Luận văn Thạc sĩ_Solutions for integrating the distribution systems of Kinh Do food JSC and Tribeco JSC

TABLE OF CONTENTS ACKNOWLEDGEMENT3 ABBREVIATION4 LIST OF TABLES5 LIST OF CHARTS6 EXECUTIVE SUMMARY7 INTRODUCTION9 1. Rationale:9 2. Research objectives:10 3. Research questions:10 4. Scope of research:11 5. Research methodology:11 6. Structure of thesis:12 CHAPTER 1: THEORETICAL BACKGROUND13 1.1. Overall organization analysis.13 1.1.1. Vision statement13 1.1.2. Mission statement13 1.1.3. Strategy13 1.2. The nature of distribution system.14 1.2.1. Distribution system’s concepts.14 1.2.2. Number of Channel Levels.15 1.2.3. Number of intermediaries.16 1.2.4. The power of distribution channel16 1.2.5. Distribution channel flows.17 1.3. Integrating and managing distribution system.17 1.3.1. Establishing distribution system objectives.19 1.3.2. Distribution system design decision.20 1.3.3. Setting distribution system policy.21 1.3.4. Distribution system management.22 1.3.5. Managing sales forces.26 CHAPTER 2: NKD & NTC DISTRIBUTION SYSTEM ANALYSIS29 2.1. Introducing the NKD and NTC background29 2.1.1. NKD history.29 2.1.2. NKD vision.29 2.1.3. NKD mission.30 2.1.4. NKD Long term objectives.30 2.1.5. NTC history31 2.1.6. NTC vision.31 2.1.7. NTC mission.31 2.1.8. NTC Long term objectives/ Expected position.31 2.2. The design and development of NKD distribution system.32 2.2.1. The design of NKD distribution system.32 2.2.2. NKD distribution system mission.32 2.2.3. NKD distribution system long term objectives.32 2.2.4. The development of NKD distribution system.32 2.2.5. Business department organization structure.33 2.2.6. NKD products categories.34 2.3. The design and development of NTC distribution system.35 2.3.1. The design of NTC distribution system.35 2.3.2. NTC distribution system mission.35 2.3.3. NTC distribution system long term objectives.35 2.3.4. The development of NTC distribution system.35 2.3.5. Business department organization structure.36 2.3.6. NTC products categories.37 2.4. Analysis on distribution system management of NKD and NTC.37 2.4.1. System member management analysis.37 2.4.2. Flows management analysis.44 2.4.3. Conflict management analysis.49 2.4.4. Benefit allocation among system’s member analysis.50 2.4.5. Sales force management analysis.52 2.4.6. Evaluating system results.61 2.4.7. Summarize on NKD and NTC distribution system.68 CHAPTER 3: RESEARCH SUMMARY70 3.1. Other results of the research:70 3.1.1. Products evaluation:70 3.1.2. Selling policies evaluation:72 3.1.3. Sales forces evaluation:73 3.2. Benefits of integration.74 CHAPTER 4: SOLUTIIONS TO INTEGRATE TWO DISTRIBUTION SYSTEMS:76 4.1. Vision, Mission and Objectives of new distribution system:76 4.1.1. Vision:76 4.1.2. Mission:76 4.1.3. Long-term objectives:76 4.2. Solutions to integrate two distribution systems.77 4.2.1. The cooperation between NKD and NTC.77 4.2.2. Channel set up solutions.77 4.2.3. Sales forces management solutions.79 4.2.4. Distributor management solutions.82 4.2.5. Flow management solutions.83 4.2.6. Conflict management solutions.85 4.2.7. Benefit allocation solutions.85 CONCLUSION87 REFERENCES88 EXECUTIVE SUMMARY To carry out the strategic direction of Kinh Do Group in establishing Kinh Do Trading Company, North Kinh Do carried out the integration between NKD and NTC distribution systems together as the initial step. The integration will not only help Kinh Do enhance it bargaining power to retailer which plays an important role in retail industry but also reduce cost of distribution, cost of transportation and management expenses. Kinh Do chose the North market with NKD and NTC as the pilot because it has some advantages such as: at least 70% retailer are the same, the same distribution system structure and the most important thing is they located in the same location, this helps Kinh Do free from ware house problem. Because this is the direction of Kinh Do Group so the author just concentrates on researching whether retailer, distributor support the integration or not, what difficulties retailer, distributor, Kinh Do will face when two distribution systems are integrated together and what are the solutions to solve these problems. These researches helped me to identify the desire, the buying behavior of retailer and distributor and it also helped me to know what difficulties Kinh Do will face and how to solve it. Most of solutions in these researches were proposed by retailer and distributor and obviously it were modified by the author to assure the effectiveness when applying it in real condition. In order to find optimal solutions and modified solutions in the research of retailer and distributor, the author had carried some in-depth interviews with managers of NKD and NTC. In these interviews the author had raised the problems that retailer and distributor had raised to ask the solutions from managers. With highly educated and experienced people the solutions that gave out by managers play an important role in my thesis. After the in-depth interview carried the author finalized solutions and discussed with Board of Director of NKD and NTC to take the approval. Actually, these solutions will be applied when the integration carried out. The below are some main solutions: 1.Unifying the management of the new distribution system by integrate North Tribeco distribution system to North Kinh Do distribution system. 2.Set up three main channels to distribute deeper and widely. 3.Salesmen should be shifted to distributor to enhance their responsibilities. 4.Training, recruiting and evaluating sales forces, distributor should be changed to enhance their capabilities and strength the relationship with company. 5.The policy for distributor must be changed to improve their profit and enhance the relationship with Company. INTRODUCTION 1.Rationale: The development of domestic companies in producing and distributing thank to the development of security market made the competition in retail industry increasingly. Furthermore, the opening of retail market policy of the Government on the 1st of January 2009 made the competition become fiercer. The competition happen in many aspects such as: product quality, pricing, marketing campaign….but the most important one in retail industry is location – with the current situation of Vietnam now is retailer (point of sale which is opened by the location owner). In retail industry, the definition of WAR is War at Retailer, this definition proves that the most fierce competition happen at retailer where all producers want to penetrate and occupy as large space as possible. In this competition which producer has more bargain power to retailer will has an advantage in occupy big scale in sales and large space in displaying products. Thus, all producers now try to increase their bargaining power to retailer by supplying wide range of products, enhancing services, setting good policies to bring good profit to retailer. Aware of that Kinh Do group set out the direction of enhancing the bargaining power to retailer by integrating some distribution systems together. This is the initial step to form Kinh Do Trading Joint stock company which is not only distributing Kinh Do group products but trading some other product categories also. The reasons for Kinh Do to do that is: -Kinh Do has some subsidiaries that produce Fast Moving Consumer Goods (FMCG) products such as: NKD produces confectionery, Tribeco produces beverage, Kido’s produces ice-cream. -Kinh Do is the strategic partner of Nutifood a milk producing company. -Kinh Do distribution system is considered as one of professional biggest system in FMCG in Vietnam. -All of these products (confectionery, beverage, milk and ice-cream) are distributed to at least 70% the same retailers; this make Kinh Do does the integration conveniently. -North Kinh Do Food Processing Joint Stock Company (NKD) and North Tribeco Joint Stock Company (NTC) located in the same place is the most important reason why Kinh Do chose the North market as pilot market in integrating distribution systems together because Kinh Do does not solve the warehouse problem anymore. All of the above reasons led me to choose topic “Solutions for integrating the distribution systems of Kinh Do food JSC and Tribeco JSC” to complete my MBA course and fulfill my responsibility at NKD. Choosing this topic helped me to systematize my knowledge and practically contribute to my company. Because this is a strategic direction of Kinh Do group so in this thesis the solutions were formulated in general and aim to solve almost all problems and requirements of the integration. 2.Research objectives: In order to know the evaluation of retailer, distributor and find out the challenges when the integrating happen, in this thesis the author focused on the following objectives: •Theoretical summary on integrating the distribution channels and the requirements of integration. •Current situation analysis of distribution system of NKD and NTC. •Difficulties and challenges when integrating two systems together. •Solutions for integrating the distribution system of NKD and distribution system of NTC. 3.Research questions: To achieve the research objectives this research has to answer these questions: •What requirements Kinh Do should meet when doing the integration? •What difficulties Kinh Do will face when doing the integration? •How to integrating the two distribution systems together to meet with the needs of the market in a short term and long term also? 4.Scope of research: The integration is related to distributor, retailer and the sales forces only, so the research just focuses on: •The evaluation on distribution system of NKD and NTC. •Retailer, distributor and managers of NKD, NTC on how to do the integration. •All the data of recent three years: 2006, 2007, 2008. •The north market only. 5.Research methodology: 5.1.Collecting data. •Secondary data: Secondary data has been collected by qualitative method mainly base on company’s report, news paper, internet, magazine, from formal publication of Vietnam General Statistic Office, information from thesis of others students. •Primary data: -Questionnaires: The author has applied questionnaire survey to collect information from retailers, distributors who had given their opinion about the existing distribution system advantages and disadvantages, comparing the existing system to others, forecast the trend of distribution system in the future, giving their ideas about the challenging and difficulties when two distribution systems integrated together. Because of time limitation, Author had conducted 200 questionnaires for retailers in which 100 for Hanoi and 100 for provinces, 60 questionnaires for 90 distributors. -The in-depth interview: After conducting questionnaire method and process the answer, the author has applied in-depth interview method to collect the information that the questionnaire method did not supply enough. By using this method the question designed for the in-depth interview were base on the problem/ issues that questionnaire method couldn’t solve. In-depth interview applied to some interviewees such as ASM of NKD, Chief of System Department of NKD, ASM and SM of NTC. 5.2.Data analyzing method. The quantitative and qualitative methods were both used for analyzing data. The Author used Excel, SPSS software to process data. 6.Structure of thesis: The main body of this thesis is divided into four chapters as following: Chapter 2: Theoretical background. Chapter 2: NKD and NTC distribution system analysis Chapter 3: Research summary. Chapter 4: Solutions to integrate two distribution systems. CHAPTER 1: THEORETICAL BACKGROUND 1.1.Overall organization analysis. Knowing an organization is a good or not good one, people normally not only base on the result that company has gotten but also look at the vision statement, mission statement and the strategies of that organization. These are the main factors which reflect that organization will have a good perspective or not. 1.1.1.Vision statement Vision statement of an organization is used to answer the question “what do we want to become?” Vision statement normally is the long term objectives and it becomes the foundation for all operations of that organization. Developing vision statement is the first step in the strategy formulation. Vision statement normally is a single sentence and it is the direction for the organization to follow. 1.1.2.Mission statement Mission statements are enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms. It addresses the basic question that faces all the strategists “what is our business?” Mission statement includes of not only the nature and scope of present operations but also the future attractiveness of the market. Thus mission statement is the foundation for setting up the priorities, objectives, strategies, plans. It is the starting point for designing the organization structure, managerial competency…. 1.1.3.Strategy 1.1.3.1.Strategy definition Strategy is the mean of achieving objectives. It answers the questions how to make the mission statements or long term objectives come true. In generally it is the step of achieving long term objectives. Business strategy may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint venture. According to Fred r. David there are three main strategies: Differentiation, Cost leadership and Focus. 1.1.3.2.Strategic objectives Strategic objectives are used to concretize the mission statement. They show that how the organization can fulfill the mission and vision. According to Gregory G. Dess from University of Texas at Dallas, for Objectives to be meaningful, they need to satisfy the SMART rule, they are: •Specific: This provides a clear massage as to what need to be accomplished •Measurable: There must be at least one indicator that measure progress against fulfilling the objective. •Appropriate/ Achievable: It must be consistent with the vision and mission of organization. •Realistic: It must be achievable target given the organization’s capabilities and opportunities in the environment. In essence, it must be challenging but doable. •Timely: There needs to be a time frame for finishing the objectives. 1.2.The nature of distribution system. 1.2.1.Distribution system’s concepts. Distribution systems are behind every product and service that consumers and business buyers purchase everywhere. Usually, it’s a combination of organizations or people specializing in manufacturing, wholesaling, retailing sales forces and logistic tools (transportation, ware house…). In this thesis the author just concentrate on one main part of distribution system only that is distribution channel because two companies are located in the same location so the logistic issues need not to be analyzed any more. Channel is a group of points of purchase that satisfy the same consumer/ shopper needs or requirement. (1) “Distribution channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption” (2). In the reality interdependent organizations can be a private business, joint stock companies especially in Vietnam is family businesses. This concept shows that a distribution channel cannot be one unit doing its best in the market place but it must have many entities to do the job of distribution and each entity depends on the others to do their job. This definition also mentions that distribution is a process and it takes time to accomplish. 1.2.2.Number of Channel Levels. Distribution channel can be characterized by the number of channel levels, the length of the channel depend on the types of product or services and the strategy of the producer. A zero-level channel (also called a direct marketing channel) is a channel without any intermediary in this case the producers sell their products or services directly to the end user. The major ways of zero-level channel are door-to-door, mail order, TV selling and producer owned stores. A one-level channel contains one intermediary, such as retailer. A two-level channel contains two intermediaries, typically a wholesaler and a retailer. A three-level channel contains three intermediaries, typically a distributor, a wholesaler and a retailer as the exhibit below. Figure 1.1: Distribution channel Source: from Marketing Management – Philip Kotler 1996 Using zero-level channel producer will face a problem in recruiting and managing a big amount of sales people. Thus only products with complicated technology or very high price will apply this model such as: air plane, hydro power…. One – level model applied when products need high specialized skill of sales people to consult the end user accuracy such as premium cosmetic, electronic products…. Two and three level channel is normally applied for consumer products which are easy to use and need to be distributed as broadly as possible. 1.2.3.Number of intermediaries. After determining the level of the distribution channel the manufacturer have to decide on the number of middlemen to use at each channel level. Exclusive Distribution: It involves severely limiting the number of middlemen handling the company goods or services. It applies when the producer wants to maintain a great deal of control over the service level and services outputs offered by the resellers. Selective Distribution: It involves the use of more than a few but less than all of the intermediaries who are willing to carry a particular product. Intensive Distribution: It is characterized by placing the product in as many outlets as possible Depend on the product and company strategy the number of intermediary will be chosen and formed the types of distribution channel. 1.2.4.The power of distribution channel “Power is the ability of one channel member (A) to get another channel member (B) to do something which, otherwise, would not have done” (3). Once one channel member can use it power to force another to do something but not receive any compensation for it, by this way the relationship will be eroded gradually. But the judicious way of using power will create the good relationship among channel members and they will try the best to accomplish their duties even though sometime it doesn’t make profit. Five sources of power: -Reward power: benefit given to others. -Coercive power: punishing others for failure. -Expert power: based on the target perception that the influence has special knowledge, useful expertise that the target doesn’t possess. -Legitimate power: stems from the target company’s sense that it is in some way obligated to comply with the request of the influence. -Referent power exist when B view A as a standard of reference and therefore wishes to identify publicly with A. It takes time to create power naturally and the smart way of using power is not forcing but influencing others to do thing that we want. .....

ABBREVIATION 4

LIST OF TABLES 5

LIST OF CHARTS 6

EXECUTIVE SUMMARY 7

INTRODUCTION 9

1 Rationale: 9

2 Research objectives: 10

3 Research questions: 10

4 Scope of research: 11

5 Research methodology: 11

6 Structure of thesis: 12

CHAPTER 1: THEORETICAL BACKGROUND 13

1.1 Overall organization analysis 13

1.1.1 Vision statement 13

1.1.2 Mission statement 13

1.1.3 Strategy 13

1.2 The nature of distribution system 14

1.2.1 Distribution system’s concepts 14

1.2.2 Number of Channel Levels 15

1.2.3 Number of intermediaries 16

1.2.4 The power of distribution channel 16

1.2.5 Distribution channel flows 17

1.3 Integrating and managing distribution system 17

1.3.1 Establishing distribution system objectives 19

1.3.2 Distribution system design decision 20

1.3.3 Setting distribution system policy 21

1.3.4 Distribution system management 22

1.3.5 Managing sales forces 26

CHAPTER 2: NKD & NTC DISTRIBUTION SYSTEM ANALYSIS 29

2.1 Introducing the NKD and NTC background 29

2.1.1 NKD history 29

2.1.2 NKD vision 29

2.1.3 NKD mission 30

2.1.4 NKD Long term objectives 30

2.1.5 NTC history 31

2.1.6 NTC vision 31

2.1.7 NTC mission 31

2.1.8 NTC Long term objectives/ Expected position 31

2.2 The design and development of NKD distribution system 32

2.2.1 The design of NKD distribution system 32

2.2.2 NKD distribution system mission 32

2.2.3 NKD distribution system long term objectives 32

2.2.4 The development of NKD distribution system 32

2.2.5 Business department organization structure 33

2.2.6 NKD products categories 34

2.3 The design and development of NTC distribution system 35

2.3.1 The design of NTC distribution system 35

2.3.2 NTC distribution system mission 35

2.3.3 NTC distribution system long term objectives 35

2.3.4 The development of NTC distribution system 35

2.3.5 Business department organization structure 36

2.3.6 NTC products categories 37

2.4 Analysis on distribution system management of NKD and NTC 37

2.4.1 System member management analysis 37

2.4.2 Flows management analysis 44

2.4.3 Conflict management analysis 49

2.4.4 Benefit allocation among system’s member analysis 50

2.4.5 Sales force management analysis 52

2.4.6 Evaluating system results 61

2.4.7 Summarize on NKD and NTC distribution system 68

CHAPTER 3: RESEARCH SUMMARY 70

3.1 Other results of the research: 70

3.1.1 Products evaluation: 70

3.1.2 Selling policies evaluation: 72

3.1.3 Sales forces evaluation: 73

3.2 Benefits of integration 74

CHAPTER 4: SOLUTIIONS TO INTEGRATE TWO DISTRIBUTION SYSTEMS: 76

4.1 Vision, Mission and Objectives of new distribution system: 76

4.1.1 Vision: 76

4.1.2 Mission: 76

4.1.3 Long-term objectives: 76

4.2 Solutions to integrate two distribution systems 77

4.2.1 The cooperation between NKD and NTC 77

4.2.2 Channel set up solutions 77

4.2.3 Sales forces management solutions 79

4.2.4 Distributor management solutions 82

4.2.5 Flow management solutions 83

4.2.6 Conflict management solutions 85

4.2.7 Benefit allocation solutions 85

CONCLUSION 87

REFERENCES 88

In order to finish this thesis and E-MBA course also, I have received

a lot of support from many people I would like to take this opportunity to thank all those who in many ways have helped me complete the Master program.

I want to express my deeply thanks for my family, especially for my wife who had found the course on newspaper and encouraged me to enrolled It is impossible for me to finish this course without her helps and encouraging Besides that the obedient of my lovely daughters has created

an ideal condition for me to finish the thesis.

I would like to thank to Associate Prof … Ph.D who has taught strategic management subject and also supervise me to conduct this thesis I admire his knowledge and devotion for me.

I would like to thank all my professor of EMBA course, who have trained and help me to improve my knowledge on business management And in fact is that I have applied it for my work effectively.

I also have received supporting from experts, interviewees, coworkers, and class-mates I would like to express my sincere thanks to them who have worked hard with me during the thesis written time.

NKD North Kinh Do food processing joint stock company

NTC North Tribeco Joint stock company

DSA Distributor Sales Administration

POSM Point of Sales Material

ATL Above the line

BTL Below the line

LIST OF TABLES

Figure 1.1: Distribution channel

Figure 1.2: Distribution channel

Table 2.1: The development of NKD distribution system

Table 2.1: NKD product categories

Table 2.3: The development of NTC distribution system

Table 2.4: Product categories of NTC

Table 2.5: Distributor training courses of NKD

Table 2.6: Distributor motivation factors of NKD

Table 2.7: Distributor evaluation factors of NKD

Table 2.8: Record of distributor violation in 2008 of NKD

Table 2.9: Daily selling route of sales advisor of NKD

Table 2.10: Daily selling route of NTC

Table 2.11: NKD policies for channel members

Table 2.12: Policies for distributor

Table 2.13: NKD policies for sales forces

Table 2.14: NKD policies for SD & ASM

Table 2.15: NTC Policies for sales forces

Table 2.16: Net sales and coverage of NKD

Table 3.1: Research results on products

Table 3.2: Research results on policy

Table 3.3: Research results on sales forces

Table 4.1: Criteria for recruiting sales forces

Table 4.2: Policies for Sales Advisor

Table 4.3: Policies for SD and ASM

Table 4.4: Criteria for evaluating distributor

LIST OF CHARTS

Chart 2.1: Business department organization chart of NKD

Chart 2.2: Organization chart of Business department of NTC

Chart 2.3: Distributor set up process of NKD

Chart 2.4: NKD’s organization chart for big territory

Chart 2.5: NKD’s organization chart for small territory

Chart 2.6: Recruitment process of NKD

Chart 2.7: Organization chart of sales department of NTC

Chart 2.8: Distribution cost structure of NKD in 2008

Chart 2.9: Research results

Chart 2.10: Distribution cost structure of NTC in 2008

Chart 2.11: Channel member satisfying research results

Chart 3.1: Research results on integration

Chart 3.2: Benefit of integration

Chart 4.1: Organization chart of Sales department

EXECUTIVE SUMMARY

To carry out the strategic direction of Kinh Do Group in establishing Kinh DoTrading Company, North Kinh Do carried out the integration between NKD andNTC distribution systems together as the initial step The integration will notonly help Kinh Do enhance it bargaining power to retailer which plays animportant role in retail industry but also reduce cost of distribution, cost oftransportation and management expenses

Kinh Do chose the North market with NKD and NTC as the pilot because it hassome advantages such as: at least 70% retailer are the same, the samedistribution system structure and the most important thing is they located in thesame location, this helps Kinh Do free from ware house problem

Because this is the direction of Kinh Do Group so the author just concentrates

on researching whether retailer, distributor support the integration or not, whatdifficulties retailer, distributor, Kinh Do will face when two distribution systemsare integrated together and what are the solutions to solve these problems.These researches helped me to identify the desire, the buying behavior ofretailer and distributor and it also helped me to know what difficulties Kinh Dowill face and how to solve it Most of solutions in these researches wereproposed by retailer and distributor and obviously it were modified by theauthor to assure the effectiveness when applying it in real condition

In order to find optimal solutions and modified solutions in the research ofretailer and distributor, the author had carried some in-depth interviews withmanagers of NKD and NTC In these interviews the author had raised theproblems that retailer and distributor had raised to ask the solutions frommanagers With highly educated and experienced people the solutions thatgave out by managers play an important role in my thesis

After the in-depth interview carried the author finalized solutions and discussedwith Board of Director of NKD and NTC to take the approval Actually, thesesolutions will be applied when the integration carried out The below are somemain solutions:

1 Unifying the management of the new distribution system by integrate NorthTribeco distribution system to North Kinh Do distribution system.

2 Set up three main channels to distribute deeper and widely

3 Salesmen should be shifted to distributor to enhance their responsibilities

4 Training, recruiting and evaluating sales forces, distributor should bechanged to enhance their capabilities and strength the relationship withcompany

5 The policy for distributor must be changed to improve their profit andenhance the relationship with Company

1 Rationale:

The development of domestic companies in producing and distributing thank tothe development of security market made the competition in retail industryincreasingly Furthermore, the opening of retail market policy of theGovernment on the 1st of January 2009 made the competition become fiercer.The competition happen in many aspects such as: product quality, pricing,marketing campaign….but the most important one in retail industry is location– with the current situation of Vietnam now is retailer (point of sale which isopened by the location owner) In retail industry, the definition of WAR is War

at Retailer, this definition proves that the most fierce competition happen atretailer where all producers want to penetrate and occupy as large space aspossible In this competition which producer has more bargain power to retailerwill has an advantage in occupy big scale in sales and large space indisplaying products Thus, all producers now try to increase their bargainingpower to retailer by supplying wide range of products, enhancing services,setting good policies to bring good profit to retailer

Aware of that Kinh Do group set out the direction of enhancing the bargainingpower to retailer by integrating some distribution systems together This is theinitial step to form Kinh Do Trading Joint stock company which is not onlydistributing Kinh Do group products but trading some other product categoriesalso The reasons for Kinh Do to do that is:

- Kinh Do has some subsidiaries that produce Fast Moving ConsumerGoods (FMCG) products such as: NKD produces confectionery, Tribecoproduces beverage, Kido’s produces ice-cream

- Kinh Do is the strategic partner of Nutifood a milk producing company

- Kinh Do distribution system is considered as one of professional biggestsystem in FMCG in Vietnam

- All of these products (confectionery, beverage, milk and ice-cream) aredistributed to at least 70% the same retailers; this make Kinh Do does theintegration conveniently

- North Kinh Do Food Processing Joint Stock Company (NKD) and NorthTribeco Joint Stock Company (NTC) located in the same place is the mostimportant reason why Kinh Do chose the North market as pilot market inintegrating distribution systems together because Kinh Do does not solvethe warehouse problem anymore.

All of the above reasons led me to choose topic “Solutions for integrating the distribution systems of Kinh Do food JSC and Tribeco JSC” to complete my MBA course and fulfill my responsibility atNKD Choosing this topic helped me to systematize my knowledge andpractically contribute to my company

Because this is a strategic direction of Kinh Do group so in this thesis thesolutions were formulated in general and aim to solve almost all problems andrequirements of the integration

2 Research objectives:

In order to know the evaluation of retailer, distributor and find out thechallenges when the integrating happen, in this thesis the author focused onthe following objectives:

 Theoretical summary on integrating the distribution channels and therequirements of integration

 Current situation analysis of distribution system of NKD and NTC

 Difficulties and challenges when integrating two systems together

 Solutions for integrating the distribution system of NKD and distributionsystem of NTC

3 Research questions:

To achieve the research objectives this research has to answer thesequestions:

 What requirements Kinh Do should meet when doing the integration?

 What difficulties Kinh Do will face when doing the integration?

 How to integrating the two distribution systems together to meet withthe needs of the market in a short term and long term also?

4 Scope of research:

The integration is related to distributor, retailer and the sales forces only, sothe research just focuses on:

 The evaluation on distribution system of NKD and NTC

 Retailer, distributor and managers of NKD, NTC on how to do theintegration

 All the data of recent three years: 2006, 2007, 2008

 The north market only

5 Research methodology:

5.1 Collecting data.

 Secondary data: Secondary data has been collected by qualitative

method mainly base on company’s report, news paper, internet,magazine, from formal publication of Vietnam General Statistic Office,information from thesis of others students

 Primary data:

- Questionnaires: The author has applied questionnaire survey to

collect information from retailers, distributors who had given theiropinion about the existing distribution system advantages anddisadvantages, comparing the existing system to others, forecast thetrend of distribution system in the future, giving their ideas about thechallenging and difficulties when two distribution systems integratedtogether Because of time limitation, Author had conducted 200questionnaires for retailers in which 100 for Hanoi and 100 forprovinces, 60 questionnaires for 90 distributors

- The in-depth interview: After conducting questionnaire method and

process the answer, the author has applied in-depth interview method

to collect the information that the questionnaire method did not supplyenough By using this method the question designed for the in-depthinterview were base on the problem/ issues that questionnairemethod couldn’t solve In-depth interview applied to some

interviewees such as ASM of NKD, Chief of System Department ofNKD, ASM and SM of NTC.

5.2 Data analyzing method.

The quantitative and qualitative methods were both used for analyzing data.The Author used Excel, SPSS software to process data

6 Structure of thesis:

The main body of this thesis is divided into four chapters as following:

Chapter 2: Theoretical background.

Chapter 2: NKD and NTC distribution system analysis

Chapter 3: Research summary.

Chapter 4: Solutions to integrate two distribution systems.

CHAPTER 1: THEORETICAL BACKGROUND

1.1. Overall organization analysis.

Knowing an organization is a good or not good one, people normally not onlybase on the result that company has gotten but also look at the vision statement,mission statement and the strategies of that organization These are the mainfactors which reflect that organization will have a good perspective or not

1.1.1 Vision statement

Vision statement of an organization is used to answer the question “what do

we want to become?” Vision statement normally is the long term objectivesand it becomes the foundation for all operations of that organization.Developing vision statement is the first step in the strategy formulation Visionstatement normally is a single sentence and it is the direction for theorganization to follow

1.1.2 Mission statement

Mission statements are enduring statements of purpose that distinguish onebusiness from other similar firms A mission statement identifies the scope of afirm’s operations in product and market terms It addresses the basic questionthat faces all the strategists “what is our business?”

Mission statement includes of not only the nature and scope of presentoperations but also the future attractiveness of the market Thus missionstatement is the foundation for setting up the priorities, objectives, strategies,plans It is the starting point for designing the organization structure,managerial competency…

1.1.3 Strategy

1.1.3.1. Strategy definition

Strategy is the mean of achieving objectives It answers the questions how

to make the mission statements or long term objectives come true Ingenerally it is the step of achieving long term objectives Business strategymay include geographic expansion, diversification, acquisition, product

development, market penetration, retrenchment, divestiture, liquidation,and joint venture.

According to Fred r David there are three main strategies: Differentiation,Cost leadership and Focus

 Measurable: There must be at least one indicator that measure

progress against fulfilling the objective

 Appropriate/ Achievable: It must be consistent with the vision

and mission of organization

 Realistic: It must be achievable target given the

organization’s capabilities and opportunities in the environment Inessence, it must be challenging but doable

 Timely: There needs to be a time frame for finishing the

objectives

1.2. The nature of distribution system.

1.2.1 Distribution system’s concepts.

Distribution systems are behind every product and service that consumers andbusiness buyers purchase everywhere Usually, it’s a combination oforganizations or people specializing in manufacturing, wholesaling, retailingsales forces and logistic tools (transportation, ware house…) In this thesis theauthor just concentrate on one main part of distribution system only that isdistribution channel because two companies are located in the same location

so the logistic issues need not to be analyzed any more

Channel is a group of points of purchase that satisfy the same consumer/ shopper needs or requirement (1)

“Distribution channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption” (2) In

the reality interdependent organizations can be a private business, joint stockcompanies especially in Vietnam is family businesses

This concept shows that a distribution channel cannot be one unit doing itsbest in the market place but it must have many entities to do the job ofdistribution and each entity depends on the others to do their job Thisdefinition also mentions that distribution is a process and it takes time toaccomplish

1.2.2 Number of Channel Levels.

Distribution channel can be characterized by the number of channel levels, thelength of the channel depend on the types of product or services and thestrategy of the producer

A zero-level channel (also called a direct marketing channel) is a channel

without any intermediary in this case the producers sell their products orservices directly to the end user The major ways of zero-level channel aredoor-to-door, mail order, TV selling and producer owned stores

A one-level channel contains one intermediary, such as retailer A two-levelchannel contains two intermediaries, typically a wholesaler and a retailer Athree-level channel contains three intermediaries, typically a distributor, awholesaler and a retailer as the exhibit below

Figure 1.1: Distribution channel

Source: from Marketing Management – Philip Kotler 1996

Using zero-level channel producer will face a problem in recruiting andmanaging a big amount of sales people Thus only products with complicatedtechnology or very high price will apply this model such as: air plane, hydropower….

One – level model applied when products need high specialized skill of salespeople to consult the end user accuracy such as premium cosmetic, electronicproducts…

Two and three level channel is normally applied for consumer products whichare easy to use and need to be distributed as broadly as possible

1.2.3 Number of intermediaries

After determining the level of the distribution channel the manufacturer have todecide on the number of middlemen to use at each channel level

Exclusive Distribution: It involves severely limiting the number of middlemen

handling the company goods or services It applies when the producer wants

to maintain a great deal of control over the service level and services outputsoffered by the resellers

Selective Distribution: It involves the use of more than a few but less than all

of the intermediaries who are willing to carry a particular product

Intensive Distribution: It is characterized by placing the product in as many

outlets as possible

Depend on the product and company strategy the number of intermediary will

be chosen and formed the types of distribution channel

1.2.4 The power of distribution channel

“Power is the ability of one channel member (A) to get another channel member (B) to do something which, otherwise, would not have done” (3) Onceone channel member can use it power to force another to do something butnot receive any compensation for it, by this way the relationship will be erodedgradually But the judicious way of using power will create the goodrelationship among channel members and they will try the best to accomplishtheir duties even though sometime it doesn’t make profit

Five sources of power:

- Reward power: benefit given to others.

- Coercive power: punishing others for failure.

- Expert power: based on the target perception that the influence has

special knowledge, useful expertise that the target doesn’t possess

- Legitimate power: stems from the target company’s sense that it is in

some way obligated to comply with the request of the influence

- Referent power exist when B view A as a standard of reference and

therefore wishes to identify publicly with A

It takes time to create power naturally and the smart way of using power is notforcing but influencing others to do thing that we want

1.2.5 Distribution channel flows.

Figure 1.2: Distribution channel

 Forward flow (promotion, delivery, and physical possession).

 Backward flow (payment, order)

 Two-way flow (information, negotiation, finance, risk taking)

Source: from Marketing Management – Philip Kotler 1996

1.3. Integrating and managing distribution system.

Integration is a kind of strategies to gain control over another resources such asdistributor, retailer, supplier or competitor There are 3 types of strategies

 Forward Integration involves gaining ownership or increased control over

the distributors or retailers This strategy is now used commonly under the

Producer Wholesaler Retailer End User

Producer Wholesaler Retailer End User

Producer Wholesaler Retailer End User

form of franchise or some producers open their own shop to sell their ownproducts instead of through distributors Using this strategy the producer wants

to increase their competitive advantages or wants to contact their customerdirectly to understand them more

 Backward Integration involves gaining ownership or increased control of a

firm’s suppliers This strategy is used when the sources of supply do not meetwith the producer’s needs, unreliable or too costly Using this strategy,normally the producer buys a certain shares of supplier or signs a strategicpartner contract

 Horizontal Integration refers to a strategy of seeking ownership of or

increased control over a firm’s competitors This is widely used today as agrowth strategy and one typical model of this strategy is merger andacquisition

The integration strategies are used widely today because the competition is moreand more fierce, the shortage of material is increasingly and the cost ofdistribution is higher But, how to use this kind of strategy effectively is depend onnot only the industry but also the way to do it In FMCG the sources of suppliersare abundant and it less important than the output (distributor/ distribution system)

so many producer in FMCG tend to use forward integration to reduce the cost ofdistribution, increase competitive advantages, contact customers directly so thatthey can know exactly what consumers want and fulfill it faster than theircompetitors

Forward integration itself has some kind of integration such as integration todistributor, integration among product categories of a corporation or integrationamong channel of distributions of a corporation

When integrate two distribution systems together the integrator must pay attention

on the current objectives of each system If two systems have the same objectives

it is very convenience to integrate together because all the intermediary and salesforces have the same direction

The second one is the design of each system; this issue will make the work load

of integration become easy or complicated If two systems have the same designthe integration will be carried out easily and vice versa

The policy for distribution system operate effectively is also the important part, ifthe policy quite different between two systems the integration will face manyproblems when choosing one policy to apply for the new system.

Last but not least is the distribution system management, this issues related toevaluating and rewarding which play an important role in system development

To do the integration effectively we must go through all of the above mentionedissues

1.3.1 Establishing distribution system objectives.

Distribution system is consisted of many distribution channels which servemany different needs and requirements of the different consumers, so thedistribution system objectives vary with product characteristics Perishableproducts require more direct channel, bulky products (building material, softdrinks) require channels that minimize the shipping distance…and high-unit-value products are often sold through a company sales force rather thanthrough middlemen

In a FMCG company the primary objective is to serve the consumereverywhere That why some company has a “moving channel” - it means thatcompany will set up channel to meet with the changing of point of purchase.The ideal example of this kind of channel is the ice-cream on the summerseason This kind of product moved very slowly on winter especially on thebeach But in the summer consumer will gather more and more on the beach,thus this time is the prime time for selling ice-cream and the “moving channel”will be set up This kind of channel used one time for a year only, after thesummer it will be disappeared and will appeared one year later

Once distribution system has been established the objectives must be set upfirst and it is the direction for system design The general objectives of adistribution system are coverage (include of numeric coverage and weightedcoverage), Sales, competitive advantages and company images Based onthese objectives the design, the structure of the system and the policy will beformed up The Board of Directors of company is the place to set out theobjectives, through objectives people will know the strategy of the companyand the direction to go not only short term but long term also

1.3.2 Distribution system design decision.

In designing distribution channel the manufacturers have to struggle betweenwhat is ideal, what is feasible, and what is available A new firm with limitedresources might choose the wholesalers who have been being existed in themarket and doing some related or similarity products to handle their products

A big famous company when entering to a new market might choose the soleagent with an allocated area to handle their products On the other hand, thedistribution channel model is also being affected by the geographicalespecially the on the Fast Moving Consumer Goods (FMCG) In the bigcondense market the manufacturer might sell their products directly, in thesmall market they might sell their product through distributors or wholesalers toreduce the expenses They also grant their exclusive franchise in an area andsell through all outlets willing to handle the merchandise in another area Thusthe manufacturers’ distribution system evolves in response to localopportunities and conditions

Designing a distribution system especially in FMCG Company must be based

on number of retailers, the density of the retailers, geographical, tradingbehavior…and the most important thing is the objectives of distribution systemand how to evaluate channel alternatives

1.3.2.1 Analyzing the number of retailers, geographical, trading behavior…

In FMCG, the transportation plays an important role cause it cost from 3% to15% of sales depend on kind of product So how to set up a distributor orwholesaler with an optimal transportation cost is very important because it notonly help the distributor or wholesaler to maximize their profit but companyalso In this case the number of retailer or the density of the retailer in the areaplays an important role Normally if there are many retailers and the density ishigh the company will set up distributor without any wholesaler to increase theservice to the last retailers and vice versa

Geographical is another factor that company has to pay attention to In amountain or river area company tend to set up a direct sale model for all kind

of product and they have to set up many sub-distributor or wholesaler toreduce the transportation cost

Buying behavior is also affects to, because the primary objective of thedistribution system is to meet the need/ desired of the consumer If they buyone time for a week using and buying for everyday use are quite different socompany must know it before setting up a distribution channel is that area.

1.3.2.2 Evaluating the Major channel alternatives.

Setting up a distribution system producer has identified several channelalternatives and choose the optimal/ best one, normally there are three criteria:

 Economic criteria: Each channel member will produce different level of

sales and cost The distributor, wholesaler and the company direct sales forcewill be chosen mostly depend on the return on the investment (cost fordistributor, wholesaler or company directly sales force)

 Control criteria: The producer may prioritize the control criteria because the

product need well trained sale representative or facing fierce competition

 Adaptive criteria: In a certain period of time, the channel members must

make some degree of commitment to each other to assure that they have theirown interests and responsibilities These commitments to assure thedevelopment of the distribution system thus every producer tends to choosethe channel that they can maximize their control to swiftly change theirdistribution strategy when the environment change

1.3.3 Setting distribution system policy.

When setting up policies for distribution system we must pay attention onfunction of the system and function of each intermediary Because the policieswill help intermediaries get an equitable return when they accomplish theirfunctions

The main function of a distribution channel is to move the product from theproducer to the end user To do this it has to overcome the time, place andpossession gap between the producer and the end user Members indistribution channel play a certain roles and doing some key functions toaccomplish the whole functions of a distribution channel:

- Physical possession: delivering the goods to the next customers.

- Information: The collection and dissemination of market research

information about potential and current customers, competitors, market

trend…in the market place.

- Promotion: The dissemination of promotion campaigns to attract more

customers

- Ordering: the communication of channel members to the manufacturer to buy the products.

- Financing: the acquisition and allocation of funds required to finance

inventories at different levels of the distribution channel

- Solving the complaints: the definition of channel member roles in solving

the complaints of the next customers and the end user

- Risk taking: The assumption of risks taken by carry out the channel work

and the responsibilities of each channel members when the lost/damagehappen

- Payment: terms and means of payment for possessing the products.

The allocation of functions for channel members depend on the channelorganization, when one member is eliminated its function will be moved toforward or backward member to assure that the whole functions of distributionwill be maintain the same in any cases and the policy should be changedaccordingly

1.3.4 Distribution system management.

For having a good distribution system the producer must not only careful inselecting the channel alternatives but also in managing the conflict betweenintermediary, training, motivating and evaluating them All of these actionsmust be carried out over time

1.3.4.1. Types of conflict and competition.

No matter how well channels are designed and managed, there will besome conflicts because the interests/ benefits of members in the channel

do not always coincide The responsibilities of the sales manager are toclassify the types of conflict, determining the cause of conflict and find outsolutions to solve it

There are many types of conflict happen in the distribution system but wecan classify in three main types: vertical conflict, horizontal conflict andmulti-channel conflict.

 Vertical channel conflict happens between different levels within the

same channel This type of conflict happens when the previous channelmember issue new regulations or having some action which lead to reducethe profits of the next channel members For example, the producer mayenforce the distributors to pay more for promotion or increase service to theretailers; or the distributors cut off the promotion fee as regulated/informed

by the producer

 Horizontal channel conflict exists when there is conflict between

members at the same channel level within the channel This type of conflictnormally is the territory violation – the distributor sells products to otherdistributor territory by lower price

 Multi-channel conflict happens when members of one channel try to sell

products to another channel member territory It’s only exist when theproducer establish two or more channel

1.3.4.2. Causes of channel conflict.

Determining the causes of conflict is very important because only todetermine and distinguish the causes the channel manager find out thesuitable solutions to solves the conflicts

A major cause of conflict is goal incompatibility Normally the producer settarget that the distributor have to try their best to reach the target, sometime they face some problems that they cannot reach the target In thiscase the distributor will find some solutions to reach the target to take thereward There are many ways for the distributor to reach the target in thiscase such as: increase stock level, do promotion themselves, sell to otherdistributors territory….unfortunately, all distributor usually choose the thirdsolution – sell to other distributors’ territory

The conflict can also stem from differences in perception The producermay be optimistic about the short-term business and ask the distributor toincrease stock level to prepare for capturing the market opportunities But

the distributor may be pessimistic and they don’t want to increase the stocklevel

1.3.4.3. Managing channel conflict.

Certain channel conflict can be solved and on the other hand it helpproducer to find the market gap, to increase sales….To manage the conflictdoesn’t mean that to solve the conflict when it happen but to prevent ithappen Many producer issue the regulations, policies and a strictlypunishment for all the channel members to prevent the conflict But thesmart way of managing the conflict is to let the conflict happen at a certainlevel because conflict has its own advantages Through conflict producerknow the market gap, determine the strong point and the weak point ofevery distributor…so the producer can has solution to improve itdistribution system

1.3.4.4. Selecting and training channel members.

The ability of attracting middlemen of producer varies from producer toproducer This is true not only in different industry but also in the sameindustry This is resulted from the brand name of the producer, the ability ofprofit creation of producer products

Whether it is easy or difficult to recruit middlemen the producer shouldpoint out the characteristic and criteria for each level of middlemen andbase on that to recruit the most suitable middlemen for each level Thecharacteristic and criteria also vary from company to company because ofthe situation and the strategy, some company want to recruit big andfamous distributor but some just want to recruit the distributor who hasenough financial ability but has a strong will

The cooperation between intermediaries and the producer plays animportant role in business development To have this there must be amutual understanding between them so every company organize trainingcourse for their intermediaries especially distributor every year or on thetime that company change their strategy or before an important season

1.3.4.5. Motivating channel members.

The middlemen must be motivated continuously to do their best job andincrease the cooperation Depend on the size, the growth rate and theability to expand the business, the producer may use different motivatedtools If it is a small producer the best way of motivating middlemen is toincrease their profit by adding some KPI such as: sales target reach,coverage, inventory, paying on time…If it is a big, famous and has ability toexpand the business producer except the KPI like small producer the bigone can use some tools such as: partnership the distributor (by sellingshare to distributor), install management software for distributor… all ofthese have only one purpose is to increase the cooperation and make itlast as long as possible to prevent the competitor to buy the distributor

1.3.4.6. Evaluating channel members.

To assure the channel operate smoothly, the producer must evaluate thechannel members periodically Based on the criteria and the regulationshas been committed the producer carry out the evaluation, the mostcommon criteria are target sales reach, average inventory level, customerdelivery time, treatment of damaged goods, paying time, promotioncooperation….By only do this the producer will know how well the channel

is and has an action plan to rearrange it

Evaluating the channel also help the producer to determine the ability ofcarrying new products category of the channel, the ability of the channel toadapt with the changing strategy of the producer…

Some main KPI to evaluate the performance of the distribution system asbelow:

Table 1.1: Criteria for evaluating channel results

1 Sales target reach % of actual sales by target Monthly, quarterly, yearly

2 Sales increase % by the same period with previous year As above

3 Cost Cost vs sales by channels, territory As above

4 Market share Sales volume/ total market sales volume Quarterly, yearly

5 Market coverage Coverage outlets/ total potential outlets As above

6 Average inventory level Stock compare to circulation As above

7 Market credit Credit given to next customers As above

8 Delivery time Time for order delivery As above

9 Customer relationship No of complaints have not been solved Quarterly, yearly

10 Defected products handling No of defected products have not been collected As above

Author’s analysis

1.3.4.7. Modifying channel arrangements.

Market changes every day, the buying pattern change also and the newcompetitor arises, product matures, new-innovative distribution channelemerge and strategy change…make the producer to change theirdistribution channel Modifying channel arrangement related to changedistribution channel, adding, dropping or increasing the intermediaries.When setting up the distribution channel the buying power at that territorywas low and the producer just set up a wholesaler there, but after one ortwo years later it is a new town and buying power increasingly In this casethe producer must change it channel from wholesaler to distributor andmay be place some direct salesman to sale directly to the retailer or home.Another reason for modifying the channel is the strategy, if the producerchange from distributor model to partnership model its must gather somedistributor to form the partner to assure a certain big partner to prevent thecompetitor to acquire the partner

1.3.5 Managing sales forces.

1.3.5.1. Organizing sales force.

When organizing the sales force the sales manager has to pay attention tothe efficiency and the effectiveness of the sales force The complexity andthe location/dispersion of the market and the complexity and thecomplementariness of the product line are perhaps the most critical Otherfactors, however, such as product self-life, the nature of tasks involved in a

particular sales job are also important because of their effect on themotivation and degree of commitment of sale people.

There are some main organizing models: Geographic organization, Productorganization, Customer organization and Functional organization

1.3.5.2. Recruiting and selecting sales people.

To recruit suitable salespeople the sales manager has to follow the processfrom the beginning with Job description and job analysis to clarify theattitudes, the skills and the knowledge needed, find the sources ofcandidates that best fixed with requirements and reaching the recruits Inthe retail industry, the job of the salespeople in one company differs only in

a different channel – job description of salespeople for wholesale channel

is differed with the retail channel one and the job description will be renew

at least one year because every year company has new objectives, newstrategy, new products, new technique… There for the job of thesalespeople must change accordingly

1.3.5.3. Training the sales force.

There are many types of training and depend on the situation of the salesforce, the objectives of the company the training will be designed andcarried on to meet with the objectives had been set

There are five main topics of training, it included: selling skills, productknowledge, customer knowledge, competitor/industry knowledge andcompany knowledge There are many approaches to training and depend

on the situation of the sales force, company can choose on-the-job training,classroom training, electronic training, experiential training….to assure thatsalespeople gain enough knowledge and skills for a certain of time toachieve the company objectives

1.3.5.4. Rewarding the sales force.

Sales compensation is an issue that no company can ignore becausehaving a good compensation policy company is not only increase sales butalso retain good salespeople

Actual sales compensation plans vary, depending on industry, company,products and market situation but in general according to Ralph W.Jackson and Robert D Hisrich in Sales and Sales Management there arethree basic methods of sales compensation are used:

Straight-commission plan: the individual receives an amount that varies

with results, which are usually measured in terms of sales or sales andprofits

Straight-salary plan: The individual receives a fixed amount of money at

fixed intervals

Combination compensation plan: The individual receives a fixed amount of

money and an additional amount based on performance in the form of acommission and/ or bonus

1.3.5.5. Evaluating the sales force.

Performance evaluations are very important for all departments in all kind

of organization and it more important for sales department because salesforce is very high result oriented one Performance evaluations are used forthe purposes such as: salary adjustments, promotions, motivation, trainingdecision, strategic management…because the performance so importantfor any organization and it is related to employee benefit so it must be metlegal standards

There are some general dimensions for evaluate a sales job although it isinterrelated but it must be evaluated separately They include: output(sales, coverage,), customer relations, job skills company relations,personal characteristic…

Setting and doing good performance evaluations are not only helpcompany reaching the targets had been set but also help sales force toimprove their knowledge and skills also

CHAPTER 2: NKD & NTC DISTRIBUTION SYSTEM ANALYSIS

2.1. Introducing the NKD and NTC background

2.1.1 NKD history.

Kinh Do was established in HCMC in 1993 and it became top brand inconfectionery industry in Vietnam thank to fast growing Now Kinh Do Grouphas 10 subsidiaries which specialize in many categories like Confectionery,Beverages, Ice – Cream, Construction, Milk… To expand its market andenhance the competitive advantages, North Kinh Do Food Processing JointStock company (NKD) had been set up in Hung Yen Province in 2001 withinitial chapter capital is 17 billion VND In which, Kinh Do Corporation own over60%, the others are personal shareholders After seven years of operationNKD has become the biggest confectionery company in the north of Viet Namwith net revenue in 2007 by 560 billion VND and the average growth rate isover 40% per year The main contribution to that fast growth rate is not onlythe new product and product category development but also the development

of the distribution system

From the beginning with only two product categories Snack, Bun (sweet andfresh bread) and trading some product categories of KDC such as: Cookies,Chocolate, now NKD has produced itself 5 product categories: Snack, Bun,Cookies, Chocolate, Cake and trading Crackers, Candy and some productsfrom the KDC Now NKD is planning for producing Crackers also

To raise capital for the development, NKD had listed on HOSE in 2004 andhad issued shares to raise the capital for 3 times and now the charter capital ofNKD is 100.7 billion VND and the factory is 10 ha in area with total employee

It means that Kinh Do Group focus on the basic product only such as: Food,Beverage, House and all the product of Kinh Do Group must be the newest,the pioneer in that industry in order to create lifestyle for targeted customers.

2.1.3 NKD mission.

Kinh Do treasure and respect every customers, externally and internally; bycreating an effectively pro-active; friendly and efficient working environment toenhance customer satisfactions, with constantly improving the quality andsafety standards in our resources, systems & products

2.1.4 NKD Long term objectives.

- To offer quality products at affordable price

- To enhance our value chain through participation, responsibilities & proper training

ownership To sustain continuous development, growth and profitability throughbranding

- To develop an effective distribution system

- To expand our SBU activities through global partners

- To excel in everything we pursue

Base on these long term and strategic contents, NKD formulate it own shortterm objectives and strategies to achieve these objectives Every departmentwill be assigned objectives from the EMC and formulate action plan to achieveits The annual objectives of every department always have two kinds ofobjectives quantitative and qualitative and the sales department is not anexception Every year, after receiving the objectives from the EMC, SalesManager has to coordinate with Marketing department to formulate strategies

to achieve these objectives, some main strategies were: growth by newproducts, new territory, increase distributors, increase retailers coverage,increase sales forces, reorganize distribution channel, increase distributionchannel

2.1.5 NTC history

North Tribeco Joint Stock Company was established in Hung Yen, nearbyNKD and came into operation in late 2007 with the initial charter capital of 50billion VND Tribeco products have been distributed in the North since the year

2000 with 05 distributors and 02 sales mans at the beginning only Now NorthTribeco has 45 distributors, 05 ASM, 35 sales supervisors and 115 salesmans At the first year sales was 5 billion VND and now the sales of the year

2008 was 177 billion VND

To reduce the transportation cost and enhance the competitiveness were themain reasons for Tribeco to establish NTC at Hung Yen province and with theannual growth rate of nearly 100% the north market is still very potential toexploit

To serve the community by the perfect products, natural nutritional beverage

2.1.8 NTC Long term objectives/ Expected position.

- To gain the leader position at Hanoi of Soya milk (as HCMC)

- To get the coverage higher main competitors

- To be the market leader of green tea and beverages (glass bottle)

- To lead company to the top position of interdisciplinary Corporation, higheffectiveness

Because NTC was newly established so only production and sale departmentwere fully equipped on facilities and man power and other departments were

forming along with the company set up process That why all long termobjectives just focus on market.

The Vision, mission and long term objectives of NKD and NTC are concentrate

on serving the customer and consumer with their best effort, this is the mostimportant similarity that help the integration carried conveniently

2.2. The design and development of NKD distribution system.

2.2.1 The design of NKD distribution system.

NKD uses multi channel to distribute their products in which GT channel is themost important one and the biggest one also

GT channel is used to distribute product to traditional retailer (street outlet,traditional market, street vendor ) this channel account for 80% of total salesand being designed in three levels

MT channel includes of supermarket, hypermarket, and convenience store.This channel accounts for 20% in total sales

2.2.2 NKD distribution system mission.

Maintain the market leader position and the annual growth rate throughincrease market coverage to all present customers diversify and developdistribution channel in term of width and depth, enhance the relationship withcustomers, and professionalize distribution system and building the productsavailability/visibility to even small retailers

2.2.3 NKD distribution system long term objectives.

- To assure the annual growth rate at least 30% in term of revenue

- To diversify and develop an effective distribution system with fullcoverage to all customer in every channel

- To enhance and strengthen the relationship with customers

- To build the product availability/visibility to all retailers

2.2.4 The development of NKD distribution system.

Before the year of foundation 2001, the distribution net work of NKD is only 20agents They buy products from NKD and sell it to retailers without any support

form NKD even though discount rate At that time agents earn profit by sellinghigher price than they buy.

Table 2.1: The development of NKD distribution system

6 No of Distributor Sales Admin - - - 24 32 36

7 No of Retailers covered 8,753 9,022 10,380 12,120 14,130 16,400

Growth rate (%) 103.1% 115.1% 116.8% 116.6% 116.1%

8 Net Sales (mil.) 211,000 277,000 356,000 420,000 560,000 710,000

Growth rate (%) 131.3% 128.5% 118.0% 133.3% 126.8%

Source: from Sales Department of NKD

2.2.5 Business department organization structure.

To meet with the fast changing of the market, NKD had merged the marketingdepartment to sales department and form the new one – Business Departmentand the new organization structure is as below

Chart 2.1: Business department organization chart of NKD

Sources: from business department

BM: Business Manager

Admin: administration

GT: General trade channel

KA: Key Account channel

SYS: System department

MAR: Marketing department

ASM: Area sales manager

SD: Sales development

SA: Sales advisor

DSA: Distributor sales administration

In the new structure all product category has its own leader who is called LineLeader One Line Leader in charge of two or three product lines and under themanagement of EMC but the special skills are trained by Business Managerand 70% time they working with Business Manager

2.2.6 NKD products categories.

NKD produces itself some product categories and some is trading, sometimesNKD has to trade some produced products because short off capacity.Especially, cookies category NKD produce products for daily use only andtrading the festive products from KDC who has enough equipment to do thiskind of products

Table 2.2: NKD product categories

1 BUN NKD produce fresh bread with 8 days of shelf life

2.3. The design and development of NTC distribution system.

2.3.1 The design of NTC distribution system.

NTC also uses multi channel to distribute their products in which GT channel isthe most important one and the biggest one also

GT channel is used to distribute product to traditional retailer (street outlet,traditional market, street vendor ) this channel account for 80% of total sales

MT channel includes of supermarket, hypermarket, and convenience store.This channel accounts for 5% of total sales

HORECA channel include of Hotel, Karaoke, canteen, café… This channelaccounts for 15% of NTC

2.3.2 NTC distribution system mission.

To gain the market leader of soya milk, beverages and maintain the annualgrowth rate of 50% for the next 3 years through increase market coverage,deeply penetrate to the customers/ channels and enhance the relationship withthe horeca customers/channel

2.3.3 NTC distribution system long term objectives.

- To assure the annual growth rate at least 50% in term of revenue

- To diversify and develop an effective distribution system with fullcoverage to all customer in every channel

- To enhance and strengthen the relationship with Horeca customers

2.3.4 The development of NTC distribution system.

Before the year of foundation 2007, the distribution net work of NTC is only 05agents and 02 salesmen in Hanoi market The products were delivered todistributors based on their orders and the distributors had to sell the productsthemselves without any support from the Tribeco Company

Table 2.3: The development of NTC distribution system

Source: from Sales Department of NTC

2.3.5 Business department organization structure.

Because Tribeco sold products to the north before setting up the NTC, soTribeco had set up it branch in 2001 and now it is considered as salesdepartment and it has structure as below

Chart 2.2: Organization chart of Business department of NTC

Source: from Sales Department of NTC

Tribeco in the south is in charge of developing new products and carry out allthe marketing program (pull program), so NTC now just in charge of sellingthat why business department just have only sales and logistic

Admin

2.3.6 NTC products categories.

NTC produces itself some product categories and most of these are bottled byglass bottle (return product) in which most of it best selling products are thecan ones (non-return product) which have been trading from Tribeco in thesouth This leads to unsuccessful investment of NTC so it has been facing lossfrom the very beginning until now

Table 2.4: Product categories of NTC

2 Beverage (glass bottle) NTC produce

6 Beverage with fruit flavor Trading

Source: from Sales Department of NTC

2.4. Analysis on distribution system management of NKD and NTC.

There are some level members in the distribution system such as: Distributor,Wholesaler, Retailers, Sales forces …and depend on the strategies of companyfor each period NKD set up a management tools to manage these members

2.4.1 System member management analysis.

The process of managing the distributor includes of selecting, training,motivating and evaluating

Selecting: At NKD we follow the process of set up distributor as below.

Chart 2.3: Distributor set up process of NKD

BM.KD.01.02:

candidates

Sales department

BM.KD.01.03:

Candidate information form

BM.KD.01.06:

Distribution contract

Mar department

BM.MK.01.03:

Customer feedback form

Sources: From business department

The need of setting up distributor based on the company strategy, terminatesexisting distributor, splits the territory or splits product category… Based onthe need Sales department carry out the market survey to list the candidatesthat meet some criteria such as: doing in FMCG industry, financial capability,management skills, ware house, number of trucks, prestige and the mostimportant is whether they are doing business with direct competitors (othersconfectionery company) or not If the candidates are doing business with directcompetitors they have to commit that they will stop doing business with othersconfectionery companies right after they sign the trial contract with NKD This

Determine the need of

Sign official contract

Customer satisfaction survey

Yes

Qualified

Not qualified

No

is normally was a good choice because NKD is not only has an experienceddistributor but also makes the competitors weaken The candidates listing stepincludes of onsite survey in order to know actual status of candidates.

After listing the candidates and fulfill the form of candidate information Allthese forms will be sent to Chief of Sale department to comment and continuesent to Sales Manager to select the candidate and approve if there is anoutstanding candidate If all the candidates are quite the same, Sales managerwill interview and choose the best one

Using this method NKD had chosen distributors successfully for years and itwill be succeed for years later on

Training: The training step includes two stages The first stage is training for

new comers In this stage the distributor will be presented companyregulations, procedures, process of interchanging information, order process,products knowledge….The second stage is not organized officially but at NKD

we normally instruct distributor the management skills, planning method…onthe annual meeting at the beginning of the year, before the moon cake festivaland before the Lunar New Year festival

This method of training was good for achieving the sales target at each period

of time or season but not good for long term objectives Because of thetraining was not organized officially so it’s not systematic and the distributorcould not systematize the knowledge themselves and the results was that theyonly qualified in problems solving case by case that they have been instructedand they did not qualified/ knowledge enough to understand/ fulfill companylong term strategies, so the cooperation/results usually did not meet withcompany expectation

Table 2.5: Distributor training courses of NKD

Sources: From business department