Having completed your MBA, you have joined as an Area Sales Manager of a small city. You only have one distributor. Let us have a look at the distributor$$s status when you took over.

No$.$ of outlets: Local $357+$ Van $93=$ total $450$

No$.$ of routes: Local $9+$ Van $3=$ total $12$

No$.$ of Units $($Salesman $+$ Deliveryman $+$ driver$)=2$

Frequency: Weekly to all outlets

Turnover: Rs $43$ lakhs $($Local market$)+$ Rs $17$ lakhs $($Van market$)=$ Total Rs $60$ lakhs.

Average calls per day per unit are more than $40.$ Hence in most of the days the units are unable to cover all the outlets of the routes. You found utter dissatisfaction amongst customers and competitors are gradually becoming stronger for better service. Many customers started buying products from the nearby wholesalers. The distributor is gradually losing control over its retailers; average order size and productive calls are coming down drastically.

You revamped the whole territory and enlisted many outlets which were not covered by the distributor. Here is the post revamping status:

No$.$ of outlets post revamping: Local $606+$ Van $429=$ Total $1035$

Expected turnover: Rs $62$ lakhs $($Local market$)+$ Rs $22$ lakhs $($Van market$)=$ Total Rs $84$ lakhs

$1.$ One ready stock unit $($comprises of Salesman $+$ Driver $+$ Deliveryman$)$ can cover maximum $32$ calls in local market & $26$ calls in van market $($as van market is far away from the main city area hence it takes much more transit time than the local market$)$ to do justice with the customers

$2.$ Average working days per month for each unit is $24$ days $(6$ days$/$week$)$

Top $107$ retail outlets of local market deliver $35$ lakhs $($out of total $62$ lakhs$)$ businesses and needs at least bi$-$weekly coverage. All other outlets needs weekly coverage.

Expenses:

Warehouse cost$/$month: EMI on loan$=$ Rs $18000/-+$ Electricity $=$ Rs $3000/-$

If the warehouse is rented: Rent is Rs $26000/-$ per month $($Electricity included$)$

Unit expenses$/$month: Salesman$=$ Rs $18000/-+$ Driver $=$ Rs $15000/-+$ Deliveryman$=$ Rs $12000/-$

Fuel cost$/$day$/$van$=$ Rs $1200/-($ on an average$)$

If the van is on hire$=$ Rs $4300/-$ per day $($ Driver and fuel included$)$

Merchandiser$$s salary: Rs $17000/-$ per month

Warehouse Manager$$s salary: Rs $18000/-$ per month

$1.$ Gross margin of the Distributor: $12\%$

$2.$ Expected net margin$/$ month $($after all the costs covered$)$: $3\%$

$3.$ Distributor purchases stocks cash on delivery. Average stock holding is half month$$s turnover. $70\%$ of total investment is borrowed on $12\%$ interest rate.

$4.$ The distributor must give $1$ week of credit to the top $107$ outlets respectively.

$5.$ Top $107$ retail outlets deliver Rs $35$ lakhs $($out of the total $62$ lakhs$)$ business. Hence the distributor offers a non$-$ reimbursable discount to the top $40$ outlets $(3\mathrm{.}5\%$ on Rs $18$ lakhs turnover$)$ and to the next $67$ outlets $(2\%$ on Rs $17$ lakhs turnover$)$ from his own profits.

$6.$ Top $107$ outlets also needs merchandising support bi$-$weekly. A merchandiser can work maximum $10$ outlets per day.

$7.$ In order taking model $($salesman takes order followed by delivery$)$ can cover maximum $37$ calls in local market and $30$ calls in van market. In order taking model the salesman needs to visit two days in the same market $($ order day and delivery day$).$ Order taking has an advantage of zero cancellation whereas $12\%$ of target is always missed on ready stock coverage.

$8.$ Company$$s gross operational margin $15\%,$ Target net margin $8\%.$ Longer the intermediaries higher the cost to serve.

Questions:

$$ Calculate expenses $($cost to serve$)$ and estimated profits$/$month of distributor if the distributor does not operate vans in van markets and build own infrastructure in those van markets; e$.$g$.$ the distributor will cover all $429$ outlets by:

$1.$ Renting three small warehouses in these van markets $($average rentals $7000/-)$ but the original warehouse requirement will be $70\%$ of the initial space

$2.$ Three Warehouse Manager cum Sales Person salary $25000/-$ per month for each

$3.$ Three deliverymen salary $17000/-$ per month for each. No driver, fuel or van costs as the deliverymen will deliver the stocks in handcarts

$4.$ As this is Distributor$$s own infrastructure distributor doesn$$t give any discount to anyone, hence no reimbursement.

$$ What are the advantages and disadvantages of the distributor and company with this route$-$to$-$market model?

Please give answers with explanation in detail