Collaborating better with channel partners- A perspective on Distributor Management Systems (DMS) in Indian CPG industry

Collaborating better with channel partners

A perspective on Distributor Management Systems (DMS) in Indian CPG industry
 

Rajesh Bhambani (Managing Consultant – IBM Global Business Services) - March 2016

 

1.      Abstract

The Indian consumer packaged goods (CPG) industry is faced with an ever increasing pressure to achieve greater agility in serving the market. In order to maintain this competitive edge, organizations have augmented their focus to improve collaboration with channel partners as part of their go-to market strategy. An effective Distributor Management System (DMS) is a critical pre-requisite to meet this objective .Traditionally DMS were meant for distributors to undertake basic transactions like billing and collection. However, the industry has moved towards advanced solutions that enable business with; increased market visibility to drive supply chain efficiencies and greater sales force automation to improve sales execution.

 

Fig 1. Expectations from a modern DMS

 

While upgrading the existing DMS to achieve advanced functionality is a clear direction that is taken by most CPG organizations, whether to move to an online DMS (a centralized architecture) which drives greater business benefits or to retain the exiting offline DMS (a distributed architecture) is a thought with which many organizations are still grappling with. Despite its benefits, the tentativeness to move to an online solution is driven primarily by the apprehension of not having a reliable internet connectivity throughout the country, which can ensure distributor operations to run online without any risk of business disruption.  

This paper endeavors to present a perspective on the various architecture options for a distributor management system (DMS) and associated pros and cons for each of these options.

                                                                                                                                                                                                                     Fig 2. Offline DMS Architecture

2.      DMS architecture options

DMS architecture can be decentralized or distributed which works in offline mode or centralized which works in online mode.

 

1. a. Decentralized architecture (offline DMS): Traditionally, DMS deployment in CPG        industry has been in a decentralized architecture. A decentralized architecture or an offline architecture has three major application components.
   • Central console; hosted centrally and is integrated with other enterprise applications. It is used to create master data specific to the distributor and manage master data received from other systems. It also acts as a conduit for sending transactions like primary sales, goods in transit and credit notes to distributor application & receiving/ assimilating distributor billing, claims and other transaction data
      
   • Distributor application, hosted on each distributors’ local machine (a separate application instance), is used to perform transactions of billing, inventory management, beat planning, salesman management, etc. in an offline mode. The data interchange between distributor application & central console takes place when distributor application goes online (connect to internet) and syncs data. In the process of syncing, distributor application is updated with data like the schemes, primary invoices and master data like product, price, etc. The central console in turn receives the secondary sales data, claims, and other desired transaction data from the distributors. A key limitation of this architecture is the dependence of the principal organization on the distributor to get online to receive secondary sales data and to keep the distributor application updated with schemes, prices, products etc.

• Mobility Application- Hand held device (HHD): The distributor sales force carries the HHD to retail outlet to capture orders, perform collection, record returns and perform other sales and merchandising activities. The data sync between HHD and distributor application is performed typically through a wireless local area network (WLAN) at distributor premises. A key limitation of this architecture is that the salesman has to be physically present at distributor premises in order to sync the HHD data with the distributor application thereby reducing the productive time spent by the salesman in the field.

b. Centralized architecture (online DMS): Unlike the decentralized architecture, in a centralized architecture there is no need for
                              Fig 3: Online DMS Architecture

a local application to be maintained at each distributor point. The central application is a single place for all master data and all transactions are carried out by the distributor online-by logging on to the central console. In this architecture there is one single application hosted centrally, accessed by the distributor and users of the principal organization. The distributor performs order execution and other transactions by connecting to the central application through a URL using any machine from anywhere. Therefore this architecture mandates the distributor to be online to access and transact on DMS and therefore need a reliable internet connectivity at all times. The HHD application syncs directly with the centralized DMS to receive master data, schemes, beat plan, targets etc. and in turn updates the central application with orders, collection and other transactions. The sync between the HHD and the central application is done remotely through mobile internet connectivity. A key limitation to this architecture is need to have a reliable and continuous internet connectivity to carry out distributor operations.

Online Vs. Offline Architecture    

Offline DMS	Online DMS
§  Business operations can continue without being connected to central console, hence: ü  No risk of business disruption due to internet outages. ü  No dependence on internet connectivity for the distributor to carry out core business transactions. ü  No performance issues due to poor/weak internet connectivity	§  Real time and accurate  visibility of distributor stocks and secondary sales §  Improved sales force efficiency:   ü  Salesforce need not visit distributor premises for HHD data sync. ü  Enhanced HHD assistance through real time visibility to inventory, target achievements. §  No issues occurring due to lag in applying schemes, price revisions etc. to the market §  Improved business monitoring through an online beat tracking and payment collection reconciliation. §  Distributor need not maintain local data base and application §  Easy to maintain and quick roll out of business changes.
§  Lesser visibility of in market stock and inventory §  Reduced sales force efficiency. §  Latency in master and transaction between central console and distributor. §  Cumbersome maintenance  and greater time required to rollout business changes	§  Dependence on a continuous and reliable internet connectivity to carry our distributor operations §  Business disruption in case of internet outages. §  Possible application performance issues in case of weak internet bandwidth.

 c. Partially centralized architecture (partially online DMS)    

                       Figure 4: Partially Centralized Architecture

A partially centralised architecture have a three tier architecture like an offline DMS. The distributor application in an offline application which syncs with the central console when connected through internet. However unlike the offline mode in this case, the HHD syncs with the central console directly over the air (remotely) like in an online system. There is no data sync between the HHD and the distributor application directly. This means that the distributor has to necessarily sync. once a day to get the sales orders (in order to perform billing) from the central console to the distributor application to perform the billing for the day, and hence in the process it sends and receives all other data to keep both systems updated. After the one time data sync the distributor continues to perform billing and other transactions locally in the offline distributor application- without being on-line.

A partially centralised architecture is a smarter way of achieving many a benefits of an online system without needing a continuous and reliable internet connectivity. Although this architecture compel the distributor to sync data at least once a day, however it reduces the risk of business disruption as business transactions can be undertaken offline.

 

3.      Conclusion

Although the benefits of a completely online system are clearly recognised, the apprehension of not having a reliable internet connectivity across the nation, have left the organisations grappling with the decision of whether to go for a completely online DMS or to retain the existing offline solution.

A few CPG organisations however, have already acted as first movers and have successfully deployed a completely online DMS and have been able to reap its benefits to gain a competitive advantage in the marketplace. Yet, there is another set of organisations who are upgrading to advanced functionality but are choosing to retain offline architecture as they do not want to take any chance that may potentially lead to a business disruption.

There are also thoughts around an architecture, which can be termed as a hybrid DMS solution. This means to have a DMS solution in which, for the same organisation, a set distributor work in an online mode (locations where a reliable internet connectivity can be ensured) and the rest of the distributors can continue work in an offline. This kind of an arrangement besides being technically too complex to achieve and maintain, the fact that there is a choice provided to a set of distributors to remain offline defeats the very purpose of having an online solution.

While the debate of an on-line vs. an offline DMS continues, the future trend is clearly pointing towards moving to a completely on-line (centralized) architecture. This is also supported by the fact that the internet penetration in remote locations of India is rapidly increasing. Further, smart application designs make them light enough to be performing well even on low bandwidth internet connections (like a 2G /3G data card) thus reducing the need to necessarily have a high speed broadband connectivity. Keeping these factors into consideration it is evident that the deterrents for moving on to an online system are fast diminishing.  As a way forward organizations should look at means/alternatives to manage operations for locations where reliable internet connectivity could be a challenge, rather than choosing to keep the entire distributor function offline.