Sales & Distribution Project Report

On
Sales and Distribution in LG Electronics

Submitted as part of course curriculum for

POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)
Under the guidance of Mr. R. J. Masilamani

Submitted by
14DM147 Pinki Rani
14DM197 Shaunik Rai
14DM207 Shubham Shrivastava
14DM222 Suneera Agarwal
14DM227 Sushant Kataria
14DM233 Udesh Patidar

ACKNOWLEDGEMENT

The sense of fulfilment and elation that accompanies the

successful completion of the Project would be incomplete without
mentioning name of people who helped us in accomplishing this
Project, people whose constant support and encouragement
resulted in this realization.
We take this opportunity to thank Honorable Director Dr.
H.Chatuvedi for providing healthy environment in our college,
which helped in concentrating on the task. We thank our
Chairperson of Department Prof. Ashok Malhotra and all the
Faculty members, teaching and non-teaching for helping us during
the Project.
We thank our mentor Prof. R.J. Masilamani for the guidance and
inspiration he gave during the course of completion. We also
extend our gratitude to BIRLA INSTITUTE OF MANAGEMENT
TECHNOLOGY for giving us this opportunity

CONTENT
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.

About Lg electronics..4
Product line.5
Channel design...6
Margin allowed......7
Pricing strategy..9
Swot analysis........11
Sales hierarchy....12
Supply chain13
Scope of improvement16

INTRODUCTION
OBJECTIVES OF THE STUDY
Complete study at the Retailer/Sub-Dealer Level and Distributor level

 Companys sales mix at various levels

Comparison with Competitors pricing
Margins allowed at various levels

LG ELECTRONICS AN OVERVIEW
The history of LG Electronics has always been surrounded by the
company's desire to create a happier, better life. It was
established in 1958 and the company since then has led the way
into the advanced digital era, thanks to the technological expertise
it has acquired by manufacturing many electronic appliances.
Applying new technologies in the making of mobile devices and
digital TVs in the 21st century, LG Electronics has unveiled many
new products and continues to reinforce its status as a global
company.
Headquartered in Yeouido-dong, Seoul, LG Electronics is a
multinational electronics company, and a member of the SouthKorean multinational conglomerate LG Corp. The two Korean
companies, Lucky and GoldStar, merged to form LG. The
abbreviation comes from this. But before it got its name as LG,
Lucky was the brand name under which household products were
sold, and Goldstar sold the electronic products under its brand
name.
LG Electronics was one among the Top 100 global brands in 2005,
and LG recorded a brand growth of more than 14% in 2006. The
display manufacturing affiliate, LG Display, is today the world's
largest and best plasma panel manufacturer. LG Electronics, today,
is the world's second-largest television manufacturer and the
world's fifth-largest mobile phone maker by unit sales.

PRODUCT LINE OF LG ELECTRONICS

ROLE OF MARKETING CHANNELS

Successful value creation needs successful value delivery. Holistic
marketers are taking a value network view of their businesses. The
marketing channel performs the work of moving goods from
producers to consumers. All channel functions have three things in
common:
A. Use up scarce resources
B. Can be performed better through specialization
C. Can be shifted among channel members
After a company has selected a channel, the intermediaries must
be selected, then trained, motivated and finally evaluated.

CHANNEL DESIGN
1. DIRECT DEALER CHANNEL-

2. SUB DEALER/ DISTRIBUTOR CHANNEL

DISTRIBUTION NETWORK
REGIONAL DISTRIBUTION MODEL- ALL DISTRIBUTORS
WORK DIRECTLY WITH THE COMPANY.
46 Branch Offices and Another 110 Area Offices Across
the Country

DIRECT CHANNEL
STORES THAT DIRECTLY SELLS TO END CONSUMERS.
EXCLUSIVE STORES OR SHOWROOMS- MORE FOCUS
FOR
PROFITABILITY AND LARGE VOLUMES.
MULTI BRAND SHOPS.
34 % OF SALES .

ADVANTAGES NO LOSS OF MARGINS THROUGH INTERMEDIARIES.

COMPLETE CONTROL OVER DISTRIBUTION PROCESS

DISTRIBUTOR CHANNEL
1)SMALL RETAILERS WHO LACKS CAPITAL TO BUY DIRECTLY
FROM LG.
2)DIRECT DEALERS HAVE ATLEAST ADDITIONAL 3 %
MARGIN.
3)49% OF SALES.
ADVANTAGES1)ALLOWS PENETRATION OF FRAGMENTED DISPERSED
MARKET.
2)EASES LOGISTICS FOR BUYERS WHO BUY DIFFERENT
ITEMS

PROCESS OF DISTRIBUTION

MARGINS ALLOWED
Different profit margins when selling to subsequent dealers and
sub-dealers. The profit margins vary depending on the product
category in terms of how slow/fast the products moves.

CASH AND VOLUME DISCOUNT

Dealers give a cash discount of maximum of 1% and volume
discount of maximum of 5%.

MANAGING OF DAMAGED GOODS

If Dealers finds any good to be damaged or that it needs repairing,

then it requests repair the damaged good within 15 days from the
company or gets it replaced within the same time frame.

LOCAL PROMOTION AND BUDGET

Promotion is done locally and the budget is reimbursed in the
range of 50 to 100% (in some cases) by the company.

PRICING STRATEGY
RATIO OF FAST MOVING AND SLOW MOVING
The TV, Audio and Video segment of LG is the slowest moving of
all the product categories under the brand. On the contrary, in
Refrigerators, Washing Machines and Air Conditioners segment, LG
is one of the fast selling brands and has been a market leader in
this region.

COMPETITORS PRICE OF LEADING BRANDS

The comparison of selling prices of Washing Machines and
Refrigerators of LG with those of other leading brands is illustrated
below. The prices are average of the selling prices of both, high
and low end models for all product types, for better comparison
against competitors prices.

Comparison of Prices of Refrigerators

Comparison of Prices of Washing Machines

RATIO OF FAST MOVING AND SLOW MOVING

CATEGORIES
The TV, Audio and Video segment of LG is the slowest moving of
all the product categories under the brand. On the contrary, in
Refrigerators, Washing Machines and Air Conditioners segment, LG
is one of the fast selling brands and has been a market leader in
this region.

MARGINS ALLOWED
LG Direct Retailing has different margin levels for various Product
Categories. There are 4 Product Categories as identified by LG:
1. Category Killers
2. Good
3. Better
4. Best

There is absolutely minimal scope of margin when it comes to Category Killer

products at less than 1% and about 10% for Best category products.

WINDOW DISPLAY AND MERCHANDISING

LG Best Shoppe has managed well to display the products and different
product variants of LG.

SWOT ANALYSIS
SWOT Analysis
1. Wide range of products to serve all categories and a
strong focus on technology and quality
2. Effective localization of product offerings for growth
markets like India, Brazil, China
3. Brand offers sound rational appeal good product
features and good value for money
4. Good after sales service and wide distribution network
5. Subsidiaries enjoy independence in decision making and
hence have flexibility in adapting to the local market
6. Sponsorship of sports and entertainment events
enhances visibility
Strength

7. It has nearly 100,000 employees and is one of the top

mobile manufacturers
1. Brand lacks influence in the opinionated segment of early
adopters especially in the social media environment

Weakness

2. Brand has limited market share compared to market

leaders
1. Fast growth of home appliances, electronics goods market
in emerging economies
2. Convert improved brand image and awareness in to
market share

Opportunity

3. Increase the already Wide product portfolio

1. Price war with close Korean competitors like Samsung can
disrupt growth in price sensitive markets
2. Highly competitive industry dynamics
3. Stagnant urban demand

Threats

4. Instances of false green claims can erode brand value

and consumer trust

SALES HIERARCHY OF LG ELECTRONICS

Supply chain
The Supply-Chain Process

At a time when most companies are dissatisfied with the high

logistics cost, Lgs logistics cost is 3.01 percent on net sale after
deduction of excise duty, including our export freight cost.
The company experimented with several production and
distribution models over the last few years. The exponential
growth in demand and constantly catering to newer and distant
locations buoyed Lg to improve our supply-chain. But it was the
implementation of GSCP (Global Supply Chain Planning) in 2008
that streamlined the operations.
Year 2008 also changed a lot of things for LG globally with the
implementation of new IT systems and changing its transportation
functions through adoption of IT. Earlier, the Korean cabal found it
hard not only to keep up with the fast-growing company, but
concurrently tracking demand, supply, inventory, manufacturing,
raw materials, logistics and distribution. It was onerous to compute
collective data that would allow the company to see its progress at
a quick glance, and in real-time. The Indian arm had to regularly
send across long detailed excel sheets of data. The Korean

headquarters required a system to synchronize forecasts,

production and sales that would eliminate the issues of inaccurate
shipping, planning and inventory. The Global Supply Chain
Planning was established.
The GSCP integrates control of the entire business process from
receiving orders, production to sales, and inventory, with an online
link of LG companies around the world. Integrated with the Oracle
ERP systems of LG worldwide, the end result of the deployment of
GSCP enables the company to close the gap between demand and
supply. It also provides the previous weeks performance results
and capability matrix.
The difference in GSCP from the earlier IT tools that LG Electronics
has been using is that it combines design, parts supply,
procurement, production, supply-chain, and cost management into
an integrated process thus allowing the company to know how
much to produce. For that to happen, it is crucial that all the
branch personnel from every department collaborate on the
weekly Sales & Operations Planning (S&OP) to decide on
production and sales plans.
Prior to deploying GSCP, LGE also faced problems in managing
inventory. At a time when it needed to be at 42 days of inventory,
it had 10 to 15 days more of inventory. LGE rolled out 12 Inventory
Optimization solutions thus releasing it from millions of cash flow
thats no longer tied to inventory.
Considering that LGEIL outsources its transportation, the company
often faced simple theft, misrepresentation of inventory,
counterfeiting and piracy. This was restricted by installing
deployed Global Digital Logistics System (GDLS) which aids in
better route optimization, as well as improved loading and
tendering capabilities. Playing on its existing Oracle ERP and
EXEWMS, the transportation solution provides execution
capabilities to its shippers and 3PL partners.

Regional Distribution
Ten years ago, the consumer durables and electronics trade was in
disarray in terms of distribution. Most companies preferred to go
with national distributors, who in turn sent out the goods to
dealers. Dealers did not deal with the company directly. Also,
companies manufacturing several products had created separate
divisions within their company and each division would deal with
the distributor separately. This caused a certain amount of
confusion in the supply-chain. Soon there arose issues and
allegations in terms of margins or the lack of it, product quality,
and reverse logistics. LGEIL (possibly, another first way back in
2003) charted a new course and went to the regional distributors
(RDs) directly, thus doing away with national distributors. The
company thought that only local people would know their own
market. This has worked well for Lg. It also began offering higher
margins to help them scale up their business from LG products.
The expertise of the RDs also helps LGEIL to near correctly send
out the right product batches and manage the reverse logistics
too.
Customer returns are handled by the customer support
department directly, while the returns from dealers are handled by
the supply chain. Transportation used is the same which goes for
the delivery of the products to such dealers. In Maharashtra, the
company has a warehouse in Bhiwandi and goods are moved to
the warehouses of our trade partners. Lg deal directly with dealers
and distributors who in turn supply to sub-dealers.
So how does it distinguish between urban and rural supply-chain?
Actually, it is surprising to know that goods that find their way to
urban places also find their way to rural, though on a smaller scale
because of power outages or lack of electricity.
As is evident at LGEIL, theres much required to do something
simple and keep it that way.

OVERSEAS DISTRIBUTION
LG is an international brand world wide. They have their unique
distribution channel in Pakistan; they market their product through
a domestic renowned company known as BUTTERFLY. LG has given
their license to BUTTERFLY Company to market their product.
LG import their product from KOREA and the product come to the
Karachi port and then it send to the warehouse, from where the
product delivered to the different showroom located in the country.
Lastly the showroom or the direct sales force can sell to the end
user.

SCOPE OF IMPROVEMENT
Improvement in Supply:
Improvement in supply is required as Distribution frequently get stock out
from a particular type of butter which is having more sales. This should not
be a repetitive condition. The company should send exactly that what is
required by the Distributor. Sending some others flavours which are not
demanded can reduce the sales of the popular brand lead to decrease in
transparency between the Distributor and the Retailers as the Distributor is
going to avail the same policy with the retailers as the company is availing
with him. Sending proper supply can strengthen the relation of the company.
Distributor and the Retailers.

Improvement in Packaging:

Packing can be made more attractive by using cartoons to

influence the person. As per the consumer survey, the
packaging of product related the best.

Should adopt
policies:

more

flexible

Replacement

The major reason of dissatisfaction among the other retailers

was replacement policy of expired products. It was also the
reason for many of the closed outlets. The Distributors gets
replacement of 1.4% of total sales by the company. This
percentage can be increased to provide more flexibility to
the Distributor. The Distributer gets replacement from the
company twice in a year. The Distributor should get the
replacement monthly so that he can also replace expire
products of retailers regularly.

Regular Audit of all the Distributors:

A regular audit to all the Distributors should be made by the
company officials to check the condition of all the supply
vehicles so that proper delivery of butter is made to the
retailers. It was observed that some of the supply vehicles of
the Distributor were not working properly and the supply was
made in boxes.

References
www.lg.com/global/sustainability/business-partner/
www.lg.com/in
en.wikipedia.org/wiki/LG_Corporation