hp lubricants sadman

8/14/2019 HP Lubricants SADMAN

1/15

1 | P a g e

HPCL PRAXIS BUSINESS SCHOOL

HPCL

PRAXIS BUSINESS SCHOOL

A report

Submitted to

Prof. Srinivas Govindrajan

In partial fulfilment of the requirements of the course

Sales & Distribution Management

On 15-11-2009

BY

Apoorva Jain (B08004)

Manoj Mani Iyer (B08014)

Piyush Golus (B08022)

Vineet Sekhani (B08042)


2/15

2 | P a g e


Executive Summary

The project involved studying the different components that form the distribution channel of the

company. In this process we also analysed the channel design that the company adopts to ensurethe physical flow of goods with the role and key deliverables of each channel member. Then we

analysed various elements of channel member management which were monetary and non-

monetary methods adopted by the company to reward its channel members, target setting &

monitoring mechanism of the channel members. Then we looked at the field force management and

the transportation & logistics. Then we analysed the 20 variables and their impacts on the

distribution channel of the company. We also analysed the role of IT in each level of the distribution.

Further we did a comparison of the market spend of the company which were broken up into 2

components: Advertising spends and Sales & Distribution spend and drew inferences.

For the above exercise we chose Hindustan Petroleum Corporation Limited (HPCL) and the productchosen was Lubricants. HPCL follows two pronged distribution channel based on the size of the

order; one being Production facility Warehouse C&F agents consumers and the second

Production facility Warehouse Distributor Dealer Consumers.

For the financial comparison the other company chosen was Indian Oil Corporation Limited (IOCL)

Lubricants Division. We compared the market spend of both the companies which were broken up

into two components: Advertising spends and Sales & Distribution spend for the financial year 2009

and drew inferences based on the comparison.


3/15

3 | P a g e


Table of contents

1 Introduction ......................................................................................................................... 4

1.1 Milestones ............................................................................................................................... 4

1.2 HP Lubes .................................................................................................................................. 4

2 Channel Design ..................................................................................................................... 5

2.1 Physical flow of goods ............................................................................................................. 5

2.2 Roles and Key deliverables ...................................................................................................... 6

2.2.1 Depots ............................................................................................................................. 6

2.2.2 Distributors ...................................................................................................................... 6

2.2.3 Dealers ............................................................................................................................ 6

2.2.4 C&F Agents ...................................................................................................................... 6

2.3 Documentation ....................................................................................................................... 6

3 Channel Member Management............................................................................................. 7

3.1 Rewards ................................................................................................................................... 7

3.1.1 Monetary Rewards .......................................................................................................... 7

3.1.2 Non Monetary Rewards .................................................................................................. 7

3.2 Target Setting Mechanism ...................................................................................................... 7

3.2.1 Distributors ...................................................................................................................... 7

3.3 Monitoring Mechanism ........................................................................................................... 8

3.4 Training ................................................................................................................................... 8

3.5 Use of IT .................................................................................................................................. 8

4 Field Force ............................................................................................................................ 8

5 Transportation and Logistics ................................................................................................. 9

6 Financial Aspect .................................................................................................................. 10

6.1 Sales and Distribution Expense ............................................................................................. 10

6.2 Comparison of the two companies ....................................................................................... 12

7 Variables affecting sales and distribution of HP Lubes: ........................................................ 13

8 Bibliography ....................................................................................................................... 15

9 Acknowledgement .............................................................................................................. 15


4/15

4 | P a g e


1 IntroductionHPCL is a Fortune 500 company, with an annual turnover of Rs. 1,16,428 Crores and

sales/income from operations of Rs 1,31,802 Crores (US$ 25,618 Millions) during FY

2008-09, having about 20% Marketing share in India and a strong market infrastructure.

Corresponding figures for FY 2007-08 are: Turnover of Rs 1,03,837 Crores

and sales/income from Operations of Rs.1,12,098 Crores (US$ 25,142 Million).

1.1 Milestones1952: The Company was incorporated in the name of Standard Vacuum Refining

Company of India Limited on July 5, 1952

1962: On 31st March,1962 the name was changed to ESSO Standard Refining Company

of India Limited.

1974: Hindustan Petroleum Corporation Limited comes into being after the takeover andmerger of erstwhile Esso and Lube India Undertaking

1976: Caltex Oil Refining Ltd. is taken over by the Government of India andsubsequently merged with HPCL in 1978.

1979: Kosan Gas Company, the concessionaries of HPCL in the domestic LPG market,are taken over and merged with HPCL.

HPCL thus comes into being after merging four different organisations at different points

of time.

1.2 HP LubesHPCL also owns and operates the largest Lube Refinery in the country producing Lube

Base Oils of international standards, with a capacity of335 TMT. This Lube Refinery

accounts for over 40% of the India's total Lube Base Oil production.

HP Lubricants are borne out of an intense and unrelenting R & D effort which aims atproducing quality products that enhance automotive performance standards. The range of

HP Lubes is comprehensive and catering to the most minute needs; from new generation

cars to ploughing tractors and industrial machinery. The range conforms strictly to OEM

specifications, often taking the initiative in customization of products.


5/15

5 | P a g e


2 Channel Design

2.1 Physical flow of goodsThe channel design for physical goods is as follows:

Firstly the goods are delivered from the production facility to the company owned depot or

warehouse. Then, from the warehouse they are delivered to the C&F agents and to the

distributors.

Then from the distributors it goes to the dealers (which may include Petrol pumps,

showrooms, Service Centre & Open Market, etc) and finally to the consumers.

On the other hand the goods from the C&F agents are generally distributed to the consumers

directly.

Another point to be noted here is that when there are large orders, the company directly sells

to the customers via the C&F agents. While in case of small orders it follows the other

channel i.e. via the distributors and the dealers.

Production Facility

Companydepot/Warehouse

C&F agents

Consumers

(Automotive/ Industrial)

Distributors

Dealers

(PetrolPumps, Showrooms, etc)

Consumers

(Automotive/Industrial)


6/15

6 | P a g e


Particulars Number

Production Facility 4

Warehouse/Depots 60

Distributors 210

C&F Agents 65

The consumers are of two types:

Automotive This segment includes those consumers who use the lubes for the automobiles

which include cars, trucks, motorbikes, etc. It also includes the automobile

service centres which use the lubes (this may generally be the B2B sales) for

e.g. Maruti Suzuki service centres.

Industrial This segment includes those consumers who use the lubes for the machinery.

These include capital intensive industries.

2.2 Roles and Key deliverables2.2.1 DepotsThe depot has to make sure that the stock is available. It has to ensure inventory management.

Delivery and warehousing the stock are its major roles. The delivery of the products could be

done in two ways

Paid deliveryGoods delivered directly from the warehouse EXIDelivery at a particular location

2.2.2 DistributorsThe distributors have to maximize the sales. They collect the goods from the warehouse.

They have to decide the credit in terms of no. of days as well as the amount which could be

given to the dealer. Also they have to increase the cliental base for the company and maintain

the relationship with clients.

2.2.3 DealersThe dealer same like distributor has to maximize sales. Ensure the availability as well as

proper visibility of the products.

2.2.4 C&F AgentsC&F agents act as an interface between the company warehouse/depot and the end

consumers like the automotive and the industrials. They ensure availability of the products.

They also take bank guarantee for the goods.

2.3 DocumentationThe documentation for the flow of goods and stock taking is done by the different channel

members in a format given by the company.


7/15

7 | P a g e


3 Channel Member Management3.1 Rewards3.1.1 Monetary RewardsMonetary rewards are rewards given in cash to the channel member to boost sales.

3.1.1.1 DepotsAs the personnel at the depot are employed by the company, they have performance based

appraisals and allowances are given accordingly.

3.1.1.2 DistributorsThe distributors are rewarded on the basis of the target achieved .They are rewarded either on

monthly or quarterly basis by Re.1 or Rs.2 schemes

3.1.1.3 DealersThe rewards are given by the distributor based on the performance of turnover achieved

3.1.1.4 C&F AgentC&F agents are paid commission which is 2-3.5% of the turnover. If the sale has been made

on discount basis to a customer then the commission would be around 2 % and if the sales are

made on a premium to the customer then the commission could be as high as 3.5 %.

Also if C&F agents sell goods on their bills i.e. taking possession of the goods like

distributors then they are eligible for incentives which would not be the case if they sold it on

companys bills.

3.1.2 Non Monetary RewardsNon monetary rewards are rewards given in kind over and above the monetary rewards to boost

sales.

3.1.2.1 DepotsThe personnel at the depot are given rewards by the company.

3.1.2.2 Distributors Gifts Holiday packages for family Recognition in corporate parties

3.1.2.3 C&F AgentNo non monetary benefits given to C&F agents.

3.2 Target Setting MechanismThe target set by the company is region specific and is set after forecasting the demand for

each region.

3.2.1 DistributorsThe target sales to be achieved by the distributors are set by the company based on thefollowing factors:


8/15

8 | P a g e


The historical performance for the region and what percentage growth the companywants to achieve in future they divide the sales to be achieved by the distributor for

different quarters or

The company gives a month on month target to the distributor 7 days before the 1st ofevery month

3.3 Monitoring MechanismThe monitoring of the flow of goods is done by using ERP.

3.4 TrainingThere is technical training sessions held at regional office once every quarter. There is one

regional office in every state.

3.5 Use of ITThe company has implemented JD EDWARD ERP software in all its offices and also at the

warehouses/depots and for C&F agents.

For the distributors the company is providing them with WINGS software. This helps in daily

update of the status of stocks.

4 Field ForceThere is a presence of sales force in each Business Segment which is employed by the

company itself.

Functions of the Field Force:

Automotive:

Following are the functions of the field force in the Automotive Segment:

Short term

Maximize sales Fulfilling the targets Sales promotions

Field Force

Automotive Industrial


9/15

9 | P a g e


Long term

Brand building Increase the market share

Industrial

Following are the functions of the field force in the Industrial Segment:

Conduct Technical Sessions Give Quotations to the Clients

5 Transportation and Logistics

The flow of goods from the production facility to the company depot/ warehouse is done

through the company owned vehicles. From the warehouse to the C&F agents and then to the

consumers, the goods are transported through the C&F owned vehicles.

From the warehouse to the distributors and from the distributor to the dealers, the goods are

transported through the distributor owned vehicles. The transportation cost borne by the

distributor is reimbursed by the company to some extent.

Production Facility

Companydepot/Warehouse

C&F agents

Consumers


Distributors

Dealers

(PetrolPumps, Showrooms, e

tc)

Consumers


Company

owned Trucks

Distributor

owned vehicles

Dealer owned

vehicles/

purchased by

Distributor

owned vehicles

C&F owned

vehicles

C&F owned

vehicles


10/15

10 | P a g e


From the dealer to the consumer the goods are either transported through the dealer owned

vehicle or purchased by the consumer from the dealers location.

6 Financial Aspect6.1 Sales and Distribution ExpenseBifurcation Of Sales & Distribution Expenses HPCL IOCL

Discount paid 1.88 0.00

Commission expenses on sales 0.00 37.67

Distribution Expenses 6.24 3.07

Inference

From the above graph it can be inferred that over the year the advertisement expenses for lubes have

gone down whereas the sales and distribution expenses have been fluctuating. It can be concluded that

over the brand has been investing around Rs. 8 crores on Sales & distribution for the past 6 years from

2004-2009 and around Rs 0.35 crores, also there has been a dip in the advertising expense in 2009 as

compared to 2008 of around Rs. 0.23 crores which clearly suggests that the company has been able to

create a brand awareness over the years and thus the amount of advertising is going down.

0.21 0.44 0.36 0.39 0.37 0.48

8.12

13.19

8.19 7.807.20

8.97

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2009 2008 2007 2006 2005 2004

Expenses - HPCL (in Rs. Cr.)

Advertisement Expenses - HPCL sales & Distribution Expenses


11/15

11 | P a g e


Assumption

The expenses figures provided in the annual report were for the company overall and the amount spent

for lubes were not mentioned thus we have taken the expenses in proportion to the revenue

contribution of lubes to the total sales.

Observations & Conclusions

Sales and distribution expense as well as the advertisement expenses as a percentage ofsales have gone down over the years.

Sales & distribution expenses as a percentage of sales have been up and down over the yearswhich are a result of fluctuating sales.

This could also be a result of varying efficiency of the distribution team.

2.10%

2.20%

2.30%

2.40%

2.50%

2.60%

2.70%

2.80%

2.90%

2009 2008 2007 2006 2005 2004

Sales and Distribution expense as a % of sales

Sales and Distribution expense as a % of sales

0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

0.12%

0.14%

0.16%

2009 2008 2007 2006 2005 2004

Advertisement expense as a % of sales

Advertisement expense as a % of sales


12/15

12 | P a g e


6.2 Comparison of the two companiesThe type of expenses considered as Sales & distribution expense were as follows:

Discount paid Commission expenses on sales Distribution expenses

HPCL

HPCL incurred majority of its sales & distribution expenses through distribution expenses Rs. 6.24 crores which is around 77% and through discount paid Rs. 1.88 crores which is

around 23%. Expenses on commission on sales were nil.

The reason for a high distribution expense percentage can be attributed to the fact thatHPCL has a large channel with many levels of intermediaries unlike IOCL.

Thus we can conclude that HPCL gives margins to its channel member to encourage sales.IOCL

IOCL incurred majority of its sales & distribution expenses through distribution expenses Rs.3.07 crores which is around 8% and commission on sales is Rs. 37.67 crores which is around

92%. Expenses on discount paid were nil.

1.88; 23%0.00; 0%

6.24; 77%

Bifurcation of of Sales & Distribution Expenses - HPCL

Discount paid

Commssion expenses on sales

Distribution Expenses

0.00, 0%

37.67, 92%

3.07, 8%

Bifurcation Of Sales & Distribution Expenses - IOCL

Discount paid

Commssion expenses on sales

Distribution Expenses


13/15

13 | P a g e


The low distribution expense can be attributed to the fact the IOCL works with only 3 levelsof intermediaries (Refineries to warehouse to retailer to consumer).

7 Variables affecting sales and distribution of HP Lubes:1. Number of consumers

Types of consumers:

Scooters and motorbikes Three vehicles and four vehicles LCVs and HCVs Industrial heavy machines

All the above categories are huge in numbers, thus it is necessary to use intermediates. And

the distribution channel has got many layers.

2. Geographic dispersion of consumersPOP points are:

Petrol pumps Automobile spares shops by side of highways and roads Hardware stores

POP points are geographically dispersed across India including rural and urban areas. Since

above mentioned requirements points are large and geographically dispersed, HP needs to

have very good connectivity through a large and robust channel. And thus transport and

logistics needs to be very efficient

3. Higher frequency of purchase For automobiles frequency is high and volume per purchase is low. Consistent demand by industrial machines. Frequency is low but volume is high per

purchase.

4. Tendency to postpone purchase Tendency to postpone purchase is possible to an extent. Because user thinks without change

of lubes he can use machine/automobile for some more time.

5. Level of familiarity/ knowledge product about the product Users are familiar of benefits of product. Thus importance of field force is limited to the

extent of making the product available.

6. Degree of brand loyalty Brand loyalty for product is medium. Many times decision is taken by service provider and

machine maintenance person. Thus margins to channel member are important and POP

merchandizing is important.


14/15

14 | P a g e


7. Purchase on impulse No, purchase on impulse, the product is bought only when it is required.8. Level of involvement Level of involvement is medium. Thus supply of information is not critical to consumer.9. Purchase as a basket of goods Yes. It is bought with other automobile accessories and spares along with refueling of

vehicle. Thus the product has to be available at all such points.

10.Speed and complexity of decision making process Speed of decision making process is high and complexity is low. Thus importance of

expertise of field force is low.

11.Presence of expert influencer in the decision making process

Mechanics are expert influencer. Thus, knowledge and awareness to mechanics is importantas they may influence the buying decision of the consumer.

12.Element of crisis purchase exists Yes, so the product has to be available.13.Element of risk aversion exists Yes, user may think usage of bad brand may damage their vehicle thus; channel member may

un-sell the brand.

14.Perishability No the product is not perishable, thus dimension of speed in transportation & logistics is not

important.

15.Time band associated with the purchase of the product Generally usage is consistent. Thus last-mile supply need not be very critical.16.Fungibility The product is low on value and small in volume thus IT can t replace a channel member to

make product available.

17.Importance of search costs Search cost is low as consumer does not spend much time on searching information about

product.

18.Degree of customization possible No. The product is highly standardized and cannot be customized for the end consumer.


15/15

15 | P a g e


19.Negative or positive reinforcing Neither negative nor positive reinforcing. As consumer uses it to avoid wear and tear of

machine also they know that it increases mileage of the machine. Ambience is not important

while purchasing the product.

20.Value / volume ratio of the product Value/ volume ratio is low thus there is transport cost sensitivity and importance of cost

effectiveness is required.

8 Bibliography www.hpcl.com Annual report HPCL Annual report IOCL

9 AcknowledgementWe would like thank Mr. Amit Gupta, Distributor, HPCL Lubricants, Kota (Rajasthan)
http://www.hpcl.com/http://www.hpcl.com/http://www.hpcl.com/

hp lubricants sadman

Documents