"Dangerous" Distributor Orders

The overdue accounts in the accounts receivable amount to 50%, the turnover days are 151 days, the inventory is 266 days, and 80% is the bad stock that exceeds 180 days, and the out-of-stock rate of the hot-selling products in the market reaches 50% %. For any business, this set of data means that the business has reached a "life or death point."

However, this was the situation at the end of 2000 at the branch of a certain Fortune 500 cosmetics group in China (hereinafter referred to as Company L), the world's largest cosmetics group. Company L officially entered the Chinese cosmetics market in 1997, and has basically synchronized with its global market in terms of market strategy and product renewal.

The global consolidated statement at the end of 2000 showed that the company's global operating profit increased by more than 10% for three consecutive years, which is very rare among large multinational companies in mature western industries. So what is the reason for the company's unsatisfactory performance in the Chinese market under the same conditions?

After analysis, the main reason is that the company's sales tend to be too much in the middle of the supply chain The link-distributor cannot be realized at the end of the supply chain-the final consumer link, which makes the supply chain develop abnormally, resulting in arrears of accounts receivable, resulting in sales not being realized in the form of cash inflows, and the company's resources was greatly wasted. In addition, Company L regards the orders of distributors as market demand, and arranges production accordingly, so that the production is misaligned with the real demand of the final consumers in the market, resulting in distortion of the manufacturer's forecast and abnormal inventory structure.

After realizing the seriousness of the problem, the company immediately carried out rectification. After one year's efforts, various financial analysis indicators in 2001 have been significantly improved. Accounts receivable turnover days decreased from 151 days to 86 days, making it the entity with the largest improvement in accounts receivable turnover rate among the 93 independent accounting entities in the world of L Company. 21% of the year.

In terms of inventory, the turnover days decreased to 110 days, the slow-moving inventory with more than 180 days also decreased to 24%, and the market out-of-stock rate decreased to 12%. The absolute amount of funds occupied by the two has decreased by nearly 100 million yuan compared with the end of 2000.

In the following case analysis of Company L, we can understand that in order to make the distributors of the enterprise supply chain operate normally and bring benefits to the enterprise, the following common problems should be avoided in the management of distributors mistake. At the same time, the company's rectification measures are also instructive.

The mistakes that need to be avoided are:

Supply chain deformity

In the fast-moving consumer goods industry, the current supply chain model adopted by multinational companies in the Chinese market For the production supplier → distributor → retailer → final consumer. At each link of the chain, the product will be sold in a financial sense, that is, the previous link will issue an invoice, and after earning a certain profit, the goods will be sold to the next link. But this is only the circulation transfer of products between various links in the supply chain. Only after the final consumer pays cash and buys the goods from the retailer, the real sales can be realized, and the supply chain operation is truly smooth.

In the first two years of its official entry into the Chinese market, L Company quickly implemented its brand strategy and occupied a corresponding market share as planned. The increase in performance made the company headquarters very happy, and decided to increase investment and increase the market share target.

So in 1999, Company L spent a lot of money to establish a production center in the Asia-Pacific region in Suzhou, and extended its retail sales channels from the image counters of large comprehensive shopping malls in big cities to various small stores and superstores in small and medium-sized cities. market. At the same time, the number of distributors has also increased by nearly 5 times.

It can be seen from the above that the source of the supply chain - the production supplier and the intermediate links - the number of distributors and retailers has grown exponentially. However, the cultivation of the cosmetics market not only depends on capital investment, but also requires time and patience to cultivate the final consumers' sense of identity with the brand, so that consumers can gradually accept product performance and price. As a result, the growth rate of the number of final consumers is disproportionate to the growth rate of distributors and retailers, forming an abnormal supply chain model of "big head and belly, small end".

Under this deformed model, Company L has given the sales department great power because it is eager to pursue a certain scale of sales to balance the huge investment in production supply and market sales. For example, the sales manager has the right to decide the division of the distributor's market coverage area and the base of the distributor's fund fee subsidy. Under the pressure of the sales target, the sales staff use their privileges to force the distributors to order according to the sales target when placing orders, and try their best to urge the distributors to push down the products to the retailers, thus completely ignoring the final consumption power of the final consumers. This creates a huge backlog of products at intermediate links in the supply chain, such as distributors and retailers. The company has a distributor in Shenzhen in South China, and the unsalable inventory was once as high as 300 days.

Distributors and retailers, when their working capital advance reaches the limit, will naturally default on the accounts receivable of production suppliers, and even some smaller distributors will be unable to The heavy burden and bankruptcy caused a considerable amount of bad debts of L company, so it is not surprising that such a high accounts receivable ratio mentioned in the beginning of this article. A distributor in Tianjin once refused to pay due to overwhelmed burdens, resulting in a bad debt of more than 2 million yuan for Company L, which caused a commercial dispute. But the distributor also has difficulties. He said: "I have put a lot of money in these invalid stocks. The responsibility for such consequences is not entirely on me."

Market forecasts are distorted

L Company has a mature retail market information data system in mature markets such as Europe, America and Asia to share with distributors and retailers. The system collects the sales data of cosmetics, skin care products, hair dyes and other classified products in different sales channels such as supermarkets, professional beauty salons, and department stores, and the functions of distributors are more similar to third-party logistics partners.

According to the different needs of the corresponding products in different markets reflected by the information system, the production plan is issued according to a certain number of safety stock days, and the goods are distributed in time, so that the warehouse inventory of the distributor and the counter inventory of the retailer are equal. Achieving the desired level, the distributor orders are also very close to the final demand of the market.

In this way, the production and supply of production suppliers are very reasonable, and information is transmitted from the production of production suppliers at the source of the entire supply chain to the consumption behavior of final consumers at the end. Basically accurate, and the supply chain runs smoothly.

However, Company L does not have the above-mentioned mature information system in the Chinese market. A total of more than 1,200 single products have been produced and listed in the Chinese market. Due to the limitations of the distributor's own logistics management capabilities and the excessive power of the sales staff, the distributor can only place orders according to the opinions of the sales manager of L company. However, this kind of order only reflects the will of the sales staff unilaterally, and is far from the final consumer demand of the market.

Before the end of 2000, the supply chain management department of L company followed the unified practice in developed countries, that is, to organize production and supply according to the order demand of distributors, and the result was predictably disastrous.

First of all, since the number of single products on the market has reached more than 1,200, the preparation cycle of the corresponding production raw materials and production lines for different products is relatively long. It is produced in 6 production centers in North America, Europe and Asia, resulting in 6 months from the issuance of production orders to the arrival of finished products.

Secondly, the popularity of cosmetics is seasonal, with a short period of popularity (mostly shorter than 6 months), and the frequency of elimination is fast. If the product fails to achieve sales during the epidemic period, it will immediately become a slow-selling product from a best-selling product. In addition, 10% of the 1,200 single products are the main sales varieties, and their sales can reach 60% of the total sales. Therefore, the accuracy of the production supply planning forecast becomes the key to whether the supply chain is smooth and the supplier's inventory structure is reasonable. However, the production and supply plan formulated by relying on the distributor's order information obviously deviates from the reality, resulting in the backlog of the absolute quantity of the inventory of L company and the imbalance of the structure.

How to rectify

In response to the poor performance in the Chinese market, the headquarters of L company quickly passed internal and external audits and found that the company's logistics supply chain policy was very different from the actual situation in the Chinese market. A large distance, and consulted the international professional accounting firm to make corresponding countermeasures.

First of all, from the organizational structure, on the basis of the logistics operation department, a professional distributor inventory management controller team (Vendor Management Inventory Control, VMI for short) is established to extend the management of the company's logistics supply chain At the distributors outside the company, at the same time, the influence of the sales department on the logistics supply of the distributors has been repositioned, so that the distributors can concentrate on the development of the final consumption power of the market.

Secondly, Company L combines the credit sales period of the distributor's accounts receivable with the distributor's inventory turnover days, so that the distributor's inventory is reasonable and the utilization efficiency of the advance working capital is improved.

On this basis, strictly control the turnover days of the distributor's accounts receivable. The specific method is that full-time VMI personnel formulate scientific and relatively stable warehouse inventory and counter inventory quotas for distributors from the total amount. Replenishment can stabilize the distributor's inventory at the fixed level, so that the sales of its sales area within a certain period of time have sufficient fixed inventory guarantee, effectively reducing the market out-of-stock rate.

At the same time, a strict credit control policy is implemented for the distributors. If the distributor fails to settle the accounts receivable on time, the supply will be stopped or even disqualified as a distributor.

Finally, the VMI staff counts the historical sales volume by single product, based on the average sales volume of the single product in the last 6 months, and considers factors such as seasons, promotions, advertisements, etc. that affect future market sales. Distributors place orders.

This kind of order fully considers the needs of the final consumers in the market, so that distributors can truly become an effective intermediate link in the circulation of the logistics supply chain. product. On the other hand, collect market information from retailers and sell products. As a result, the accuracy of Company L's production and supply plan forecast has been greatly improved, the inventory structure has become more reasonable, the proportion of unsalable products has been greatly reduced, and the market out-of-stock rate has been reduced.

The author Mao Yong, joined L'Oréal China in 1997 and served as credit control supervisor, customer service manager, and brand supply chain manager.