you describe: 1. What it is that you require (product details) 2. When you want it and (timelines for the order to materialize) 3. Where do you want it (shipping name and address) 4. How much you expect to pay for it By using this Purchase Order template, you can ensure you receive exactly what you have ordered, at the right time and the right price.
1.5.2 Sales Order (SO) A sales order is an internal document of the company, meaning it is generated by the company itself. A sales order should record the customer's purchase order which is an external document. The customer's PO is the originating document which triggers the creation of the sales order. A sales order, being an internal document, can therefore contain many customer purchase orders under it. In a manufacturing environment, a sales order can be converted into a work order to show that work is about to begin to manufacture, build or engineer the products the customer wants. The SO from ABC Computers is raised against PO raised by REDsoft.
Below is a sample screen shot of a SO:
Figure 5: Sales Order form
Thus on the SO form you describe: 1. What it is that you will provide (product item details with price and quantity) 2. When will you ship it (Customer Required Date (CRD) or Delivery Date) 3. Where will you ship it (shipping name and address)
4. Expected money for the sale 5. Reference to the PO, Quotation, etc. 6. Terms of payment, delivery, taxation etc. Once goods are ready for dispatch, a Delivery Note (DN) is sent to the warehouse along with description of scheduled items to ship out. The warehouse then takes care of packing the goods and dispatching them by the terms of delivery attached in the Delivery note/Sales Order. An Invoice (Bill) will be sent along with the shipment.
1.5.3 Invoice (or bill)
An invoice (or bill) is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms. The buyer has a maximum amount of days to pay these goods and are sometimes offered a discount if paid before.
Figure 6: Invoice
Thus on the Invoice you describe: 1. Invoice number and date 2. Customer details (name, address, etc.) 3. Delivery details (number, date, shipping/unloading point, transporter, etc.) 4. Reference Sales Order/Purchase Order 5. Product details 6. Cost and Taxes 7. Payment terms, other terms and conditions
1.5.4 Steps in order processing To summarize, following will be the steps as part of customer order processing:
1. As a first step a potential buyer raises a customer enquiry to eligible sellers. This can also be called as process of procuring by the buyer. Procuring can be done by a voluntary offer, advertisement or through selling agents. 2. The interested sellers provide a quotation to the buyer. 3. The buyer compares the different quotation on different parameters like cost, quality, terms and conditions, etc. and chooses a particular seller 4. The buyer then sends a Purchase Order (PO) to the seller 5. The seller raises a Sales Order (SO) in response to the PO and converts purchase order information to an actual order. Before that he checks if it is possible to execute the order according to terms and conditions and checking other aspects (like stock, quality, etc.) 6. The seller also generates customer invoices and ships the goods to the buyer. The seller also sends the buyer the receipts or documents which entitle him to claim the goods.
1.6 Pending Customer Orders
Pending orders are orders which are normally pending with the seller, and are not completely/partially delivered to the buyers. The reasons could be: 1. Lack of manpower to execute orders in hand 2. Lack of skilfully doing a job, time is wasted 3. Shortage of inventory 4. Too many orders in hand 5. Orders are complete but distribution channel is slow 6. Customer credit issues: Payment problems from customers/buyers 7. Sudden price raise or change in taxation rules 8. Priority changes for certain products, slowing other products completion 9. Other considerable factors like natural disasters - fire, earthquake etc. at manufacturing units
1.6.1 Procedure to handle Pending Orders
1. Such situations tend to disappoint customers; this has to be handled with proper customer relations and communications. 2. Explain the reasons for delay, so the buyer/customer is aware of the delayed delivery schedule. 3. Expedite order creation: As a next process, a proper plan to be implemented to continue efficient delivery schedule and avoid orders to wait. 4. Age wise analysis for corrective action: A report according to time will scrutinize the situation of the orders age wise, to determine which orders are required to be pushed at priority. 5. Lack of product/part availability: All inventories to be warehoused/stocked properly to avoid out of status, this can be attained using the concept of EOQ: Economic Order Quantity. 6. Respect Customer Required Date (CRD) and improve process to maintain: The customer frames a CRD because it is planned, thus the seller should respect and do his best to deliver the same on the CRD mentioned.
1.7 Sales Analysis
It is determination of the extent to which a sales force has met its sales objectives within the specified timeframe. Through sales analysis, a business will become familiar with emerging trends in the marketplace. When sales fluctuate, it implies new trends manifesting that a company needs to master to keep sales on par with those of the competition. A company needs to know which products competitors are selling more of to draw its own strategy. Sale analysis can be done: 1. By territory: Geographical area and quotas. E.g. Northern/Western/Eastern/Southern 2. Sales person: Problems faced and ways to work out individual problems faced in selling the product 3. Product line: In case of multi products, the company analysis its force on sale depending how particular product performs in the market. E.g. Tata Motors: Cars/SUV/Trucks/Insurance/Salt etc. 4. Customer: Compares loyal customers with shifting customers
1.7.1 Importance of Sales Analysis
It will be help the companies to find following critical information: 1. Cost of goods revenue of sale / Profit per revenue 2. Cost per segment / Cost per territory 3. Cost per sales person / Cost per channel member 4. Average cost / order Sample Sales Analysis:
Western Region Sales (Q4 Oct to Dec 2011) ABC Computers Sales Area Pune Mumbai Goa Total Planned 10000 25000 5000 40000 Actual 12500 22000 1400 35900 P/L 2500 -3000 -3600 -4100 %Quota 125 % 88 % 28 % 89.75 %
Figure 7: Region/territory sales of ABC Computers
1.7.2 Computerized Sales Analysis:
Using simulation provided with a database of product related data to analyse the sales is called Computerized Sales Analysis and it uses: 1. Basic statistical measures of average (mean, median) 2. Basic statistical measures of spread (variance and standard deviation) 3. Histogram 4. Correlation Analysis 5. Pareto Analysis Computerized Sales Analysis can be used to perform the following: 1. Organise and analyse data 2. Define reports 3. Modify data 4. Select groups of records 5. Summarise data 6. Compare data
1.8 Sales Management
Sales Management is the art of meeting and exceeding the sales goals of an organization through effective planning, controlling, budgeting and leadership. It is an important business function as net sales through the sale of products and services and resulting profit drive most commercial business. These are also typically the goals and performance indicators of Sales Management. Sales Management can involve any of the following activities: 1. Formulation of sales strategy through development of account management policies, sales force compensation policies, sales revenue forecasts and sales plan. 2. Implementation of sales strategy through selecting, training, motivating, and supporting the sales force, setting sales revenue targets.
3. Sales force management through development and implementation of sales performance, monitoring, and evaluation methods, and analysis of associated behavioural patterns and costs. Thus, Sales Management helps the organization to achieve the sales targets efficiently.
1.8.1 Functions of Sales Management The following are important functions performed by Sales Management:
1. Size of Sales Force: Determine how much resource in terms of size of sales force is required to sell the product. 2. Determine Sales Organization: Determine the number of sales offices required and their organization to function and cater customers. 3. Determine Sales Regions (Territory): Combine sales offices under various regions to monitor sales volume and profits. 4. Recruitments/Trainees: To recruit sales people as and when required, train them if necessary with company made sales policy and regulations. 5. Task Allocation and Target Setting: Assign sales tasks to region/office/individually and target volume and profit for calculating sales budgets and management related reports. 6. Appraisals/Compensations/Commissions: Perform appraisals and calculate compensations and commissions, which help, sell products faster due to increase in team morale. 7. Feedback mechanism: Interact with customers and generate an improvement in sales functions. 8. Distribution channel management: Manage distribution channels so that the product reaches well in time, at correct place and price.
1.8.2 Objectives of Sales Management The following are objectives of the Sales Management from company’s viewpoint:
1. 2. 3. 4. Achieving target goals by acquiring sufficient sales volume. Providing contribution to profits Help continuous growth of the product life cycle Reduce expenses and raise gross margins to convert loss into profit
1.8.3 Principles of Sales Management
Following are the principles to be followed by sales managers to efficiently perform their role: 1. Lead by example: A successful sales manager has higher standards and stricter policies than the company requires. 2. Instil discipline in your organization: People must be told the discipline measures to be followed. 3. Let them know what’s expected: Sales managers must let people know exactly what’s required of them.
4. Manage your people individually: While training, giving constructive criticism, taking disciplinary action it must be done one to one with people 5. Be goal oriented: People should know that hitting the goals and targets is the primary purpose of being in business. 6. Treat others as you want to be treated: People must be treated with due respect. 7. Catch them doing something right: Providing positive feedback on a regular basis makes it easier to deliver negative feedback when necessary. 8. Manage on objective information: The decisions must be based on information and not bias. 9. Get on the floor: Sales managers should always ready to be on the floor if the situation demands so 10. Be direct and to the point: The sales managers must be direct, clear, and concise in their conversations. 11. Don’t settle for the status quo: Sales managers need to keep on improving the different processes and targets. 12. Be firm but fair: Everyone must be treated with same process for a given action.
1.8.4 Problems in Sales Management It is important to understand the problems faced by Sales Management. For better understanding let us take an example where a company CREATIVE EDUCATIONAL PRODUCTS (CEP) wants to launch a new pen for students in market called Wonder Pen and decides to sell it for Rs.5. Let us see what are the different problems faced by the company:
1. Introduction to a new Product: This happens when a new product comes in the market and the customer/buyer is reluctant to buy it. At this time sales management decides to promote the product through different advertising channels like: ? ? ? ? ? Television Radio Cinemas Newspapers Banners and hoardings in public places
? Internet etc. Buyers are thus introduced to the product brands. Sometimes samples are distributed free of charge as samples for the buyer to use and feel comfortable with the use of the product. CEP will market their pen in stationary stores nearby to colleges, schools and institutes using hoardings. Also it could publish advertisement in newspapers. 2. Demand Creation: As the product is now known in the market, the manufacturer/seller identifies who are the potential buyers and creates a need of the product making it a demand. The problem which they may face is customers sticking to existing products and non-accepting of new product. Thus, after students start using Wonder Pen, they may realise that they are getting good worth for Rs.5, but it is important to convince them to use it for first time.
3. Market Research: For the manufacturer/seller to gain profitability, it is necessary for him to know how good the product is doing in the market. He thus carries out a market research depending on the following factors: ? ? ? Volume of sale region wise. (What is quantity of Wonder Pen sold in different areas?) Customer reaction toward the usage. (Do students like using Wonder Pen?) Efficiency of products distribution on time and correct price. (Is the Wonder Pen available on time and correct price?)
? Dealer behaviour towards the products sale. (What is shopkeepers view about Wonder Pen?) 4. Sales Forecast and Product Development: Depending on the market research, the seller can study and find out how well the product is doing in the market. It will help to understand whether any modifications are required to boost up sales. It also helps him to know in which region the product responded well, so he can focus on more distribution in that particular area. Thus if Wonder Pen manufacturer find that pens are getting sold higher in particular area, they will double the shipments to that area. If Wonder Pen overall is a success, then CEP can think of manufacturing a new series of gel pens called Wonder Gel Pen and sell for Rs.5.00. 5. Managing distribution channels: This is major problem for Sales Management to efficiently manage the distribution channels to keep the overall costs low. Thus, if pens can be reached at correct places in time and at low cost shipping a box of 500 pens and there are many boxes to be shipped to many stores, CEP has to think of a perfect route of distribution, so that the vehicle will move straight in one direction distributing the boxes efficiently, without making round trips.
1.9 Distribution Management System
1.9.1 Marketing (Distribution) Channel
Marketing Channel is a set of practices or activities necessary to transfer the ownership and move goods, and from the point of production to the point of consumption and it consists of all the institutions in the marketing process. The different roles played by marketing channels include: 1. Linking producers to buyers 2. Performing sales, advertising and promotion 3. Influencing the firm's pricing and product strategy 4. Customizing profits, offering credit, etc. Activities involved in the marketing channel are wide and varied and include 1. Ordering 2. Handling and shipping 3. Storage
4. 5. 6. 7.
Display Promotion Selling Information feedback
1.9.2 Different intermediary channels
There are different intermediary channels between the producer and the consumer which add unique value at each level. Let us look at their value additions: 1. Resellers: These organizations, also known within some industries as intermediaries, distributors or dealers, generally purchase or take ownership of products from the marketing company with the intention of selling to others. These organizations can be classified into several sub-categories including: ? ? ? Retailers – Organizations that sell products directly to final consumers. Wholesalers – Organizations that purchase products from suppliers and in turn sell these to other resellers, such as retailers or other wholesalers.
Industrial Distributors – Firms that work mainly in the business-to-business market selling products obtained from industrial suppliers. 2. Specialty Service Firms: These are organizations that provide additional services to help with the exchange of products but generally do not purchase the product (i.e., do not take ownership of the product). These organizations can be classified into several sub-categories including: ? ? ? Agents and Brokers – Organizations that mainly work to bring suppliers and buyers together in exchange for a fee. Distribution Service Firms – Offer services aiding in the movement of products such as assistance with transportation, storage, and order processing. Others – This category includes firms that provide additional services to aid in the distribution process such as insurance companies and firms offering transportation routing assistance, or software companies providing distribution management software.
1.9.3 Different forms of channels Distribution channels are primarily of two types: 1. Direct Marketing Channel or Zero level 2. Indirect Marketing Channel Let us see the examples of each: ? 0 Level : Also called Direct Marketing Channel Producer ??????????????????????Consumer E.g. Eureka Forbes
Indirect Marketing Channels can be further classified depending on the number of intermediaries: ? 1 Level Producer ???????Distributor / Retailer???????Consumer E.g.: Most commercial products, perishable items - milk, bakery etc. ? 2 Level Producer ????Wholesaler???Retailer????Consumer E.g.: Distribution of drugs, FMCG, etc. 3 Level Producer ??Distributor??Wholesaler??Retailer??Consumer E.g.: Convenience products, appliances etc. ? 4 Level Producer?Agent?Distributor?Wholesaler?Retailer?Consumer E.g.: Consumer durable products, etc.
?
1.9.4 Importance (or need) of Distribution Channels It is impossible for a company to handle all aspects of distribution including shipping, reselling, promotion, etc. by themselves and they would definitely need the services of other channel partners. The importance of the distribution channels is because of the numerous benefits they add to the consumer experience of buying a product: 1. The different channel partners are specialist in their own areas and they help to bring down the costs along with providing best of service to the customers. 2. The channel members perform their job more rapidly resulting in faster product delivery. It also helps that the channel members like shipping companies can collect goods from different companies and provides it to the target destinations. 3. By handing over the responsibility of some of functions to channel intermediaries, the manufacturers are themselves able to concentrate on their core business. 4. The channel members like retailers help the customers to get all the products they want conveniently at a single location. 5. Resellers can help you to generate demand and create sales by marketing and educating the customers about your product 6. Some channel partner offer financial support to the customers by providing purchase on credit, easy instalment plans, etc.
1.9.5 Challenges of Distribution Channels 1. Sometimes the cost of different channel partners may start spiraling upwards due to various issues.
2. The manufacturer has no control on the communication about his products and has to depend on how the retailers project the products. 3. The overall success of the product would not depend on just the quality of the product but also how fast the product is provided, the buying experience of the customer, etc. which in turn is dependent on the efficiency of the channel intermediaries.
1.10 Components of designing Sales Management System
Consider a simple scenario where ABC computers is providing multiple quotations to its multiple buyers about the different computers it has to offer. ABC computers can raise multiple bills or raise multiple sales orders. Buyers can themselves place multiple sales orders.
Figure 8: Entity Relationship Diagram
The different entities of a Sales Management System supporting the above ER diagram would be: Customer Data Element Customer_id Name Gender Date_of_birth E-mail Passport no. Password Phone Data Type Autonumber Text Text Date/Time Text Text Text Text Size 10 50 1 40 10 20 15 Description Primary Key Customer name Customer gender Customer date of birth Customer e-mail Customer/Passport Customer Password Customer phone no. Validation No duplicate M/F dd/mm/yyyy e-mail format Number
Affiliate Data Element Affiliate_id Name Phone E-mail Password Service Data Type Autonumber Text Text Text Text Text Size 10 50 15 40 20 30 Description Primary Key Affiliate name Affiliate phone no. Affiliate e-mail Affiliate Password Affiliate service Validation No duplicate Number e-mail format -
company’s -
Order Data Element Order_id Date Customer_id Affiliate_id Payment_id Schedule Data Element Schedule_id Date Available Data Type Autonumber Date/Time Text Size 10 30 Description Primary Key Available date Affiliate company available on a date Validation No duplicate dd/mm/yyyy Data Type Autonumber Date/Time Integer Integer Integer Size 10 10 10 10 Description Primary Key Order’s date Customer’s id Affiliate id Order’s payment id Validation No duplicate dd/mm/yyyy Valid id Valid id Valid id
Payment Data Element Payment_id Type Status Due date Amount Customer_id Goods Data Element Goods_id Goods_type Goods_name Goods_cost Data Type Autonumber Text Text Number Size 10 10 50 10 Description Primary Key Goods type Goods name Goods cost Validation No duplicate Data Type Autonumber Text Text Date/time Number Integer Size 10 10 50 10 10 Description Primary Key Payment type Payment Status Payment due date Amount of payment Customer’s id Validation No duplicate dd/mm/yyyy Numeric Valid id
Bills Data Element Bill_no Bill_date Customer_id Item name Qty Rate Amount Data Type Autonumber Date/Time Integer Text Integer Number Number Size 10 10 50 10 10 10 Description Primary Key Bill date Customer’s id Item name Qty Rate Amount Validation No duplicate dd/mm/yyyy Valid id -
Quotation Data Element Quotation_no Quote_date Customer_id Item name Qty Rate Amount Data Type Autonumber Date/Time Integer Text Integer Number Number Size 10 10 50 10 10 10 Description Primary Key Quotation date Customer’s id Item name Qty Rate Amount Validation No duplicate dd/mm/yyyy Valid id -
1.11 Case Study on Sales and Distribution Management System
Problem Statement: Allchem Solutions Pvt. Ltd. is an antibiotic manufacturing company located at Pune that deals with production and sale of medicines. The sales and order processing department of the company deals with the sale of medicines to different medical shops within Pune, as well as to medical shops outside Pune. The order processing for medical shops outside the city is done through dealers. Each city has three dealers, who accept orders from the medical shops within their area and forward it to the sales department of Allchem Solutions. The medicines are sent to the dealer site and from there it is distributed to the corresponding medical shops. It has been found that, there is a lot of time lapse, between the placing of orders and obtaining the medicines, for the medical shops outside Pune. Due to this, most of the medicines remain out of stock for a longer time, in these shops. Suggest a suitable business process, to model the above situation, so that order processing for medical shops outside Pune can be faster, even though it has to go through a dealer (as per the sale rules of Allchem Solutions). Specify the different input documents (detailed documents) that are necessary for your specified business process and also suggest any supporting reports that can be obtained from your specified business process.
Approach to solve the Case Study: The Case Study deals with improvement of the Sales and Distribution Management System for a company. 1. First collect the direct stated facts: ? Allchem Solutions Pvt. Ltd. sells its products through its dealers ? There is lot of time lapse, between the placing of orders and obtaining the medicines ? The effect is medicines remain out of stock and the overall sale is reduced
2. Then collect the unstated facts: ? The new order processing system needs to be put in place ? Also a system has to be put in place to keep a track of all the dealers and their stocks/bills receivable needs to be improved 3. Specify the input documents that can be used to improve the process. Draw the document formats wherever possible: ? Allchem Solutions must provide a standard Quotation to the dealers specifying the exact terms and conditions (provide standard Quotation format) ? Each of dealers should use a standard Purchase Order form to provide the order (provide standard Purchase Order format) ? Allchem Solutions must use the Purchase Order form to convert into a Sales order as well as generate an Invoice (provide standard Sales Order and Invoice format) ? Dealers must maintain inventory and Allchem Solutions must provide ideal inventory levels when the dealers must raise a purchase order 4. List output reports which can be generated from the Sales and Distribution Management System like: ? List of orders received with details ? Total quantity of different products required on periodic basis ? Status of delivery and payment
1.12 Model Question Bank
Answer in brief (1-2 lines): Define: 1. Market Segmentation 2. Product 3. Consumer Product 4. Enquiry 5. Quotation 6. Pricelist 1 mark
7. 8. 9. 10. 11. 12. 13.
Catalogue Firm Order Price Current Expense incurred Order Sales Analysis Pending Customer orders 3 marks
Write Short Notes on: 1. Geographical Segmentation 2. Demographic Segmentation 3. Psychological Segmentation 4. Consumer Products 5. Enquiry 6. Order Placing 7. Pending Customer Order 8. Order Procurement 9. Purchase Order 10. Sales Order 11. Invoice
Answer the following in detail: 5 marks 1. What are the factors considered while formulating Sales Budget? 2. Pending orders need to be attended promptly. Explain. 3. Explain Sales Analysis. 4. Explain the benefits of Market Segmentation? 5. Describe the classification of Consumer Segmentation? 6. What is the main function of Sales and Distribution Management System? List any four key decision areas of sales management. 7. What is market segment? State the factors, based on which market segmentation is done. 8. What is a budget? What is sales budget? 9. Explain the process of computerized sales analysis? 10. What do you mean by Sales Forecasting? 11. What is channel management? Explain with examples different types of channel. 12. Why do we need Sales Analysis? What are the different steps involved in sales analysis? 13. What do you mean by enquiry? Explain the functioning of the Enquiry Management System. What is reply to enquiry called? 14. Define quotation. Write the features of quotation? What are the essential things to be specified while writing the quotation?
15. Explain customer order processing. 16. List the principles of Sales Management.
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