GINO
Problem Definition
GINO has been facing problems with its distributors over the past several months. Zhou, the manager of Beijing sensed that the distributor’s attitude towards GINO has been aggravating making it a hostage of the distributors. However, Zhou was cautious about driving them away as this may result to major loses in revenue. Its competitors are also likely to take advantage of the situation. On the other hand, if Zhou kept silent, things may become even worse. The company has also no ideal candidates or replacements for the current distributors.
The situation was made more complicated by proposal to buy directly from GINO rather than the distributor. is an existing customer of one of the distributors and it adamantly opposed the idea. However, Zhou viewed the possible arrangement with as an opportunity to develop OEM business and combat the increasing bargaining power of the distributors. Zhou needs to decide whether or not he would accept the proposal and run the risk of losing one of its distributors.
Analysis of key facts
The distribution of burners involves the delivery from the manufacturer to the distributor’s warehouse. After which the distributor has three options: selling to the second-tier value-added dealers, selling to OEM customers (such as boiler factories or car painting booth makers where the burners are core components of their products) or selling them directly to the end users. OEMs and customers often tired to bypass the distributors by trying to directly from the producer. In such case, burner manufacturers refrained from giving quotations on direct sales and instead refer them to the distributors.
Zhou asserted the sensitivity of the distributors to any indications of the manufacturer selling directly to the OEM customers. They know that manufacturers want to gain more control over their customers and do not fully trust their distributors. However, manufacturers must be cautious of losing their distributors as this may lead to the failure to achieve its annual sales targets. Another major concern of selling to the OEMs is the service and spare parts. Pricing is also a critical issue in directly selling to the OEMs. The price must be higher than those charged to the distributors. The appropriate criteria for pricing decision are a key issue.
During the recent months, GINO has experienced changes in the distributors’ behavior. Zhou has been facing the problem more frequently. Distributors began to demand for better prices and lower quotas and more marketing support. Aside form this, there have also been complaints from the distributors about poaching of sales from them. Opportunities are also missed due to the difficulties of the distributors to forecast demand. This is caused by the reluctance to keep inventories.
The proposal of to buy directly from GINO was seen to be a prospect to develop OEM business. However, it is conflicted with the existing arrangements with is one of the leading broiler factories in China which is typical of the twenty largest OEMs in China. In 1999, the factory bought 350 sets of domestic burners, 50 sets of commercial burners and 3 sets of industrial burners from. The rest are purchased from Gino’s competitors. At present, allowed of an average 25 percent discount off the public list price. has been placing much emphasis on and even designated a sales engineer specifically for this account. The primary purpose of for asking GINO was to obtain better prices. It wants to get a 10 percent greater discount form GINO. In return, it promised to purchase 50 percent of its commercial and industrial burners and all its domestic burners from GINO.
Alternative Solutions
The manager’s decision may include any of the following
Accept OEM business to take advantage of its potential opportunities
Decline accept OEM business and encourage the continuation of its relationship with
Analysis of Alternative Solutions
In this case, there appears to be no win-win solution. Any decision that will be made is likely to be a lost to the parties. If Zhou decided to accept OEM business, it is likely to lose one of its distributors. Even though he believed that would not leave GINO, he knew Gong will live up to his word. is the distributor in Beijing and losing it will decrease the sales target tremendously. Aside form this, there might be a negative response from the other two distributors. This may cause them to leave the company as well leaving GINO with no distributors.
On the other hand, if Zhou decided to decline OEM business, it will definitely lose the opportunity to create an OEM business in China. Declining the opportunity will also encourage the distributors to seek for more bargaining powers that are unfavorable to the company.
Recommended Solution
The most viable option for GINO at this time is to uphold the existing terms with the distributors. That is, it must not intervene into any existing arrangement between the distributors and its customers. While the acceptance of OEM business is a potential for future growth, its adverse effects are far greater. The breach of previous arrangements may aggravate the situation given the hostilities between them. Instead, GINO can renew the contract with the distributors and review the dysfunctional areas. The terms of agreement can be revised based on the needs of both parties.
Implementation
With the decision to decline OEM business, GINO will continue to operate as it used to. However, continuous consultation with the distributors must be carried out to implement the appropriate changes in their agreement. The demands of the distributors will also need a careful review from the management to assess whether or not they are reasonable.
Credit:ivythesis.typepad.com
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