By KR Nambiar
When most vendors are being accused of over-distribution on account of their volume-based back-end rebates policies, Toshiba has set an example by creating a policy where partners earn volume incentives only when products are sold to end-customers.
“We have completely moved to a model where partners become eligible for volume incentives only when the product is billed to the end users. This has reduced stock pile-up in the channel, and addressed the issue of over-distribution and price-undercutting; thus helping our partners run a profitable business. It ensures that no one in the supply chain loses money,” said N Sivakumar, Country Manager, Toshiba India.
The channel model applied by Toshiba is called the sell-out approach in business parlance and is nothing new. The opposite of sell-out is sell-in model where incentives are earned based on the volume a partner purchases from the distributor.
“We were inspired to experiment with the sell-out model by our Chinese counterparts, who have successfully implemented it and achieved a leaner and meaner logistics and enhanced operational efficiencies. It has helped them gain market share and channel confidence,” added Sivakumar.
Explaining the demerits of a sell-in distribution model, Sivakumar said, “With this model, the back-end incentives are on the purchase order hence when the partner buys the stock they are fully aware of the rebates they will get and thus indulge in price discounting. Also, it leads to partners buying large quantities in order to gain higher incentive without considering the real demand.”
According to Sivakumar, this creates higher inventory levels in the market and often vendors have to provide discounts to partners to liquidate the excess stock leading to brand discounting and losses for both vendor and partner.
However the transition from sell-in to sell-out model wasn’t smooth for Toshiba. “Predictability of sales is poor in the sell-in model, but only initially. You simply do not know how much stock will sell in a month till you get actual reports from partners. Not to mention that most volume partners were reluctant as they are so used to the traditional model,” observed Sivakumar.
Toshiba claims that its partners have adapted the new model. “As we roll out more retail stores across the country, it’s efficient to have a leaner, meaner and cleaner distribution system. And we feel we have attained it, and now the volumes will happen without inventory issues.”
Positive Systems, one of Toshiba’s leading volume partner in South is all praises for the new model. “Initially, it was extremely difficult to accept the new model as it was difficult to predict and plan ahead. It took a few months to get used to but now we are fully in sync with the sell-out model. It ensures profitability in every transaction.” |