Learning Sheet

Name: Rajveer Singh

Roll No.: 13259
Section: E

Do you think it was ethical on JOSH's part to eliminate the entire distribution structure
without passing on the benefits to Seth Dhaniram?
In the case presented here JOSH basically wanted to reduce the complexity of the entire
distribution system by completely getting rid of the distributor chains. This was to ensure
better service to its end customers and also to save capital that was being spent in the form of
distributors margins. But this decision on the part of JOSH can be discussed with regards to
the following pointsBy doing away with the distributor chains and forcing Raj Distribution System (RDS) to
carry out the distribution of material up till the retailer level but at the same time to give no
added remuneration was unethical. Thus JOSH decided to keep all the savings that it got out
of this new arrangement to itself which was wrong. After the policy change RDS had to incur
a number of additional costs such as direct distribution of the product to all 180 retailers
across 14 districts (which has risen from the initial 10) for which it would have to establish
the necessary infrastructure which demands high capital investment. Also the repackaging
cost would go up since now the lot sizes would get smaller and much varied because they
have to be directly sent to the retailer. Also RDS would have to employ new staff members.
Thus all these expenses would have to be born out of his personal profit which is definitely
not what is expected out of a mutual business deal. JOSH should have given him a much
higher remuneration because it is actually demanding RDS to expand into other dimensions.
Thus it is totally unethical on JOSHs part to keep the entire savings to itself and passing on
the added complexity to RDS.
JOSHs behavior was not only unethical from the view point of RDS but also from that of the
distributors. RDS has been working with the distributors from a long time and now it is been
forced to let them go and enter into their avenue. The C&FA and distributor relationship is
getting hampered, the interests of the distributors is also not being taken into account. They

might have made large investments and now depriving them of the revenues would be grave
injustice to them and their families.
Seth Dhaniram had set up this agency as a training ground for his nephews, but such a
venture would mean either working with very little or no profit or shutting down the agency
which is detrimental to the career starting images of his nephews.
Thus, I feel JOSH has been totally ruthless in rolling out this new policy and not considered
the interests of the stakeholders.

What would have been your course of action as Seth Dhaniram in reaction to JOSH's
restructuring?
As Seth Dhaniram, I would want to want an immediate renegotiation with the policy makers
of JOSH and demand a higher remuneration for the added costs and if the negotiation does
not pan out well I would end the deal and walk out.
The following points could support my claim-

1.

Prior to the policy change, we see that the monthly profit of Seth Dhaniram is Rs.
25,400 (60000-36400) from exhibit 5. Here we consider the fact that after 15 months
into the deal, the fixed costs have been recovered as the Break Even point is 2.76

2.

months which can be calculated as follows: 70,000+36,400x=60,000x.

After the policy changes, the following additional costs have to be incurred.
Transportation cost to the retailers. There is a total outage of 3,600 cartons per month
and if we assume the cost as Rs. 8/carton (from exhibit 4), then the total transportation
cost comes out to be Rs. 28,800 per month. Also the cost of repackaging would go up
because now two third of the goods are being repacked. So the repackaging cost now
becomes 1.66 times the original which was Rs. 3,000 (from exhibit 5). Thus the
repackaging cost is Rs. 5,000. Also additional staff members would be required. Even
if I employ 5 new members the cost goes up from Rs. 18,000 for 5 people to say
36,000 for 10. Thus the average monthly expenditure goes up by Rs. 48,800. The total
cost now is Rs. 85,200 against a remuneration of 60,000 only. Thus Seth Dhaniram
would be spending from the profits he made in the first 15 months which is not
advisable.

3.

The negotiation can be done with JOSH because it is saving a pretty decent amount
equal to the margin offered to the distributors which comes out to be between
2,10,000 and 3,00,000 (7 -10 % of the purchase value of 3 million). Thus RDS can
seek an increased remuneration of about 25,200 (about 12 %) just to break even and
more so that a profit is made. The negotiation should also be to consider the side of
the distributors who have been for a long time with RDS.

Thus, I as Seth Dhaniram would seek a negotiation because after all the brand name of JOSH
will definitely be an incentive to my business. The negotiation would be to bring them around
to my point of view wherein I atleast make a decent profit out of the deal. If they do not
consider my point then I would have no other option but to end the deal and walk out.