LV Thạc sỹ_Improve the distribution network in Tan viet private enterprise

During the graduation practice at Tan Viet Private Enterprise Tan Viet PE, I have decided to select the theme: "Several recommendations to improve the distribution network in TanViet Pri

Consumption is one of the basic and important operations of each business when theyconduct business Today, in the market economy, companies use many distributionintermediators with various functions to ensure efficiency in transferring business products

to final consumers Thus, for companies to operate effectively, such companies’ leadershipmust find out ways to manage well their distribution channels to ensure their distributionchannels to reach the best efficiency, always give the goods to final consumers in the mostconvenient way, and satisfy interests of members of the distribution channel

Decision on distribution channels is one of the most important decisions which must beapproved by a business leadership Distribution channels selected by enterprises shallaffect other decisions of mixed marketing policy of enterprises, and affect businessactivities of enterprises directly Therefore, regular researches to understand the operation

of the distribution channel system are essential for any enterprise

During the graduation practice at Tan Viet Private Enterprise (Tan Viet PE), I have decided

to select the theme: "Several recommendations to improve the distribution network in TanViet Private Enterprise" for my graduation thesis

The purpose of the theme study is to propose recommendations for the improvement of theproduct network of Tan Viet PE on the basis of the current distribution system of Tan Viet

PE

The theme structure includes 3 parts:

Chapter I: Overview of Tan Viet Private Enterprise

Chapter II: Operation status of the distribution channel system of Tan Viet Private

I would like to thank …, Dean of International Training Department of Vietnam University

of Commerce and cadres and staff of Tan Viet Private Enterprise who have helped meduring the graduation practice with the completion of this theme!

Chapter I:

OVERVIEW OF TAN VIET PRIVATE ENTERPRISE

I Overview of Tan Viet Private Enterprise

1 Process of formation and development

Tan Viet PE, is based in the industrial area of Xuan Tien - Xuan Truong - Nam Dinh, isallowed to export and import industrial goods, handicrafts, machines and equipments such

as rice threshing machine, concrete mixer, repair and build machines for agriculture

Trade name:

Tan Viet Private Enterprise Address: Xuan Tien - Xuan Truong - Nam DinhHead office: Group 18 – Xuan Truong Town – Nam DinhTel: 03503.885.308

Fax: 03503.885.711Tax code: 0600473061Account: 3205201001957

In Agriculture Bank of Xuan Truong district

In the first years, the Enterprise is just a small factory with rudimentary machines toproduce rice threshing machines for customers in the local area

In 1996, the Enterprise had about 30 workers with the production scale of 500 ha and alsobegan to sell machines to other provinces in the country In 1998, Deputy Prime MinisterNguyen Tan Dung and his senior delegation visited the production place, encouraged andapplauded the enterprises which have made creation and done business in the very localarea contributing to the rural growth and country development

The year of 2000 was marked by the boom development of the Enterprise as theproduction scale reached 2000 hectares, of which three factories are located in theindustrial area cluster of the commune, with 80 workers With such expanded productionscale, the Enterprise has gradually developed its own distribution channel system

Also in 2000, the Enterprise cooperated with four other enterprises to set up the Nhat VietMechanic Co.,LTD In 2005, the enterprise separated from Nhat Viet Mechanic Co.,LTD tooperate independently with the name of Tan Viet Private Enterprise and focused on theresearch and production of traditional continuous rice threshers In 2011, the Enterprise’smachines are present in the two regions of the country, and sold to China, Laos andCambodia With the purpose of quality and consistency and long-time experiences in rice

thresher production, the Enterprise has focused on rice thresher production with varioussizes and shapes The products are preferred and trusted by customers in Vietnam, Laosand China.

Tan Viet rice threshers, are nice-shaped, easy for users, flexible on terrains, bring the highefficiency, and contribute to efficient productivity for farmers

2 Customers of the enterprise

Customers of the enterprise are quite diverse and abundant, including individual consumersand organization consumers

2.1.Organization customers

The organization customers of the enterprise consist of agents, supermarkets, cooperatives,and farmer associations Products may be purchased for distribution or for consumptionpurposes The enterprise’s market is concentrated in cities and provinces, mostly in theNorth

Some customers of the enterprise:

In Hai Duong:

• Hoa Mai co-operative

In Ninh Binh:

• Kim Son Agriculture Co-operative

• Son Long Co., LTD

In Thai Binh:

• Cong Thanh Joint Stock Company

• Viet Han Mechanic Co., LTD

In Ha Tay:

• An Nam Joint Stock Company

• Dai Viet Commerce Co., LTD

In Nghe An:

• Hoa Binh supermarket

• Huong Giang supermarket

• Binh Minh supermarket

• Nghe An electronics center

In Da Nang:

• Hoa Phat Phuong Co., LTD

• Bai Tho supermarket

In HCM city:

• Viet Tien Co., LTD

• Hoa Nhung electronics supermarket

2.2.Individual customers

Individual customers of the Enterprise are concentrated in the Northern region They areagricultural households, with good average income, having major rice-growing area.Products, are purchased and used in families to serve the needs of agricultural use everyyear for each crop, save time and effort for families

II Inner environment

* Results of production and business activities of the Enterprise in recent years:

Table 1: Finance situation of the period of 2009-2011

Unit: VND

Revenue 31.162.348.347 35.787.950.370 35.916.439.320Corporate income

tax

101.006.212 165.695.669 116.403.394

After-tax profit 577.117.838 662.782.674 665.162.253Average salary of

workers

Fixed capital 10.738.263.238 11.020.849.100 11.303.434.970

Working capital 24.826.976.080 25.480.317.560 26.133.659.040Liabilities 3.918.409.814 4.021.525.862 4.124.641.910Sources of the

owner

25.785.466.250 26.464.031.150 27.142.596.050

Through the financial summary of the Enterprise in the period of 2009-2011, we can seethe Enterprise's revenue has been quite stable, in 2010, the revenue incresed VND4.625.602.030 (equivalent to 12.9%) compared to 2009.

In 2011, the revenue increased to VND128.488.950 (equivalent to 0.35%).The increased revenue make all other targets such as corporate income tax, after – taxprofit, average salary of workers also incresed

2 Some business results of the Enterprise

Table 2: Table of production and business results

Year Output (unit) Consumption

(Source: production and business report)

Through the table of production and business results in recent years, we can realize that therevenue has increased gradually and steadily over the years because the economy hasrevived after the 2008 crisis, the State has many policies to support farmers and businesses.The typical policy is to support farmers with non-interest loans Some other demandstimulus packages have promoted product consumption and increased the revenue

III.Macro environment

1 Domestic and international economies

The domestic and international economic status directly impacts the budget as well asaffordability of consumers and therefore, it affects consumers’s decisions of purchasingproducts in general, electronics products in particular Integration and development havehelped our country develop well with quite evident landmarks People's lives are better.The standard of living and per capita income has increased significantly and progressivelychanged customers’ needs and buying habbits

In 2009, Vietnam overcame the economic crisis, the electronics market have gone upsharply

Signs of economic turmoil in 2010 and 2011 had a great influence on product consumptionactivities of the enterprise in the electronics industry in particular The inflation increasedprices of materials such as: gasoline, electricity, steel so that product price alsoincreases, the trade deficit is coupled with budget deficit, budget spending pressures andpublic debt are rising along with high government interest, the commercial bank system isaccepting excessive risks, the interest platform of the economy exceeds the tolerance of

enterprises the uncertain stock market contains speculative elements and the status ofcapital increase is massive but the administration can not catch up with.

During the difficult economic period, every purchase decisions of customers must becarefully considered Enterprises have cut costs as well as investment in this time Thebusiness environment is not favorable affecting almost all sectors and fields

2.Law - policies

Political stability of Vietnam in recent years, has created favorable conditions for strongeconomic development attracting domestic and foreign investors, provides access to largefund sources, and helps the sale of products become easier The government is alsocompleting policies as well as sanctions to support enterprises with business activities Theadjustments of the trade law has created a stable legal framework for enterprises to dobusiness Especially, the State’s tax support policies create favorable conditions forenterprises

Changes of the political and law environment have made investment activities ofenterprises become easier and helped them have an access to new technologies and foreigncapitals The number of enterprises has increased rapidly in recent years, which not onlyhelp expand the market but also contribute to improving competitive activities, consumershave more choices in accordance with their demand and liquidity

The economic policies in the current difficult period have shown the government's efforts

to stabilize prices and maintain economic activities Efforts to cut bank interest rates and tostabilize real estate are showing good signs so that the electronics market has achievedcertain results

3.Impact of sience and technology

The development of science and technology affects most stages of production process,creating products with better quality, lower costs and improved labor productivity The ricethresher is becoming more complete The products are becoming smaller with largercapacity Due to the improved technology, each machine is attached with a self-operationset which helps the machine can operate easily on any terrain so that workers may savetheir time and effort

On the other hand, with the boom of science and technology, many kinds of high qualitymachines with large capacity and many different utilities will compete with the traditionalrice thresher Traditional machines will be outdated and replaced by more high-tech ones

4 Impact of residents

Our country has a populous market, which facilitates the development of electronicsproducts but with significant economic changes, urbanization speed and tends of movingpopulation from rural areas to urban areas are becoming stronger, which makes agriculturalland be narrowed gradually and the rice thresher market become smaller

5 Competitive pressure

The agricultural machinery market is in the period of continuous growth and change.Agricultural machinery is an essential product for the agricultural market in the countryand abroad Therefore, there will be many competitive elements for business andproduction enterprises in this field

The Enterprise is operating in an strong competition environment Pressure is not onlyfrom the current market but also from companies, businesses preparing to enter the market.This thing will make competitive operations in the market get tougher and requirecompanies to quickly gain a position and market share in the market Therefore, theEnterprise must develop a distribution system to have access to all potential customersbefore new competitors enter the market

Here are the basic factors that enterprises will face in the market

5.1 Competition within the industry

The Enterprise operating in the environment with enterprises in the same industry can notavoid the competition for market share Models and designs can easily be faked

5.2 Substitutes

The demand for agricultural processing machinery in the domestic market is very high andthe Enterprise is now competing with products of competitors in the local area and theappearance of harvester-threshers To be able to compete with alternative products, theEnterprise needs to diversify types of products or improve models, industrial designs andproduct quality

6 SWOT analysis

Table 3: SWOT

- To have the prestige and certain position

on the current market

- To have a stable source of capital, the

enterprise does not need many loans from

banks, not to have suffer interest pressure

- To have abundant rural labour

- To have young and potential workers

- Personnel management is not effective

- The technology can not compete with high-tech products from abroad

Management of distribution channels is not effective

-The agricultural market in the country is

rich, the agriculture in the country still

accounts for a large proportion

-The State has adopted many policies to

support small and medium enterprises

The are available suppliers and the

enterprise has good relationships with

However, the Enterprise still has to invest more in the distribution network to completeproduct supplying chains because the distribution channels contribute significantly topromoting product consumption

In addition, the Enterprise must invest in research to constantly improve the excellence ofproducts in the enterprise’ financial sphere to compete with products of domestic, foreignand potential competitors

CHAPTER 2: ORGANIZATION AND OPERATION STATUS OF THE

DISTRIBUTION NETWORK

I MISSION

1 Mission of the business department

• To maintain the current business relationships, to receive orders and set up newrelationships with planning and organizing working schedules for the existing andpotential business relationships

• To plan weekly and monthly working plans to report to the head of the sales channelfor approval to comply with approved plans

• To understand the features, labels, and prices, advantages and disadvantages ofproducts, similar products and products of competitors

• To understand the customer contact process and information complaint handlingprocess, information customer receiving and handling process

To contact with customers and record all customer information in customer contactreports To report contents of daily sales for the leader of the business team

• To take procedures of contract signing, to save the duplicate, to transfer an originalcopy to the team leader, an original copy to the accounting department if a customeragrees to purchase a product

• To make directly delivery and bill procedures

• To receive and handle customers’ complaints about product quality, and deliverytime

• Customer care

2.Tasks of graduate trainee:

• From March 20 th to April 10 th :

-To search about the Enterprise

- To get familiar with books and paper

+To read data and observe working ways of the instructor

+To be familiar with types of rice thresher of the Enterprise: price list, freight, warehouseand operation principles of products

• From April 11 th to June 10 th :

- To answer customers’ phone, confirm quantity, machine type, mode of transportation andfreight

- To contact with individual customers To resolve issues such as agreement on price,types of product, and retail billing.

- To write bills of warehouse input and output

- To bring customers to the machine warehouse

3 Disadvantages

- Initially, due not to used to the work, trainnees may feel quite awkward to handlesituations as answering customers’ phone

- To have errors of data

- Not to be familiar with many specialized terms

- To have difficulties when customers ask about technical issues

4 Gained experience:

-Exposed to unexpected situations, trainees will become flexible and respond faster -Trainees may learn the working culture of the enterprise

-Trainees may know a lot of practical knowledge of business

-Trainees will become better in communicating with customers and colleagues

II ORGANIZATION AND OPERATION STATUS OF THE DISTRIBUTION CHANNEL

1 Distribution policy target of the Enterprise

The Enterprise’s target is to distribute products across the country and export them

• For the Northern market

Currently, the Northern market is the highest concentration of business agents of theEnterprise with 27 agents of total 54 agents of the Enterprise This thing shows that theNorthern market contributes mainly to main product consumption and brings majorrevenue sources to the Enterprise With such strong consumption, the Enterprise hasdominated a market share and had a certain reputation in the North and customers knowmuch of the Enterprise’s products

• For Central market:

This is a potential market that has not been explored by the Enterprise The Enterprise has

13 agents in the Central market, the demand is very high but the product distributionchannel system for this market is limited Therefore, in the near future, the Enterprise musthave goals to gradually increase the proportion of consumption and build up a morecovered and larger distribution system to reach many more customers

2.Distribution channel network of the enterprise

2.1 The length of distribution channel

Due to the characteristics of customers, the distribution channel system of Tan Vietconsists of many channel structures with different length:

Figure 4: Diagram of the distribution channel network of the enterprise

Enterprise

(Source: Business department of Tan Viet PE)

There are four channel structures used by the Enterprise:

Non-level channel structure or direct channel: This is direct distribution channel notthrough commercial intermediators The Enterprise directly distributes products to buyersthrough goods ordering units and shops of the Enterprise Customers can order goods byphone or fax The Enterprise appoints business staff to participate in negotiation, sale andimplementation of all activities of the channel Goods are transferred from showrooms orproduct warehouses to customers

Level 1 agent

Wholesaler

Two-level channel structure: The Enterprise distributes products through units and retailshops before coming to final customers In the channel structure, there is only one middlelevel participating in product distribution This is a type of distribution channel, throughwhich products to consumers through a system of electronics supermarkets and retail agentwith large sales.

Two- level and three-level channel structure: In two-level channel, the enterprise’sproducts are distributed through two intermediators including level 1 agents and retailersbefore coming to consumers Three-level channel structure uses three intermediatorsincluding agents, wholesalers, stores and other retailers These are channel structuresapplied in enterprises

This channel has some advantages:

- To save costs due not to paying commission percentage to intermediators, and cost

of storage, to increase rotation of capital

- Settlement of dispute (if any) will be carried out quickly due to not through a thirdparty

- Due to direct contact with customers, the Enterprise can understand customers’needs and take measures to improve products

However, if customers are far and not concentrated, consumption organization issues havemany difficulties due to high haulage

Indirect channel:

The Enterprise has 54 agents in different provinces but they are mainly concentrated in theNorthern region

This channel has some advantages:

- To develop an extensive and effective consumption network, to expand the market

in remote areas

- To utilize resources of intermediators

- To save time and transaction costs because a part of the work is conducted byintermediators

However, this channel has some disadvantages:

-It is difficult to control sale prices of agents

- Relationship between the channel members is loose, and level of cooperation betweenmembers is small

2.2 Width of the distribution channel

The Enterprise selects selected distribution through many intermediators in each channellevel The Enterprise direct select level 1 agents For the Northern and Central market, theEnterprise searches and selects some wholesalers and retailers This allows the Enterprise’sproducts to reach customers better and helps the enterprise develop the market in remoteareas

2.3.Types of distribution intermediators:

The distribution system of the enterprise has three levels of intermediary distribution: Level 1 agents are usually the enterprise’s agents These agents are provided directly withproducts by the Enterprise

Wholesalers, involve much in distribution activities of enterprises, commercialintermediators between agents and retailers

Retailers including stores, electronics supermarkets, cormmercial centers involving in thedistribution system serve as the bridge between the enterprise or agents, wholesalers toconsumers These commercial intermediaries have the largest number

3 Organization and operation of the channel

3.1 Operation of the distribution channel

The channel acts solely based on a connection of the channel s’ members The maincurrents of the channel include:

+ The current of transferring ownership

Transference of ownership may be implemented many or few times, depending on thechannel structure used in each market When customers or intermediator of the channelcarry out activities of buying and selling, transferring ownership will be implemented Asnormal, this current is carried out from the Enterprise to agents or wholesalers and tocustomers

+ Product flow:

After rice threshers of the Enterprise are produced and assembled, they will be delivered tothe warehouse of the Enterprise to be maintained and arranged into order From thewarehouse of the Enterprise, products will be delivered to warehouses of agents when theyhave needs to buy products or be delivered directly to customers The warehouse system ofthe Enterprise is not near large roads, which is not convenient for goods transportationcausing more costs However, administration operations of this current is limited in severalsteps and has not built into a united system The Enterprise, is only interested in givingproducts to its agents, has not delivered products to retailers and final customers

+ Negotiation flow:

When agents and wholesalers need to buy goods, workers of the business department willnegotiate directly to know exactly amount of buying, quantity, type, price, model, place ofdelivery, form of payment, services and benefits of customers Basing on agreement ofboth parties, the enterprise will edit, negotiate and sign a contract This work is carried outfaster and more simply than frequently buying agents because both seller and buyer haveexperience in the last exchange

+ Information flow:

This is an important current because it reflects the process of exchange and cooperationbetween members in the channel The enterprise has not focused on information currentadministration Information is solely exchanged in the channel such as: price, buyingamount, quality, price of product, trade condition, delivery time, form of payment and thisinformation is quite simple and has characteristic as trade contracts Due to carelessness,the Enterprise lacks of information about the target market and competitors Information onthe market only includes data of the agent system of the Enterprise with output, revenue,product consuming speed Market research and forecast of development trend are carriedout simply, subjectively and with secondary documents without any formal investigationand study

+ The payment flow:

Payment flow reflects the movement of payment documents and cash in the channel Afterthe product is traded, the money will be transferred from the agents, dealer to theEnterprise and the invoice is to be transferred from the Enterprise to the intermediaries andend buyers However, this flow does not always work smoothly and continuously becausethe payment activity among the intermediaries is sometimes delayed and Enterprise willallow the slower payment of some agents Because this flow is directly related to thebusiness results of enterprises, the enterprise should manage more closely

3.2 Relationship among the members in the channel:

Distribution channel of the Enterprise is the link between commercial intermediaries aseconomic benefits Enterprises mainly associate with their intermediaries by commercialcontracts and these contracts simply are sales contract and have less constraint

But agents of the enterprise are the sole ones and the members were also divided clearlythe market areas; virtually, there are no conflicts on the dispute market among members inthe channel There are less of the dealers, so it is easy for the enterprise to manage andthere is no dispute occurring

4 Selection of the member channel

4.1Dealers, Retain, Supermarket:

The base element for evaluation and selection of channel members: Business methods,business;

- Seniority and experience in selling, distributing the electrical machinery products;Products that they sell;

- Profit margin and expansion capacity;

Scale and selling power;

- The decision on enterprise establishment is issued by the competent State agency

- The business registration

- The yard system to preserve

- The mortage to guarantee the payment capability

- The agent application

Right and responsibility of the agent:

- Deliverying in the warehouse of the enterprise or at the dealer's warehouse andtransporting by the vehicles of the enterprise or agents (charges is calculated inaccordance with relevant State agencies)

- Having to submit the sales report and inventory report to the enterprise monthly

- Payment method: Payment by cash, check or transfer

If the agent does not sell the goods, the Enterprise will stop to supply the machinery

Table 4: Selling process for agents

Business lisence of the unit

Good release’s order

Receipts and invoicesGood release monitoringbook

5 Management of the distribution channel.

5.1 Incentive activities to members of the channel

Incentive activities to members of the channel

Incentive activities to members of the channel are to create the motivation for commercialintermediaries implementing their tasks in the best way The preferential methods that areused by the Enterprise are the cooperation methods, the separately encouragement methodsand not built into the system At present, the enterprises have preferential policies for themembers of the channel who perform well its role and fulfill their duties such as bonus inaccordance with revenue, the preferences for goods, the promotion and advertising supportpolicies The enterprises adopted the incentive mechanism by economy to take advantage

of the cooperation of the intermediaries, especially the agents of the company

In addition, the enterprise has adopted preferential policies in payment for the dealer toencourage the dealers to pay in advance and on time, reduce the case that the agents owed

To select the agent

To sign the agent

contract

To delivery

or were in arrears with payments, leading the influence on turnover capital of theenterprise

Table 5: The preferential regime in payment:

The agent is in arrears with payments To be deducted 1.5% of discount

The agent pays immediately To be deducted 2.5 % of discount

The agent pays in advance To be deducted 3% of discount

Creating the suitable commending and rewarding system according to the month, quarter,year with specific awarding level are as follows:

3 agents with the highest sales figure exceeding the plan of the Enterprise will be awardedevery quarter; in which, the agent with the first highest sales figure will be awarded 3million VND, the agent with the second highest sales figure will be awarded 2 millionVND, the agent with the third highest sales figure will be awarded 1 million VND

At the end of the year, the Enterprise will choose 3 agents with the highest sales figureexceeding the plan of the enterprise and 3 agents will be awarded respectively 4 millionVND to 3 million

For the agents implementing well the regulations of the Enterprise such as selling at thestipulated price, preserving goods well, providing valuable information …, the Enterprisewill have the right material awarding method

5.2 Using the combination of other tools in marketing-mix

The Enterprise has initially used the tools of marketing – mix to combine with theoperations of distribution channel

5.2.1Product policy

Because of having no effective information flow, the information which is provided fromthe members of the channel, is incoherent and has no high value, including gross revenue,productivity, business turnover, commodity marketing rate The Enterprise has also tried itsbest investing in the production chain to improve the product quality; however, the designhas not been improved much to satify the market trend because contributing information ofthe channel members is limited In the future, the Enterprise needs to enterprises need tomore efficiently utilize the resources of the channel members

5.2.2.Price policy.

Because of differences in the nature of the channel member, for commercial intermediariesdirectly purchase from the enterprise such as agents, wholesalers, retailers, the Enterprisehas the specific price policy for each object The Enterprise will have different pricesbetween these objects basing on the purchase quantity purchased and liquidity The agents

and wholesalers are buying with lower prices For retailers who take frequently largequantities may be entitled the preferential policy such as wholesalers The Enterprise hashad the discount policy in line with the current situation However, the enterprise onlymanages price level for those who have the direct transaction with the Enterprise ratherthan managing the price level for other members Therefore, the current retail price of theEnterprise has not been agreed that there is a variance between regions, each retailerbecause of having no the Enterprise’s close management Therefore, it is required that theEnterprise should build a reasonable price structure for the channel members.

6 Evaluation of the channel members

Evaluation of the channel members is very difficult because currently the Enterprise hasnot had enough conditions to perform well this work due to time and cost constraints andlack of people with experience and capacity in evaluating this activity However, theEnterprise has also noticed the importance of this activity Currently, the evaluationactivities have been applied to the agents Through the evaluation, the Enterprise will knowthe agents operate effectively or not, identify factors affecting its business results, sincethen the Enterprise will have measures for reward or punishment in time to ensure thatdistribution operations are implemented better

The Enterprise has not developed a system of evaluation criteria, just basing on sales,payment operations and goods in stock This method of evaluation is relatively fast, withthe effect of encouraging the channel members but it will be subjective if the Enterprisedoes not consider circumstances and objective factors governing performance results.Moreover, the Enterprise did not pay attention to many other qualitative factors such as:service quality, customers’ satisfaction level These evaluation activities are implemented

by the director board and accounting department of the Enterprise annually and quarterly.The results of these activities will be compared and used as a basis for making decisionsfor each agent: level of reward, continuing to use agents or not, product amount fordistribution to agents

6.1 Evaluation of distribution operations of the Enterprise

6.1.1 Evaluation on quantitative results