Distribution Management – Decline of an Industry

Background:

XML Pvt. Ltd (name changed as the company still exists in a different sector) entered the market with a vision of being the market leaders in home appliances. They entered the market with Television as their only product in the market. When they entered the market, there were not many major players in that segment in India. Soon they became very famous and every household had its name associated with the company. The company had a wide network of local dealers and supplies. XML had very powerful sales forces who were locals from the various states in India and the market penetration was easy for XML. Slowly, XML expanded its product line from beyond TV and started manufacturing Washing machines, refrigerators and other electronic home appliances.

XML was an innovative organization with the R&D department consisting of engineers from the top engineering colleges of India who were working with the future technologies. Hence it always took its customers by surprise and quality was never a problem for XML as its products usually persisted for more than 10 years without a single complaint.

Supplier problem:

The main supplies XML had was of ICs, the manufacturing parts and cartons. It had tied up with various local vendors for supply of manufacturing parts and cartons. For sophisticated parts like high-end LCD and other ICs, it had tie-ups with international vendors.

The initial problems with the suppliers started when after monopolizing the television market, XML started demanding from the suppliers. The suppliers were given a credit period as high as 6 months. The suppliers also did not have much of a choice because XML being the major market player, if they are associated with XML, their value proposition increased at that point of time. Hence, XML exploited this situation even more. Even if the credit period was 6 months, the suppliers were being paid after a year or two. This lead to the descend of many local suppliers since they were not able to sustain the pressure of money.

On the other hand, the international suppliers were paid on-time. This increased the grudge in the local suppliers. They started meeting among each other without the knowledge of the company and started forming unions. Since the employees were also local people, the suppliers started encouraging for the employee unions. Finally after a lot of strikes, XML had to move its production unit to its headquarters.

In the new headquarters, XML decided to tie-up with more suppliers and spread its suppliers from over the entire country. This led them to take command over the few local suppliers they had. But this also put them into a lot of problems as the other suppliers were a lot more demanding with respect to the credit period. But XML did not change its strategy for the credit period. The suppliers now wanted to teach XML a lesson. Hence they now started to push all the rejected pieces into the manufacturing units by bribing the employees. This affected the quality of the products to a larger extent and the customer complaints started to increase. Since XML had never faced such a situation, it was not quick enough in responding to the customer queries and the service earned a very bad name.

Due to this, the international suppliers also did not see XML as the vendor they wanted to be associated with. Hence they also started to disassociate themselves with XML. This was a major hit-back for XML as it lost most of its suppliers. At the same time, competition had become fiercer in the market. Smoothening of the government norms had led to international brands enter the market. Hence the suppliers started to concentrate on tie-ups with the international brands. This lead XML to loose most of its quality suppliers.

Dealer problem:

Even though the government norms were eased and the foreign brands were allowed to enter India, these new brands had a very tough time initially. They had the main challenge of replacing the existing local players, setting up a distribution network and many other challenges.

With all the proceedings as depicted in the ‘Supplier problem’ section, the competitor took advantage of the situation. They paid a higher dealership price than what XML was paying. This made the dealers to concentrate more on the products of the competitors. The shelf space for XML kept reducing month-month. Many dealers discontinued their relationship with XML. The competitors need not have to think about penetration either. It was already present readymade in the market. This gave the competitors a cost advantage as the market was already open. Hence the competitors could manage a higher compensation to its dealers and suppliers.

Apart from the competition, dealer and the supplier problems, XML was also attacked by a family issue since it was a family run business. All this finally contributed to the collapse of the electronic home appliances section of XML.

Learning:

• For you to operate in a value chain created by your company, all the stakeholders in the supply chain have to be treated at par.
• Do not neglect competitors and update yourself on a regular basis. Though XML had a full fledged R&D team, they were not in par with the technology offered in the market by the competitors.
• Monopoly does not exist for long in an open market environment. Hence try to build brand values as long as you have the monopoly. These values will come handy during the time of immense competition. This will also help in arresting the competition from penetrating the market easily.
• Consider the business model of having exclusive dealers.
• Innovate the marketing strategies to be in sync with the changing business needs.