Aditya Digital TV – Deciding on Warehouse Locations

Due to liberalization of the Indian economy, the TV industry in India is facing two problems: overcapacity among the local manufacturers and the killing competition on the marketing front. Apart from the national brands of the Indian manufacturers, there are the foreign brands that command a considerable market share, which is worrying the local players such as Aditya Digital TV Ltd. (ADTV)—a company that started manufacturing B&W TV sets way back in 1983 and had a strong hold on the state of Maharashtra. ADTV was enjoying a leading position during the first five years of its operations, as the competition in the market was not so severe. In 1988 the com­pany started manufacturing colour TV sets in 14-, 21- and 27-inch screen sizes at their existing factory in Panvel. However, today 80 per cent of their production is in the 21-inch screen size. The company began to face competition in urban markets from both national and international brands. Although ADTV had 12 per cent of the market share up to 1992, they witnessed a drop in their market share in 1993 by 2 points and a further 2 per cent by 1994. In spite of ADTV recording a growth in sales volumes, it could not do much to maintain its market share. The company further witnessed saturation in urban markets and severe competition for their brand in the urban market.

In view of the prevailing situation, in 1994 ADTV had taken the decision to move to the semi­urban and rural markets in Maharashtra, which other local brands were trying to reach.

As a sequel to their decision, they opened two more regional offices in Nagpur and Kolhapur, besides their offices at Mumbai and Pune (see Table 24.13.1 for division of territory).

ADTV is currently supplying the materials to regional warehouse hubs from their mother ware­house located at Kalambori (near Panvel) in Navi Mumbai. The finished products (TV sets) from the Panvel factory and from manufacturing associates (outsourced) are brought to Kalambori ware­house for further distribution in the state of Maharashtra. The production capacity of ADTV is sufficient to take care of the demand for their products in the next 3-4 years, which is growing at a rate of 5-6 per cent per year. Before branch offices were opened at Nagpur and Kolhapur, the material was supplied to the Nagpur dealer from the Mumbai warehouse and to the Kolhapur dealer from the Pune depot for further distribution in the regions. With the limited infrastructure and financial resources, the dealers could not penetrate deep into rural markets and tap the potential. In order to develop rural markets, ADTV had divided the territory in four regions, viz. Mumbai, Pune, Kolhapur and Nagpur, and expanded the dealer network to 36 dealers to have at least one dealer at each of the district locations. The main dealer at the district town had sub-dealers under him at taluka places.

ADTV had no direct dealings with sub-dealers. ADTV now has regional warehouse hubs at Pune, Nagpur and Kolhapur, supervised and controlled by the respective regional offices. The average monthly demand for TV sets in these districts is as follows:

The primary transportation from Mumbai to the regional hubs along with local octroi charges was taken care of by the ADTV central hub at Mumbai. The Mumbai mother warehouse was also operating as regional hub for Mumbai region. However, the secondary transportation charges from hubs to dealers were taken care of by the regional hubs. The local octroi charges were to be paid by dealers for the material shifted from the warehouse to the shop within the municipal limits of the respective town. Invariably, all the dealers had their warehouses located outside the municipal city limits, except at places like Raigarh, Ahmednagar, Satara and Wardha. The octroi charges at Mumbai are 5 per cent and at other places in Maharashtra 2.5 per cent of the MRP, which is Rs 14,500 for a 21-inch TV. Dispatches from the regional hubs to the respective dealers in the district were made on a weekly basis and the dispatch pattern observed was:

The regional hubs had to dispatch the material to multiple dealers spread over different dis­tricts in the region in the same vehicle, thus necessitating multiple stoppages and deliveries. The dealers in Raigarh, Ahmednagar, Sangali and Wardha do not have their warehouses outside the municipal octroi limits of their respective towns. So, the truck had to enter the municipal limits of these towns in order to drop a few TV sets at the dealers’ warehouses, thus obligating ADTV to pay the octroi on the entire consignment load carried by the vehicle, irrespective of the fact that the rest of the consignments were meant for dealers in other districts. The octroi paid is refund­able, but the refund may take six months or more and involves too many hassles. ADTV had the option of opening a satellite warehouse located outside the city octroi limits at each of the above towns. The operating charges of such a warehouse (on rental basis) will be approximately Rs 15,000 per month, including the salary of ADTV staff and contract labour. The additional trans­portation charges from the proposed warehouses (at four places) to the dealers’ places at Raigarh, Ahmednagar, Sangli and Wardha were estimated at Rs 20 per TV set. The regional hubs found that the secondary transportation charges increase and vary from month to month, depending on the vehicle route they choose. On an average, they pay Rs 16-19 per kilometre on secondary transportation.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.