Malady: Undercutting and selling
Yet another dangerous practice affecting the channel business health is undercutting. Most of the partners claim that it is the distributor who indulges in the same on most occasions. Undercutting takes place when a few dealers unite and after mutual understanding lower the price of certain products and sell the same to their customers. This practice affects the margins of other partners who might be selling the same product at higher prices and leads to an unhealthy business environment.

Side-effects/results: Under-cutting affects the margin operating price (MOP) as it goes down. Thus the partner loses out on his margins. Further more it leads to unhealthy competition in the market apart from being a violation of the consumer rights.

Remedy: In the first place, dealers themselves have to be disciplined and refrain from selling products at prices lower than what was originally decided upon by the market. Besides an association or an effective body can look into this matter and resolve the issue. The association can ensure that every dealer sticks to a particular price and does not offer any products to their reseller partners or customers at discounted rate.

Ajay Singla, President, Panipat Computer Dealers Association mentioned, “Business does not merely run on paper and hence it is important that payment issues be dealt with utmost discipline. An association can play a major role to resolve the payment issue as they can keep a check on the market practices and faulty partners.”

Malady: Unplanned inventory management
Unplanned inventory management happens because an over-ambitious partner decides to purchase stock according to his whims and fancies without calculating the costs involved in managing the inventory. Besides, many times a vendor representative dumps stock with the partner because the former is under pressure to meet targets assigned by his seniors and the partner succumbs under to this extension of the pressure.

Side effect/results: Unplanned inventory management has its effects on the MOP. For the bigger players, it is easy to stock more and take advantage of the various schemes available but the smaller player is forced to strike a deal at lower price so that he can do away with the excess goods he has bought.

Remedy: The only remedy applicable in this case is that a dealer keeps a track of the average sales they have every month and the capital they can set aside before they purchase any stock. Thus a dealer needs to keep in mind the inventory cost and the time till when he can manage the inventory and function accordingly.

Mahesh stated that it is clearly the distributors who initiate the unhealthy practices within the industry as they over distribute. If there is a demand for 100 products in the market then they push close to 180-190 in the market. This puts the dealer under pressure and creates an unhealthy atmosphere.

Malady: Cartel formation
Cartel formation is a practice where a certain price is decided for a particular product and select partners are given the liberty to sell at this slightly lower price whereas the same product is offered to other dealers at higher prices.

Side effects/results: This practice leads to unhealthy environment in the industry and creates animosity between partners.

Remedy: In case of cartel formation the entire distribution chain has to be disciplined. However, vendors like Sony see cartel formation as an easy way to achieve the revenue figures they desire to achieve. Dixit mentioned, “From an ethics perspective it is incorrect to indulge in cartel formation but looked at from the vendors/manufacturers perspective, the one who gives the company more volumes will definitely be given more discounts and incentives when compared to a partner who may not be giving the kind of output needed.”

Malady: Improper finance planning
Improper planning while buying stock and stretching the credit limits leads to payment defaults. When a partner offers credit in excess or for a longer period or he takes credit in excess of what he can return, it leads to delay in payments.

Side effects/results: Improper finance planning affects the balance sheet of the company. It has an implication on the both the topline and the bottomline. It leads to payment default on the part of the partner. Besides, fraud cases are a result of improper finance planning as well.

Remedy: Modi suggested that one needs to build a reputation in the market that s/he is very strict when it comes to receiving payments and then allocate expenses keeping in mind their budget and capital inflow.

Another initiative that can be taken up both by the national distributors and the vendors is that they can tie-up with certain banks and share a list of defaulters. The banks can thereby have an internal agreement with the partner who maybe applying for a loan and these partners will have to register themselves with the bank. Thus information as to how many loans a partner has availed can be gathered from the bank. Since most of the banks are a party to this idea tracing the faulty partner will thus becomes easy.

Malady: HR Issues
A large chunk of the SME and the SMB organization don't have a dedicated partner who can perform the HR functions for their company. In most cases their HR department handles every responsibility on their own. The bigger players in the industry have a proper arrangement for the same but the smaller players can't afford and in its absence retaining employees becomes difficult.

In most cases, vendors poache the partner's employee and there isn't much the partners can do about it. Other than recruitment ensuring that the employees are working in a healthy and competitive environment is also important.

Side effects/results: In the absence of an HR executive, employing the right candidate who is both skilled and trained becomes a difficult task. Beside there are times when an employee has to be trained on developing various soft skills and made to attend workshops so that he can imbibe the requisite skill sets and perform and work to the advantage of the company.

Having an effective HR policy and system in place will help improve both the topline and the bottomline of the company. Agreeing to the statement Mahesh said, “Often entrepreneurs and even their sales people are unaware of the various business terminologies and practices. Thus the dealers in Tamil Nadu have united to form a company wherein they can hold various workshops and educate the dealer partners and thereby train them.”

Pooja Sharma
poojas@cybermedia.co.in

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