Lg Supply Chain Study Essay

Sales & Distribution system| | | | | By Christopher Arputha Raj| 2011014| Fuzail Sohail Anjum| 2011019| Nitish Pal| 2011094| Sanil Santosh Pai| 2011106| Amit Purohit| 2011129| Sujit Deshpande| 2011179| | Contents Sr no| Title| Page no| | Executive Summary| | 1| Introduction| | 2| Generic flow of product| | 3| Channel structure existing in the organization| | | a. Number of levels| | | b. Intensity| | | c. Intermediaries| | | d. Factors considered for channel design| | 4| Sales force organogram| | | Forecasting, Target Setting & Evaluation of sales and distribution systems. | | 6| Reference| | List of Figures Sr No| Figure| Page No| 1| Generic flow of products from manufacturers to customers| | 2| Sales force Organogram| | Executive Summary LG Electronics India Pvt. Ltd. , a wholly owned subsidiary of LG Electronics, South Korea was established in January 1997 in India. It is one of the most formidable brands in consumer electronics, home appliances, IT hardware and mobile communications space.

In India for a decade, LG has earned a premium brand positioning and is the acknowledged trendsetter for the industry with fastest ever nationwide reach, latest global technology and product innovation. This paper gives a detailed explanation and evaluation of the sales and distribution system of LG India particularly in the consumer durables market. The product flows from the manufacturing facilities situated in Pune and Noida. In addition, there are third party manufacturers or OEMS. The end products from these are stocked in the Mother warehouses located near the major manufacturing units.

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From there the goods are transported to the state warehouses located near the markets. The goods are then forwarded to the trade partners who are in direct contact with the customers. The company follows a 3 level or 4 level channel structures depending on the markets. In addition to direct dealers or LG Shoppe which directly cater to customers, there are distributers which cater to smaller sub-dealers. The distribution network is intensive to counter competition and have higher presence in the market.

The intermediaries are chosen depending on the market intensity, area and financials. The distribution channel is decided based on the following factors: 1. Geography 2. Capacity of the market 3. Taxes and Government Norms 4. Cost of Logistics The sales organization follows a more of matrix structure. The Regional Managers have a functional head i. e. the Sales Head and the Product heads- Business group heads and Product group Marketing Head. The branch manager reports to the Regional Manager.

Branch manager handles the territory through ASMs- Area sales Managers which are responsible for specific area or customer cluster. There are different ASMs for Dealers and Retail markets in a particular sales territory. Overall, the sales and distribution system of LG is the best in India for consumer goods. It has to look into options like direct marketing via the company online site to further strengthen the network. 1. Introduction LG Electronics Inc. is a Korea-based manufacturer specialized in the provision of electronic products.

The Company mainly operates in four business divisions: home entertainment division, which provides liquid crystal display (LCD) televisions (TVs), plasma display panel (PDP) TVs, PDP modules and LCD modules, as well as audio, video and security equipment; mobile communications division, which provides mobile terminals, tablet personal computers (PCs) and network equipment; home appliance division, which provides refrigerators, washing machines, microwave ovens, healthcare equipment, cleaners, water treatment machines and others, and air conditioning and energy solution division, which provides industrial and household air conditionings, light-emitting diode (LED) lightings and chillers. It also provides compressors, motors, storage devices and others.

LG Electronics India Pvt. Ltd. , a wholly owned subsidiary of LG Electronics, South Korea was established in January 1997 in India. It is one of the most formidable brands in consumer electronics, home appliances, IT hardware and mobile communications space. In India for a decade, LG has earned a premium brand positioning and is the acknowledged trendsetter for the industry with fastest ever nationwide reach, latest global technology and product innovation. LGEIL has an impressive portfolio of Home appliances, Consumer Durables, Digital Display products, GSM Mobile phones and IT products. LG has achieved a turnover of Rs 13,089 crore in 2009.

LGEIL Manufacturing unit at Greater Noida is one of the most ecofriendly units among all LG manufacturing plants in the world. The second Greenfield facility is located at Ranjangaon; Pune has the capacity to manufacture GSM phones, LCD TV, Washing Machines, Refrigerators and Optical disk drives. This is India’s first mobile phone manufacturing unit and also Asia’s largest optical disc drive manufacturing plant. LG has targeted broad, price conscious customers who wanted the white good, but were turned off by relatively high price of the products offered by the competition. LG started of by offering proposition in terms of quality as well as affordability. It also rolled the iggest distribution network in consumer goods industry in India which helped it to reach the deeper market and understand the nuances of broader consumer market. Backed with this market information, it designed and sold products with localized features and heavily advertised in its marketing campaign. With its focus on wide distribution and market support, it has been able to craft itself as a premium brand in the Indian market and is today the most preferred brand in the segment. 2. Generic flow of product Sub Dealers Sub Dealers Trade Partners Trade Partners Customers Customers State Warehouses State Warehouses Mother Warehouses Mother Warehouses Manufacturing Manufacturing Direct Dealers Direct Dealers Brand Shops Brand Shops Distributors Distributors Figure 1.

Generic flow of products from manufacturers to customers The product flow is as shown in the above Figure 1. LG India has 2 manufacturing units, in Greater Noida operational since 1998 and at Ranjangaon in Pune since 2004 . In addition it has 5 other OEMS or third party manufacturers which mainly produce LCDs or ACs. There are in Haryana, Jammu & Kashmir, Gujrat, Tamil Nadu and Dehradun. The manufactured goods then are transported to the Mother Warehouses. There are 2 mother warehouses, one each in Pune and Noida. The goods from Mother Warehouses are moved to State Warehouses. There are about 47 state warehouses approximately. These may be divided as per the region or geography.

The Mother Warehouses and State warehouses are owned by the company. From the State Warehouses, the goods are sent to the Trade Partners. Trade partners are those channel members which purchase the goods from the company. LG has three types of Trade partners: Brand Shops, Direct Dealers and Distributors. Brand shops are the company exclusive showrooms named as LG Shoppe. These work on ‘Franchise Owned Company Operated’ bases. The Direct Dealers are individually owned multi-brand electronic stores which purchase from the company and directly sell to the consumers. The distributors buy from the state warehouses and then cater to the Sub-Dealers.

The consumers can buy the goods from either of the three: LG Shoppe, Direct Dealers or the Sub-Dealers. 3. Channel structure existing in the organization Let us analyse the distribution channel with respect to the following factors. a. Number of levels LG India follows a three level or a three level channel structure. The three level channel structure will be as follows: Manufacturer Direct Dealer/LG Shoppe Customer LG India sells its goods to direct dealers which are large in size and have a good presence in the market. Also LG Shoppe is a franchise owned company operated outlets which are exclusive to LG. The four level channel structure will be; Manufacturer Distributor Sub- Dealer Customer

The Distributors sell to smaller dealers called as sub-dealers which are large in numbers compared to direct dealers or LG Shoppe. b. Intensity LG operates in Indian market with over 700 trade partners, over 12,000 sub-dealers and more than 450 exclusive LG brand shops, and various multi-brand outlets. In addition, it has about 1,000 authorized service centers spread all over the country. For a small state as Goa, LG has 2 Distributors catering to 90 sub-dealers in addition to 14 Direct dealers and 5 LG Shoppe. This clearly that LG has an Intensive approach to distribution. The company believes in technological advancements and is a leader in many new technologies like plasma TV, 3D televisions and refrigerators and AC.

Thus the brand needs to make the customer aware of these products and hence a good market presence is necessary. Also intensive presence is needed to counter the high market completion by other brands such as Samsung, Panasonic and Sony. The competition is mainly on price and innovation. Thirdly, LG has a large number of products catering to different market segments and hence the number of touch points to showcase these is important. In addition to above, high demand for LG product is also a reason to have an intensive market presence. LG has about 27 to 30% market share in white goods category and it strives to further increase its share. c. Intermediaries

We can see from the product flow diagram that LG has a 3 level and a 4 level structure. In 3 leveled channel structure the intermediaries are either the direct dealers or the LG Shoppe. These are usually large enterprises which can handle a larger market and are financially stronger. The Direct Dealers usually have more than one branch catering to different geographical areas. They are dealers to other companies also and hence stock a variety of goods in terms of range and brand. Thus customers have a multiple choice and they can compare the products before buying. The LG Shoppe is franchise that offers exclusively LG products. The customer can get a better technical assistance and variety within the LG range.

There will be fewer of these: about 2 to 5 for a region. These cater to the more loyal customers that LG has over the years. The intermediaries for the 4 level channel structure are the distributors and the sub-dealers. The distributers are stockists which have capacity to handle smaller sub-dealers. They deal in a number of brands and cater to the sub dealers. Sub dealers are smaller entrepreneurial setups which deal in multibranded goods. They may not have enough capacity to stock the goods due to its size and unit value. d. Factors considered for channel design The various factors considered by the company to setup such a channel structure are as follows. i. Geography

The company has major manufacturing in Noida and Pune. Thus to cater to the entire Indian market, it has to set up strong distribution network of its own. Thus the company set up 2 Mother Warehouses and about 47 state warehouses to cover the entire market. ii. Capacity of the market The consumption of market is also a factor for the channel design. This will include estimate sale of the goods forecasted from the past trend. It is basically the maximum business the market can do. For example, the estimated Goa Market is worth 7 Cr and Karnataka is about 30 Cr. Thus accordingly the warehouses will be set, Goa has just one state warehouse whereas, Karnataka has 3 State Warehouses.

The capacity of the market will indirectly depend on other market variables such as the Market size, Market density and the Market behavior. There will be more number of LG outlets or dealers in a denser market like Bangalore, Mumbai and other metros than in Tier 2 and Tier 3 cities due to the market variables. Also the buying behavior and the spending power of the consumers will decide the capacity of the market. iii. Taxes and Government norms The taxation norms will also define the channel design to some extent. For example some third party manufactures are in the SEZs. Similarly major cities levy Octroi charges on heavy consignments. Also the state taxes will differ from state to state.

Thus the warehouses are set up considering the Taxes and the Govt. Norms. iv. Cost of Logistics LG Electronics India believes in reaching products to people on-demand. Mr. Kaul says quietly and with some pride, “Our logistics cost is 3. 01 percent on net sale after deduction of excise duty, including our export freight cost. ” This is due to the Global Supply Chain Planning (GSCP) established in 2008. The GSCP integrates control of the entire business process from receiving orders, production to sales, and inventory, with an online link of LG companies around the world. Global Digital Logistics System (GDLS) aids in better route optimization, as well as improved loading and tendering capabilities.

Playing on its existing Oracle ERP and EXEWMS, the transportation solution provides execution capabilities to its shippers and 3PL partners. LG India used extensively road and rail network to make products available to its customers at the earliest. Thus the warehouses should be set considering the road and rail connectivity and the cost of logistics. e. Selection of a Distributor:- New distributors are selected by LG based on the following 4 criterias:- * Financial Stability of the prospective distributor * Distributor’s capacity to invest’ * Distributor’s knowledge of the trade * Distributor’s relationship with retailers. 4. Sales force organogram Figure 2. Sales force Organogram Abbreviations:

PGMH | Product Group Marketing Head| BGH | Business Group Head| CMO | Chief Marketing Head| RM | Regional Managers| BM | Branch Managers| ASM | Area Sales Managers| SSE | Store Sales Executives| DSO | Distributor Sales Officer| The LG India consumer durable business has two divisions. 1. Home entertainment Divison: which provides liquid crystal display (LCD) televisions (TVs), plasma display panel (PDP) TVs, PDP modules and LCD modules, as well as audio, video and security equipment 2. Home appliances Division: provides refrigerators, washing machines, microwave ovens, healthcare equipment, cleaners, water treatment machines and others In addition there are other two divisions . Mobile communications division: provides mobile terminals, tablet personal computers (PCs) and network equipment 4. Air conditioning and energy solution division: provides industrial and household air conditionings, light-emitting diode (LED) lightings and chillers. It also provides compressors, motors, storage devices and others. The organogram refers to only consumer durable business. Each division will have a director who looks after the overall business in the state. He reports to the MD, India. The Sales Head and the Chief Marketing Head directly report to the Division Director. The Sales head handles a number of Business Group Heads.

There are a number of Business groups such as Refrigerators, Washing Machines, Air Conditioners etc. Now, under one Business Group there may be a few sub groups. For Example under Washing Machines Group, we have Front Loader and Top Loader. Each business group will also have a separate Product Group Marketing Head which will concentrate on the marketing activities of that particular product. The Product Group Marketing Head also gets input from the Sales head, but their administrative head is the Chief Marketing Head. The Regional Manager (RM) reports directly to the Sales Head. But also he is accountable to PGMH and BGH. That is, the sales targets are given by the administrative head i. e. the Sales Head.

At the same time, the Product Group Marketing Head will give the marketing inputs for their product groups in terms of cross selling offers, seasonal offers, and other marketing aspects. Also the Regional Manager has to take inputs from the various Business group heads for their inputs to particular product groups. The Regional Managers are responsible for overall sales in the regions irrespective of the product groups. The regions are geographically divided into North, South, East and West. Each region is further divided into number of territories depending on the geographical area, market density, scope for expansion, business capacity ect. Each territory is headed by a Branch Manager.

For example, the Goa Karnataka region is divided into 4 branches. Goa is a single branch, whereas Karnataka is divided into 3 branches due to the larger marker. The branch manager then further divides the branch area into territories that are handled by the ASMs- Area sales managers. These territories may be depending on the cluster of similar customers. It is mainly done by geographical area and intensity of the market. The Area Sales Manager may be either catering to the Retail segment or the Distributor. The ASMs handle the SSE-Store Sales Executive or the DSO- Distributor Sales Officer. The SSE, DSO and RSO are not on LG Payroll. They are employed by distributors, retailers or may be external agencies.

They handle the sales on the retail or distributor premises and hence are the touch points to LG. 5. Forecasting, Target Setting & Evaluation of sales and distribution systems Annual forecasts are done at LG based on previous years sales plus the current trend. The annual forecasts are then disaggregated into the monthly sales plan. The monthly sales target is then distributed amongst the branches based on market size and regional market share. The logistics managers and the production managers meet every 15 days, on the basis of sales as well as current inventory available and accordingly they freeze the production plan for the next 15 days.

The monthly sales target which is allotted to the regional branch is then disaggregated and allotted to distributors, based on the potential of the market in the region and the potential of the retailers that the distributor handles. Generally the target set is 20% higher then the potential of the distributor. The LG India distribution system is intense. It has presence in almost every market. The logistic cost is kept at the minimum due to its efficient distribution network supported by a strong IT network. There can be some level of conflict between the LG Shoppe and the Direct Distributors as the perception is that LG Shoppe is company owned.

LG has presence in online sales via sites like Flipkart , Ebay, infibeam, homeshop18 and other similar sites. But the LG site does not offer this facility to buy. IT just shows where the customer can buy the goods. LG can actually go into thus direct marketing channel. 6. Reference Source of Primary Data:- Omkar Kamat Area Sales Manager ( Goa Region) LG Electronics india Source of Secondary Data:- http://www. cio. in/case-study/lg-improves-customer-service-help-channel-partners http://logisticsweek. com/feature/2011/07/looking-good-lg-electronics-india-discusses-its-supply-chain-strategy/ http://in. reuters. com/finance/stocks/companyProfile? symbol=066570. KS