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Chapter 7 - The management of distribution
Background
Seed
distribution systems
Seed
storage and transport
Management of distribution and sales
Selection
of dealers
Distribution is the process of moving packaged seed from the stores where it is held following processing and packing to the farmer. This may involve a single step, if sales are made directly to farmers, or a series of steps involving intermediate wholesalers and retailers.
Clearly, distribution is a key area of marketing and is a vital part of meeting the customers' needs and requirements. In a large seed organization responsibilities are shared between those working in Sales, Inventory Control, Order Administration, Dispatch and Transport (ideally coordinated by the Marketing Department). Thus individual responsibilities need to be clearly defined. In small companies one person may fulfil all of these functions. Essentially, the marketing function takes over from production once the packaged seed has left primary storage.
Distribution therefore covers the place element in the marketing mix and relates to getting:
the right products
in the right mix
in the right quantity
at the right time
in the right place
in the right condition
at the right price
under the right contractual terms
The route that seed follows to the consumer is often known as the marketing channel. There will obviously be marketing channels already in use but every business should continually reappraise the alternatives which means:
1. Setting distribution objectives.
2. Considering existing constraints.
3. Listing and evaluating the alternative systems.
4. Deciding on the best channels to use.
In conducting this appraisal, consideration should be given to the nature of the product, the distributors, the consumer and the competition. The product should be appraised by its:
· volume to weight ratio;
· unit package size and value;
· transport and protection requirements;
· handling characteristics (whether the product will be palletised or unpalletised); load size; requirements in terms of maintaining seed quality.
All the product's characteristics need to be taken into account. There is an enormous difference between moving fifty 50-kilogram sacks of wheat seed and fifty 50-gram packets of cabbage seed. High value, small packets will be more readily pilfered than SO-kilogram sacks thus making security a further consideration. Load and package size will have to be planned in relation to the availability of transport, road conditions, access and handling arrangements.
The distributors should be evaluated in terms of:
- their existing product range and territory;
- the number of outlets needed to cover the market and the appropriateness of their locations;
- the location of the seed company's stores in relation to the wholesale or retail outlets;
- the size of the sales area allocated to an individual distributor, measured by the physical area and potential sales value;
- whether a single distributor should be given exclusive marketing rights; the capacity and quality of the available storage;
- the margin or commission and credit arrangements that will be required by the distributors;
- the need for training and marketing support;
- the handling of unsold stock and the need for a return system.
Seed consumers should be considered in terms of:
- the period when seeds are required and whether there is a single sowing period or, as in the case of vegetables, a more continuous demand;
- when seed is purchased and in what quantity;
- the most popular package sizes;
- the distance normally travelled between farm and retail outlet;
- the transport used by farmers to move the seeds to their farms;
- farmers' credit needs.
The competition should be appraised in terms of:
- which channels they use;
- the terms and conditions they offer their dealers;
- the capability of the company to match or improve on their level of service and support.
In planning physical distribution a balance has to be struck between the need to provide good customer service and the need to minimize costs. If a bag of seed does not get to the right place et the right time there is no sale and, as a consequence, the customer may not come back the following year. Farmers' demands are seasonal and they generally buy seed just before sowing time, rather than planning ahead, with the result that the transport and delivery system can be put under extreme pressure. Intermediate storage between the seed company's stores and the retailers will therefore need to be considered to make the system more responsive, but this will add to the cost. Another approach is to encourage farmers to buy early so that stock can be moved to the dealers, thus easing the transport problem. For this purpose a 'buy early' promotion campaign could be run.
As shown in Figure 8, distribution is not just about physical product flow to the consumer. Several other movements are also involved. These all have to happen at the right time to make the system work effectively.
Seed distribution can be carried out by government, public sector agencies, cooperatives and the private sector or, as is often the case, by a combination of all of these (see Figure 9). Channels for seed marketing may be described as:
direct
the seed producing organization supplies the farmer
directly
single level
the seed producing organization supplies the farmer
through independent retail outlets
multilevel
the seed producing organization supplies a national
distributor, wholesalers or regional distributors who, in turn,
supply sub-distributors or the retail outlets
Figure 8 Types of flow between seller and buyer
Direct channels
Under this system the seed producing organization maintains a sales division covering the sales area and supplying the farmer directly from central seed stores and a network of supply points. Some features of direct channel distribution are:
· the supplier has direct contact with the consumer;
· a high level of service and customer support can be maintained;
· direct control is maintained over the quality of the product;
· the upkeep of such a system can be expensive, with high fixed costs if a sales force is employed;
· a responsive management structure and well-motivated staff are required;
· where there are many staff involved in a direct sales organization there can be an inbuilt inertia to change so the system may lack flexibility;
· the revenue necessary to pay for the high fixed costs will only come from having a wide product range and achieving good market shares or selling high value products such as horticultural seeds.
Where the public sector is the main supplier of agricultural inputs, a direct marketing system is often operated. The public sector must be aware of the need for an effective management structure, good communications systems and staff who are motivated and responsive to the needs of the consumer. Typically, however, such public sector organizations suffer from being 'passive' rather than 'active' marketing agents.
Private companies supplying field crop seeds are unlikely to be able to justify a direct sales organization unless they have a monopoly on the market or are selling a broad product range in a developed market. Conversely, where a company has a considerable investment in proprietary, high-margin, low-volume products, such as vegetable seeds, direct marketing is a viable option.
Single-level channels
With this system, the seed producing organization supplies a network of retail outlets. In order to achieve national coverage, the producer may require intermediate storage in order to service these outlets adequately. The main features of this system are that:
· the seed supplier relies on the retailer for contact with the consumer;
· retail networks require strong service and support from the supplier;
· good administrative control must be provided by the sales management;
· the supplier's distribution system must be well organized and responsive;
· product quality at the retail level must be monitored for deterioration and adulteration and a return system should be considered;
· although the products may be well promoted, the supplier relies on the retailer to make the final sale.
Public-sector seed supply organizations are increasingly channelling sales through private dealer networks, in the interests of reducing costs and increasing sales. However, these dealer networks need effective support, and resources must be made available for marketing and promotion. An example is Indonesia where the sales of food crop seeds, produced through 20 processing units, have been transferred to a private sector network of 300 dealers and sub-dealers.
Multilevel channels
Under this system the involvement of the seed producing organization in physical distribution is minimized. This system is characterized by:
· the supplier having no direct contact with the consumer;
· products being strongly promoted in order to create demand;
· supplying seed to the distributors in sufficient time to achieve timely availability at the retail level;
· management ensuring that there is a good system of monitoring sales and obtaining feedback from the consumer;
· the distributor being interested only in the strongest selling lines.
If neither infrastructure nor the economy are well developed, national distributors may simply not be available and the seed producer will have to supply seed to regional wholesalers or distributors.
Sources of seed available to farmers
For farmers there are a number of sources available for the purchase of seed. These are:
direct sales
the seed producer supplies the farmer directly from
central seed stores and a network of his/her own supply points
farmer producers
farmers with seed production contracts are licensed to
supply other farmers within their zone of influence
cooperatives
cooperatives act as 'farmer producers' and/or as
suppliers of inputs to members
farmer dealers
farmers act as dealers, supplying their neighbours; this
can evolve into a highly developed system
commission agents
these work directly with the producer or his/her
intermediaries, passing on orders from the farmers
grain merchants
traders involved in the seed and grain business who are also
licensed seed producers
crop buyers
collectors and crop or commodity traders who provide a
point of contact with farmers and can be used to market seed
retail store dealers
town and village dealers who retail a range of
agricultural inputs, with the larger operators possibly having
sub-dealers
industrial processors
processors interested in specific crops including oilseed
crushers and vegetable canners, who may have an interest in
supplying seed as part of a growing contract or integrated
production system
cold store operators
potato cold store operators trade potato seed since they deal
directly with the growers and have the appropriate storage
consumer outlets
garages, shops and supermarkets (are best suited to
display small packets of seed)
mail order
suitable for low volume high value products such as
vegetables and flowers
Although government extension outlets are not strictly retail outlets, seed is sometimes supplied to the farmer through government sponsored agencies and departments which administer crop or regional development and credit programmes.
There are several reasons why seed is stored:
· to allow the efficient management of seed handling and processing;
· to cover the natural time gap between seed harvest and sowing;
· to enable sufficient stocks to be carried in the distribution system;
· to carry over unsold stock from season to season;
· to provide security of supply (buffer stocks) to meet fluctuations in demand and supply and meet the agreed inventory policy;
· to provide sufficient stock seed for future production requirements.
Assuming that seed is harvested at maturity with satisfactory germination and vigour, it will become subject to a natural process of deterioration over time, the rate of decline being influenced by several factors such as moisture content, packaging, treatments and storage. These factors must be controlled to ensure that seed bought by farmers is in satisfactory condition and has retained its potential for high performance.
It is very important that storage conditions are satisfactory and that seed is regularly monitored for both internal as well as external deterioration. Dealers frequently sell fertilizer as well as seeds and it is imperative that seed is not stored alongside fertilizer. Fertilizer attracts moisture from the atmosphere creating damp conditions that damage seeds. Separate arrangements have to be made for the transport and distribution of potato seed, which requires special cool storage conditions. Storage problems and seed quality loss are caused by:
· high humidity and high temperature causing loss of germination and vigour;
· water, causing direct damage, increasing humidity and promoting fungal attack;
· insects and pests (birds and rodents) causing direct damage and spillage;
· cross contamination from fertilizers, chemicals and toxic materials;
· pilfering of seed due to the insecurity of the store.
To avoid such storage problems a company should consider constructing or renting high quality buildings which may be both fumigated and ventilated, with concrete floors, waterproof roofs, moisture-proof walls, good roof space above stack height, power and light. The location chosen should have adequate drainage and not be prone to flooding. Seed should be stacked off floor level and apart from other products. Holes in roofs, walls and under doors need to be avoided to prevent pests from entering the store. The stores should be secure with an efficient stock control system in place; and regular checks of buildings and seed storage conditions should be carried out.
Although ownership of the seed may have passed to the dealer it is the name of the supplying organization which is carried on the bag. The marketing manager in the supplying organization must be satisfied that minimum storage standards can be met by the distributors, allowing for the length of time seed is expected to be in store. Reference could be made to these minimum standards in the representation agreements. In planning storage a judgment must be made concerning peak holding capacity and carry-over requirements, the capital cost of building and the availability and the cost of space which can be rented, and the off-take rate during the sales season. The latter will depend on distance, transport, demand patterns and storage at the point of sale.
If the seed organization has a regional structure, a network of regional seed stores should be provided from which distributors and retail sales points can be quickly supplied. Apart from concerns about security and basic protection, physical storage requirements will depend on the amount of time that the seed is likely to be held. Generally, seed can be moved back to central stores which have the required specifications after the selling season, to ensure that quality is maintained over longer periods of time. This will also make retesting and relabelling more convenient. A policy decision will have to be made regarding the provision of a return system for dealers.
The supplying organization can be expected to have comprehensive insurance for goods held in its own stores but special cover may have to be arranged for goods in transit if the seed-supplying organization undertakes delivery. Alternatively, seed can be sold ex-store with responsibility passing to the customer. The decision whether to supply ex-store or deliver can only be made in relation to the local situation but will be influenced by the product type, customer base and the competition.
Management of distribution and sales
Sales service
In order for distribution and sales to be managed effectively a sound management and reporting structure is vital at every level. Within the marketing organization the sales service functions are directly concerned with the operational aspects of seed distribution.
Central sales and distribution functions are:
· central sales management;
· order administration and preparation;
· transport;
· dispatch;
· stock records and inventory control;
· sales administration and invoicing (credit control).
While the field sales force consists of:
· regional sales management;
· technical representatives;
· safes representatives.
Assuming that seed is distributed on a regional basis through a dealer system the marketing manager should:
· allocate responsibility for major customers within the organization in order that they may receive special attention;
· define the sales territories of the area sales managers, salesmen and dealers;
· know what the potential seed requirement is by the type of seed in each territory;
· agree sales targets when setting the forecast and budget with those responsible for the territory;
· schedule dealer visit and support programme with salesmen;
· insist on activity reports from the salesmen and arrange regular meetings;
· establish a regular reporting system for monitoring sales and stock availability, both at the point of sale and at the supply locations;
· introduce a sales staff incentive scheme in the form of bonuses or gifts linked to individual sales performance.
Order and stock administration
Every organization needs to develop a sales administration system which would include the following steps:
order receipt
entering the order into the order administration system
order validation
checking details, customer status and carrying out credit
checks
stock allocation
checking that stock is available and adjusting stock
records
order alteration
refering back, if necessary, to salesmen and customer
dispatch allocation
allocating packing date and rotation and dispatch number
order preparation
withdrawing stock and adjusting stock records
order dispatch
notifying salesman and/or customer when to expect
delivery
invoice
sending by post, or by special order if
leash-on-delivery' is being used
payment receipt
entering payment receipts in the accounting system
credit control
collecting over due accounts, where necessary
Reference has been made to the fact that useful marketing information can be generated from invoices. Sales administration generates management control information, such as sales progress and stock update reports, and triggers action if stock shortages develop in the distribution system. The importance of accurate stock control and record-keeping throughout the system should not be underestimated. This should include seed at all stages of bulk storage, processing and awaiting sale. Information that may effect planning, e.g. the effect of drought, the timing of rains or possible disruption to the transport system must also flow in from the sales regions. Obviously, good communications are vital if the system is to respond quickly to potential sales opportunities.
Operations calendar
Seed processing, packing and distribution creates a great deal of activity, involving people in different departments and locations. It is important that the planning is well thought out and the periods of peak activity identified and expressed in terms of working days, storage capacity or transport tonnage, so that extra resources can be brought in if necessary. A simple example of the activities related to spring sown seed could be:
OCTOBER AND NOVEMBER
seed order analysis and confirmation, transport planning
DECEMBER
seed packing completed
JANUARY
seed available for distribution to retail stores
FEBRUARY
seed actually available at retail stores, update on sales'
forecasts and final order adjustment
MARCH AND APRIL
sowing, and restocking if necessary
Where seeds of different crops with different sowing seasons are supplied the scheduling of activities will be complicated by having separate products, geographic regions and customer groups.
The number and distribution of sales' points and dealers is influenced by the cover required to adequately service the market. A judgment will have to be made on how best to service the farmers in a region and achieve the sales and financial objectives of the organization. As a guide for selecting dealers a check list is provided in Figure 10.
Figure 10 A guide for selecting dealers
1. The location in relation to the convenience of seed consumers and to the seed company in supplying the dealer.
2. The general appearance of the building and surrounding area.
3. The suitability of the available storage area and space.
4. The existing product range and representation agreements held by the: dealer for competing or complementary products.
5. The terms of existing agreements and exclusive arrangements.
6. The size of the dealer's existing business in terms of volume and value, best selling products, customer profile, cash or credit sales.
7. The dealer's general commercial activity rating based on the display of products and point of sale material, quality of service and level of customer contact.
8. The number and quality of staff.
9. The dealer's financial security and record, bank references and credit rating.
10. Ownership, including details of partners or associates.
11. Whether it is a single retail outlet or part of a network.
12. Communications available, e.g. telephone and fax facilities.
13. The development potential.
Figure 11 Elements of a representation agreement
1. The parties involved, e.g. the supplier and the distributor or dealer.
2. The products covered, e.g. the variety, the brand, product range.
3. The period of the agreement, e.g. one year, two years, and whether renewable.
4. Obligations of the supplier, e.g. to supply seed of a given standard, to advertise the product, to supply promotional material, to offer product training
5. Obligations of the distributor or dealer, e.g. to display and promote the product, to achieve agreed targets, to store the seeds correctly, to provide the required information.
6. Marketing territory, e.g. a district defined by a local administrative boundary.
7. Terms of trading, e.g. exclusive or non-exclusive, limitations to trade, discount or margin allowed plus any standard volume-linked discounts on published prices; payment.
8. Performance clauses, e.g. minimum levels of trade, company reward schemes.
9. Termination, e.g. acts detrimental to the interests of the supplier, non achievement of minimum levels of trade, notice period for both parties, procedure in case of dispute, legal jurisdiction.
10. Date and signatories.
These agreements should be simple and easy to understand and, if necessary, reproduced in the local language.
It is important to make an assessment of the general activity of the dealer since, as well as selling seed, the dealer is the primary contact point with the market. There is no point in a company servicing inactive dealers. Once selected they should agree to minimum targets for a mix of products. The dealership should be worth holding so the dealer will work to achieve targets rather than risk losing his dealership.
It is recommended practice to sign representation agreements with distributors and dealers. Elements to be included in a dealer representation agreement are shown in Figure 11.
It is important that the dealer be willing to participate in company training programmes. The dealer should be trained, not only in the technical and agronomic aspects of the product range, but in product presentation, selling and storage. There will also be a requirement for the dealer to follow various administrative and record-keeping procedures.
The farmer may need a credit before being able to buy inputs. Credit can come from several sources but competition between seed companies may lead to credit being extended to farmers through the dealers. Dealers may therefore be required to operate a credit system supported by the seed company.
