Sales & Distribution Project Report On Sales and
Distribution in LG Electronics Submitted as part of course
curriculum forPOST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)Under the
guidance of Mr. R. J. Masilamani
Submitted by14DM147 Pinki Rani14DM197 Shaunik Rai14DM207 Shubham
Shrivastava14DM222 Suneera Agarwal14DM227 Sushant Kataria14DM233
Udesh Patidar
ACKNOWLEDGEMENT
The sense of fulfilment and elation that accompanies the
successful completion of the Project would be incomplete without
mentioning name of people who helped us in accomplishing this
Project, people whose constant support and encouragement resulted
in this realization. We take this opportunity to thank Honorable
Director Dr. H.Chatuvedi for providing healthy environment in our
college, which helped in concentrating on the task. We thank our
Chairperson of Department Prof. Ashok Malhotra and all the Faculty
members, teaching and non-teaching for helping us during the
Project. We thank our mentor Prof. R.J. Masilamani for the guidance
and inspiration he gave during the course of completion. We also
extend our gratitude to BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY
for giving us this opportunity
CONTENTI. About Lg electronics..4II. Product line.5III. Channel
design...6IV. Margin allowed......7V. Pricing strategy..9VI. Swot
analysis........11VII. Sales hierarchy....12VIII. Supply chain13IX.
Scope of improvement16
INTRODUCTION
OBJECTIVES OF THE STUDY Complete study at the
Retailer/Sub-Dealer Level and Distributor level Companys sales mix
at various levels Comparison with Competitors pricing Margins
allowed at various levels
LG ELECTRONICS AN OVERVIEWThe history of LG Electronics has
always been surrounded by the company's desire to create a happier,
better life. It was established in 1958 and the company since then
has led the way into the advanced digital era, thanks to the
technological expertise it has acquired by manufacturing many
electronic appliances. Applying new technologies in the making of
mobile devices and digital TVs in the 21st century, LG Electronics
has unveiled many new products and continues to reinforce its
status as a global company.
Headquartered in Yeouido-dong, Seoul, LG Electronics is a
multinational electronics company, and a member of the South-Korean
multinational conglomerate LG Corp. The two Korean companies, Lucky
and GoldStar, merged to form LG. The abbreviation comes from this.
But before it got its name as LG, Lucky was the brand name under
which household products were sold, and Goldstar sold the
electronic products under its brand name.
LG Electronics was one among the Top 100 global brands in 2005,
and LG recorded a brand growth of more than 14% in 2006. The
display manufacturing affiliate, LG Display, is today the world's
largest and best plasma panel manufacturer. LG Electronics, today,
is the world's second-largest television manufacturer and the
world's fifth-largest mobile phone maker by unit sales.
PRODUCT LINE OF LG ELECTRONICS
ROLE OF MARKETING CHANNELSSuccessful value creation needs
successful value delivery. Holistic marketers are taking a value
network view of their businesses. The marketing channel performs
the work of moving goods from producers to consumers. All channel
functions have three things in common:A. Use up scarce resourcesB.
Can be performed better through specializationC. Can be shifted
among channel membersAfter a company has selected a channel, the
intermediaries must be selected, then trained, motivated and
finally evaluated.
CHANNEL DESIGN1. DIRECT DEALER CHANNEL- 2. SUB DEALER/
DISTRIBUTOR CHANNEL
DISTRIBUTION NETWORK
REGIONAL DISTRIBUTION MODEL- ALL DISTRIBUTORS WORK DIRECTLY WITH
THE COMPANY. 46 Branch Offices and Another 110 Area Offices Across
the CountryDIRECT CHANNEL STORES THAT DIRECTLY SELLS TO END
CONSUMERS. EXCLUSIVE STORES OR SHOWROOMS- MORE FOCUS FOR
PROFITABILITY AND LARGE VOLUMES. MULTI BRAND SHOPS. 34 % OF SALES
.ADVANTAGES- NO LOSS OF MARGINS THROUGH INTERMEDIARIES. COMPLETE
CONTROL OVER DISTRIBUTION PROCESS
DISTRIBUTOR CHANNEL1)SMALL RETAILERS WHO LACKS CAPITAL TO BUY
DIRECTLY FROM LG.2)DIRECT DEALERS HAVE ATLEAST ADDITIONAL 3 %
MARGIN.3)49% OF SALES.ADVANTAGES-1)ALLOWS PENETRATION OF FRAGMENTED
DISPERSED MARKET.2)EASES LOGISTICS FOR BUYERS WHO BUY DIFFERENT
ITEMS
PROCESS OF DISTRIBUTION
MARGINS ALLOWED Different profit margins when selling to
subsequent dealers and sub-dealers. The profit margins vary
depending on the product category in terms of how slow/fast the
products moves.
CASH AND VOLUME DISCOUNTDealers give a cash discount of maximum
of 1% and volume discount of maximum of 5%.MANAGING OF DAMAGED
GOODSIf Dealers finds any good to be damaged or that it needs
repairing, then it requests repair the damaged good within 15 days
from the company or gets it replaced within the same time
frame.
LOCAL PROMOTION AND BUDGETPromotion is done locally and the
budget is reimbursed in the range of 50 to 100% (in some cases) by
the company.
PRICING STRATEGY
RATIO OF FAST MOVING AND SLOW MOVING
The TV, Audio and Video segment of LG is the slowest moving of
all the product categories under the brand. On the contrary, in
Refrigerators, Washing Machines and Air Conditioners segment, LG is
one of the fast selling brands and has been a market leader in this
region.
COMPETITORS PRICE OF LEADING BRANDS
The comparison of selling prices of Washing Machines and
Refrigerators of LG with those of other leading brands is
illustrated below. The prices are average of the selling prices of
both, high and low end models for all product types, for better
comparison against competitors prices.
Comparison of Prices of Refrigerators
Comparison of Prices of Washing Machines
RATIO OF FAST MOVING AND SLOW MOVING CATEGORIESThe TV, Audio and
Video segment of LG is the slowest moving of all the product
categories under the brand. On the contrary, in Refrigerators,
Washing Machines and Air Conditioners segment, LG is one of the
fast selling brands and has been a market leader in this region.
MARGINS ALLOWEDLG Direct Retailing has different margin levels for
various Product Categories. There are 4 Product Categories as
identified by LG:1. Category Killers2. Good3. Better4. Best
There is absolutely minimal scope of margin when it comes to
Category Killer products at less than 1% and about 10% for Best
category products.
WINDOW DISPLAY AND MERCHANDISINGLG Best Shoppe has managed well
to display the products and different product variants of LG.
SWOT ANALYSISSWOT Analysis
Strength1. Wide range of products to serve all categories and a
strong focus on technology and quality2. Effective localization of
product offerings for growth markets like India, Brazil, China3.
Brand offers sound rational appeal good product features and good
value for money4. Good after sales service and wide distribution
network5. Subsidiaries enjoy independence in decision making and
hence have flexibility in adapting to the local market6.
Sponsorship of sports and entertainment events enhances
visibility7. It has nearly 100,000 employees and is one of the top
mobile manufacturers
Weakness1. Brand lacks influence in the opinionated segment of
early adopters especially in the social media environment2. Brand
has limited market share compared to market leaders
Opportunity1. Fast growth of home appliances, electronics goods
market in emerging economies2. Convert improved brand image and
awareness in to market share3. Increase the already Wide product
portfolio
Threats1. Price war with close Korean competitors like Samsung
can disrupt growth in price sensitive markets2. Highly competitive
industry dynamics3. Stagnant urban demand4. Instances of false
green claims can erode brand value and consumer trust
SALES HIERARCHY OF LG ELECTRONICS
Supply chainThe Supply-Chain Process
At a time when most companies are dissatisfied with the high
logistics cost, Lgs logistics cost is 3.01 percent on net sale
after deduction of excise duty, including our export freight cost.
The company experimented with several production and distribution
models over the last few years. The exponential growth in demand
and constantly catering to newer and distant locations buoyed Lg to
improve our supply-chain. But it was the implementation of GSCP
(Global Supply Chain Planning) in 2008 that streamlined the
operations.Year 2008 also changed a lot of things for LG globally
with the implementation of new IT systems and changing its
transportation functions through adoption of IT. Earlier, the
Korean cabal found it hard not only to keep up with the
fast-growing company, but concurrently tracking demand, supply,
inventory, manufacturing, raw materials, logistics and
distribution. It was onerous to compute collective data that would
allow the company to see its progress at a quick glance, and in
real-time. The Indian arm had to regularly send across long
detailed excel sheets of data. The Korean headquarters required a
system to synchronize forecasts, production and sales that would
eliminate the issues of inaccurate shipping, planning and
inventory. The Global Supply Chain Planning was established.
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. Integrated with the
Oracle ERP systems of LG worldwide, the end result of the
deployment of GSCP enables the company to close the gap between
demand and supply. It also provides the previous weeks performance
results and capability matrix.The difference in GSCP from the
earlier IT tools that LG Electronics has been using is that it
combines design, parts supply, procurement, production,
supply-chain, and cost management into an integrated process thus
allowing the company to know how much to produce. For that to
happen, it is crucial that all the branch personnel from every
department collaborate on the weekly Sales & Operations
Planning (S&OP) to decide on production and sales plans.Prior
to deploying GSCP, LGE also faced problems in managing inventory.
At a time when it needed to be at 42 days of inventory, it had 10
to 15 days more of inventory. LGE rolled out 12 Inventory
Optimization solutions thus releasing it from millions of cash flow
thats no longer tied to inventory.Considering that LGEIL outsources
its transportation, the company often faced simple theft,
misrepresentation of inventory, counterfeiting and piracy. This was
restricted by installing deployed Global Digital Logistics System
(GDLS) which 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.
Regional DistributionTen years ago, the consumer durables and
electronics trade was in disarray in terms of distribution. Most
companies preferred to go with national distributors, who in turn
sent out the goods to dealers. Dealers did not deal with the
company directly. Also, companies manufacturing several products
had created separate divisions within their company and each
division would deal with the distributor separately. This caused a
certain amount of confusion in the supply-chain. Soon there arose
issues and allegations in terms of margins or the lack of it,
product quality, and reverse logistics. LGEIL (possibly, another
first way back in 2003) charted a new course and went to the
regional distributors (RDs) directly, thus doing away with national
distributors. The company thought that only local people would know
their own market. This has worked well for Lg. It also began
offering higher margins to help them scale up their business from
LG products. The expertise of the RDs also helps LGEIL to near
correctly send out the right product batches and manage the reverse
logistics too.Customer returns are handled by the customer support
department directly, while the returns from dealers are handled by
the supply chain. Transportation used is the same which goes for
the delivery of the products to such dealers. In Maharashtra, the
company has a warehouse in Bhiwandi and goods are moved to the
warehouses of our trade partners. Lg deal directly with dealers and
distributors who in turn supply to sub-dealers.So how does it
distinguish between urban and rural supply-chain? Actually, it is
surprising to know that goods that find their way to urban places
also find their way to rural, though on a smaller scale because of
power outages or lack of electricity.As is evident at LGEIL, theres
much required to do something simple and keep it that way. OVERSEAS
DISTRIBUTIONLG is an international brand world wide. They have
their unique distribution channel in Pakistan; they market their
product through a domestic renowned company known as BUTTERFLY. LG
has given their license to BUTTERFLY Company to market their
product.LG import their product from KOREA and the product come to
the Karachi port and then it send to the warehouse, from where the
product delivered to the different showroom located in the country.
Lastly the showroom or the direct sales force can sell to the end
user.
SCOPE OF IMPROVEMENT Improvement in Supply:Improvement in supply
is required as Distribution frequently get stock out from a
particular type of butter which is having more sales. This should
not be a repetitive condition. The company should send exactly that
what is required by the Distributor. Sending some others flavours
which are not demanded can reduce the sales of the popular brand
lead to decrease in transparency between the Distributor and the
Retailers as the Distributor is going to avail the same policy with
the retailers as the company is availing with him. Sending proper
supply can strengthen the relation of the company. Distributor and
the Retailers. Improvement in Packaging:Packing can be made more
attractive by using cartoons to influence the person. As per the
consumer survey, the packaging of product related the best. Should
adopt more flexible Replacement policies:The major reason of
dissatisfaction among the other retailers was replacement policy of
expired products. It was also the reason for many of the closed
outlets. The Distributors gets replacement of 1.4% of total sales
by the company. This percentage can be increased to provide more
flexibility to the Distributor. The Distributer gets replacement
from the company twice in a year. The Distributor should get the
replacement monthly so that he can also replace expire products of
retailers regularly. Regular Audit of all the Distributors:A
regular audit to all the Distributors should be made by the company
officials to check the condition of all the supply vehicles so that
proper delivery of butter is made to the retailers. It was observed
that some of the supply vehicles of the Distributor were not
working properly and the supply was made in
boxes.Referenceswww.lg.com/global/sustainability/business-partner/www.lg.com/inen.wikipedia.org/wiki/LG_Corporation
.