XLRI, JAMSHEDPUR

Bright Engineering Company (J)

SDM Mid Term Case Analysis

Amar Kumar

G12007

1. Introduction The case is about the distribution channel of Bright Engineering Company, located in Western India. Bright Engineering had been forced to reduce its price by 50% for its major product because of fierce competition from a bigger firm. Even price reduction also could help the company achieve 30-40% of original planned production capacity. This forced the top management look for new product lines to utilize its excess production capacity. The case also discusses about the issues with distribution channel. 2. Identification of external issues A. Competition: Soon after starting the marketing of the first product, the company realized that there is one large competitor. Hence the company added 30+ items to its portfolio. There were 5 other medium sized firms selling looms and ring frame parts, each having 3 to 4 parts common with Bright Engineering. If we trust Khanna, these companies were not producing quality products and, hence, they were able to sell at prices lower1 than that of Bright Engineering products.

3. Identification of the problems under the 3Es I will use three main dimensions to analyze the problems with distribution channel: A. Efficiency: I. The stockists, while quoting for the products, marked their prices up, ranged from 20% to 50 % generally. They wanted very high margin, even at the risk of foregoing some sales volume. When there is big difference in prices, the purchaser needed to be convinced that he paid higher prices for better quality. The stockists were not technically qualified and, hence, were unable to do so. 2 II. There were no standard pricing procedures in place. The stockists were charging as per there raw calculations. They were charging differential pricing (on higher side) by giving following reasons: a. Recovering additional expenditures through higher pricing. b. Compensation for different payment practices followed by different mills. c. Reward for good contacts and relations with customers III. Most of the stockists dealt in many other items in additional to those of Bright Engineering. Many of the products they carried were also sold to textile mills. There lies conflict of interests. IV. Bright Engineering granted 45-90 days credit to these stockists. However, the stockists generally had to extend longer term credit to their clients (mills), sometimes 6-8 months. The stockists, therefore, had to finance to take care of this problem.
1. 2. Though it is not very evident from the case, the customers perception of quality may be different from Bright Engineers perception of quality. The company may be putting more effort in quality than that the customer is ready to pay for. We cannot assume that if the stockists were technically qualified, they would have convinced the customers because it was not clear that customers were giving weightage to technical details. Many sales happened on the basis of relationships.

V.

The stockists locked up substantial amounts of cash in inventories.

B. Effectiveness: I. The purchasing practices of different mills differed substantially. The cotton textile mills in Mumbai generally invited tenders from suppliers. The Ahmedabad mills, on the other hand, transacted most of their business orally enquiry, quotation and order. Even after receiving the quotations, these mills tried to bargain in order to bring down the supply price. In south India, written enquiries were received by the suppliers. II. Each stockist was allotted an exclusive area to cater a minimum sales volume of Rs. 50000. However, it was difficult to implement this rule. III. It is mentioned in the case that most of the stockists were in their forties and it would be nearly impossible to change their attitudes. This may not be true. If we show benefits to the stockists and make them partner in the growth of the company, they will eventually support the company initiatives. C. Equity: I. As per Khanna, stockists did not help by giving suggestions for alternative items or reasons for not selling large quantity of a product. In other words, Khanna was facing issues in gathering market intelligence from the stockists.

4. Comparative Analysis of distribution through stockists. Vs. Bright Engg Company distribution I am considering Coimbatore stockiest for the analysis because the sales has decreased from 26000 in 1962 to 11500 in 1963. The profitability and impact of the company owned distributorship is being analyzed though the calculations. Case- I : Sales increases because of better services and low mark up (if possible) Excel sheet-

Bright Engg.xlsx

Observations Final cost of goods sold by the company is Rs. 129, which is comparable to Rs. 130 mark up price of the stockiest. Hence our assumption that sales will increase because low price is not true.

Case-II Sales does not increases

Observations: If sales remains at the same level, then the final selling price will be Rs. 134, 4 / more than that of stockists price.

5. Summary of the problems A. Lack of standardization in the pricing procedures- The stockists are playing with the prices. The same product, under similar circumstances, may be sold at different prices to different customers. This will spread dissatisfaction among the customers and reduce the credibility of the company. B. Lacks of standardization in sales processes- Sales processes are not standardized. Though it may not impact the company immediately, it will have long term impact in brand building and customer relations. C. Lack of customer centric approach- The distributors are much bothered about their profits and hampering the brand equity of the company.

6. Suggestions to Mr. Xavier A. Retain the stockistsStockists are experienced players in the local regions and they maintain good relationship with the customers. It will be unwise to discount their importance in the business. As per the analysis (shown above), their marked up prices seem to be reasonable. B. Standardize the pricing procedures Bright Engineering should not send a price list to the stockists because it will not be flexible. Pricing has to be dynamic. However, the standardization of pricing procedures can be brought in the business so that there is no discrimination between two customers under similar circumstances. C. Sensitize the stockists about the brandThe stockists should be aware about the high quality of the products. If possible, the stockists should be called for a short term training program at strategic locations, which will also motivate the stockists for Bright Engineering Company bran building.