MSP Steel

We ran a ‘gold scheme’ for two years. Dealers were rewarded with gold for achieving pre-set targets. They were also given points and gifts for exceeding targets. The downside was that as the program approached the closing date, dealers would buy extra quantities just to fulfil targets. This buying would only inflate inventory at the dealers. Purchases would dip the following month. Sales would not go up. Besides, our competitors offered similar schemes, similar targets for the dealers. We had to introduce a program that would be compelling enough for dealers to devote energy to our brand. That is how we came up with the Bandhan program – there is no closing date, the points don’t expire. Dealers are encouraged to accumulate points for three or four years and trade them for a high-value, aspirational items such as a car. This program has delivered the differentiation we were aspiring for.

Our inability to deliver the full bundle of products that dealers asked for was a persistent source of conflict between the marketing and production teams. We resolved this by achieving OTIF (on-time-in-full). ensuring that we have the entire range available, assuring on-time deliveries. We target to ship the products within 48 hours of order placement. Also, we put in place systems that facilitate frequent interactions with dealers, these systems also encourage dealers to place orders once or twice a week; they can ask for small quantities. This keeps their inventories low, cuts down overall investment in the business. Lower inventory also means that the dealers do not incur heavy losses due to price volatility.

Any win for the dealer is a win for the company. We had to create a win-win so that the dealers are loyal to us, place frequent orders for our products. We help dealers increase ROI by reducing inventory. At the same time, we shield them from stock losses. We strive to maintain 100% availability of SKUs so that dealers never suffer stockouts. In a commodity business, companies can develop a sustainable edge by fine-tuning the service they provide to dealers. Over time, they can earn the respect of dealers. We’ve put our energies into building a partnership with our dealers. We value the loyalty of dealers.

The first challenge was bringing on board dealers, the many teams within the company. The production and marketing teams were especially difficult. To improve the harmony between sales and production teams, we introduced the Vector Flow program offered to us by Vector consulting. This program allowed us to formulate the buffer penetration norms. With these norms, we were able to match production to consumption. In other words, we only had to work towards ensuring availability. So, the tussle between production and marketing teams was eliminated. We also had to work intensely with dealers to wean them off finite schemes which deliver little value yet do a lot of harm to all parties involved. It took a lot of effort and time to change the mind set of dealers.

As we began working with more dealers in every area, the big ones or primary dealers began to anticipate loss of business. The opposite happened. Gradually, their share of business increased despite the increase in number of dealers . Dealers were also sceptical about our ‘delivery within 48 hours’ assurance. The doubts eased over many months as we consistently delivered on the promise.

A speculative buyer is confident that they can time the market well. However, realistically they rarely get it right. They might achieve short term gains, in the long term they don’t make any significant profit. Dealers have to be convinced of this reality. In the last two years, during the lockdown, those that carried high inventory suffered losses while those with minimum stock escaped almost unscathed. In a way, the pandemic was a boon because it helped us drive home the point.

Availability rose from 55-60% to 97-100% for all SKUs. We have successfully addressed the issue of availability which was a chief reason for complaint. Often times, dealers’ orders would be delayed by seven to ten days owing to SKU unavailability or shortage of vehicles. Today, we assure delivery within 48 hours of order placement. Our on-time delivery is close to 98-99%. Our sales have gone up from 800 tons to 1400 tons in our target market – Chhattisgarh. The number of dealers in our network shot up from 50 to 250. We plan to take this to 400 in the coming months.

In terms of structures in a target area, the sales have doubled. We’ve done phenomenally well in terms of volumes and availability. We’re able to attract premium pricing (of about 7-10%) in the market, thanks to our service record. We’re now looking to raise it to 20%.

Yes, all those involved in production and sales have reported significant drop in stress levels. I no longer have to expend time and energy on conflict resolution, on soothing egos. This has released capacity for investing in achieving the goals I’ve mentioned. Everything works like clockwork now.

Once we had this dealer network in place, we began to see it as a ‘pipeline’. We asked, apart from our TMT and structures, what else is a dealer shopping for and where? The answer was rings, binding wire. We started making these products and supplying to the same market. We are now adding pipes to our product line. It will be launched in the next two months, 80% of our dealers would be stocking this product. They are keen to do so because the target customer is the same. We are growing the dealers along with our company and business.