Tushar Enterprises – Consolidating Distribution Systems

Tushar Enterprises is one of the biggest and oldest business houses in the country involved in manufac­turing and trading of pharmaceuticals, consumer durables, FMCG and industrial products. The prod­ucts handled by the company are either commanding number one or two positions in the respective industry sectors. Tushar Enterprises, a proprietary concern, started its activities in 1957 as a trading company dealing in pharmaceutical products then manufactured by leading foreign companies. The company initially focused on the government and big private hospitals for the speciality drugs used in the treatment of TB, cancer and diseases related to the heart and brain systems, since these drugs were not manufactured in India at that time. Initially, the company owned a small office in Mumbai and started the business operations with a staff of five people. The owner, Shashank, employed two sales­men and two office staff to assist him in his business operations. In the beginning, they focused their activities in the Central Province (consisting of Maharashtra, Gujarat and part of MP). With consistent hard work, Tushar Enterprises could achieve sales of Rs 20,000 in the first year of its operation. This was a great achievement for Shashank who started the business with a capital of only Rs 5000.

After trading in pharmaceutical products for the next 10 years and reaching the sales figure of Rs 15,00,000 in 1967, Shashank ventured into the trading of consumer durables such as fans (table, pedestal and ceiling) looking at the large potential market for them in the near future. By this time the staff strength of the company had grown to 40. Tushar could successfully manage the exclusive dealer­ship of the fan to market the product in the state of Maharashtra. In 1970 the owner of the fan manu­facturing company wanted to sell his fan units due to family problems. Shashank had the foresight to see this as a great opportunity to enter the manufacturing sector. With the excellent relations he had developed with the fan manufacturer as a star dealer, Shashank could clinch the purchase deal on deferred payment terms for five years and a partnership of 10 % for the owner in the business. From 30,000 fans in 1967, the manufacturing capacity had now grown to 0.25 million fans per year in the year 1980, achieving a turnover of INR 150 million. In the year 1981 Tushar went public and got registered on the Mumbai Stock Exchange. In 2001, Tushar had three fan units in Mumbai, Nashik and Panjim (Goa) manufacturing 1 million fans annually and a sales figure of INR 1000 million. The marketing and distribution network now consists of four regional warehouses, 1200 dealers, 12 C&F agents, four regional offices and 12 branch offices.

Like the fan division, the pharma division has also grown from a sales figure of Rs 20,000 in 1957 to INR 2500 million in sales for 2001. The company acquired four pharma units (Mumbai, Pune, Indore and Noida) during the period from 1984 to 1990. The pharma products are mar­keted and distributed through a network of four regional warehouses, 16 C&F Agents, 75 stockists and more than 5500 retail outlets (pharma shops). The marketing set-up consists of four regional offices and 10 branch offices (resident executives).

During its business acquisition spree Tushar ventured into the FMCG sector and purchased outright three sick units located in Gujarat, AP and MP in 1992, 1993 and 1995 respectively. The product portfolio of the soap and detergent division consists of five national brands in soap and  two brands in detergent, mostly serving the low-end of the market. The logistics infrastructure of this division was a part of the purchase deal of the units. The products are distributed through five big capacity warehouses (depots) located at Ahmedabad, Mumbai, Delhi, Bangalore and Kolkata. The products are marketed through 22 C&F agents, 80 distributors, 300 sub-stockists and the retail shops (over 10,000). They have four regional offices and 25 branch offices for the sales administra­tion. This division has achieved sales of INR 4000 million in 2001.

The manufacturing, marketing and distribution activities of all three divisions are handled sep­arately. Even the regional offices are located in different buildings in the same city. Each division is headed by a CEO reporting to the Chairman (Shashank, in this case, who, incidentally, celebrated his 75th birthday on 26 January 2001).

After the liberalization of the Indian economy in 1991, the Tushar group started experiencing the pressure of competition. Their customer base has widened with the varied customer service requirements over the years. The group observed that during the last five years the sales growth had come down and they were losing their market share. The external agency that conducted the study for the top management came out with certain facts and suggestions. The main area of concern was the distribution, as it directly affected customer satisfaction. Many retail chains and large distribu­tors and C&F agents had complained about the delays in delivery. The major observations of the agency were:

• At all levels in the company, employee orientation was towards production. It should rather be towards marketing in today’s competitive and dynamic market scenario
• The cost of product distribution is the highest in the industry

In the total outbound logistics cost the ratio of transportation, warehousing and administrative cost respectively was 60:25:15 for the phrama division, 57:30:13 for the fan division and 63:20:17 for the soaps division. On an average warehouse space utilization factor varies from 77-80 per cent. But for the fan division this factor jumps to 95 per cent during the peak season and drops to 65-68 per cent during the slack season.

• There is duplication of logistics operations for products in the different divisions, with each division having its own manufacturing plants and regional warehouses for distributing the products across the country.

• In more than 20 per cent of the trips to regional warehouses or to C&F agents, the material dispatched is less than a truckload, resulting in higher transportation costs.

• On-time delivery performance for 78 per cent of shipments—a result of slow information flow and inadequate connectivity across the system, resulting into a longer order-processing cycle.

• Transit damages 1.5-2.0 per cent due to improper logistical packaging and inadequate material-handling equipment. The industry average is less than 1 per cent.

• The finished goods inventory, with all the divisions, is above the best-managed company in the respective industry and has much scope for reduction to improve the bottom line.

• For improving the quality of the logistics service, the consultant suggested improvement in the coordination between different logistics operations. The firm needs to set up a faster commu­nication and information-processing system. The connectivity across the logistics chain, which includes the factory, regional warehouse, C&F agents, distributors and other channel partners, needs improvements. The firm should first decide its customer service-level goals prior to mak­ing any investment-related decision about the system. To revamp the current system, the alter­natives need to be thoroughly studied with regard to their implications for costs and benefits.

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