CHANNEL INFORMATION SYSTEM

Definition of Channel Information (CIS) read as follows:

 The orderly flow of pertinent operational data
 Both internally and between channel members,
 For use as the basic for decision making in specified responsibility areas of channel
management.
The information system, therefore, uses methods and resources to collect, process and use the pertinent
information for decision making relating to the channel.

The process involves 4 steps:

COLLECTION PROCESSING STORAGE USES

FIGURE 14.1 Stages in Channel Information System

Why an Information System?

The information should be through a system for the obvious reason with the huge quantity of data
available, if it is not system it will be almost impossible to handle.
 The system is what makes raw data into usable information.
 In system, the information can be used many times for different purposes.
 A system not only process data, but stores it in easily retrievable formats.
The system, if in place, helps collection, processing, storing and retrieval of information possible.
Developing a Channel Information System- Channel MIS
Steps to develop a channel information system.

Decide what information is required

Organize information in a manner sustainable for interpretation

& action

Decide who will use the information when & for what purpose

FIGURE 14.2 Development of CIS

The sources of the data could be report (oral and written) and records of channel members and
sales people, letter, statement, market research and any information collected by the sales and channel
people from the market.
The salespeople who use most of the data from the channel system will, by experience, be able
to narrow down the collection to the right kind and quantity of data.
In any company with dedicated channel system, the collection of data, the format, the frequency
and the analysis are all streamlined and transparent to all the channel partners. With majority of
companies using information technology method to process data into actionable information, the process
has become simpler.

Purpose of Information System

Obviously the purpose is to provide timely information for decision making. The objectives get
modified based on the type of use the data, the level at which it is used and the impact of data on the
channel system.
Operational data is used for planning of the channel and evaluation of the performance. It is
further experience as under:
  Operational planning is forward looking and includes the forecasting and providing the resources
support to achieve the forecast.
 Evaluation is backward looking to review the result achieved.
The level of use relates to who in the sales and marketing channel organization is looking at the data
for taking action. The salesman who manages the distributors can look at the data and take limited action.
The area manager, in charge of. A number of a such salesmen, is able to act in a lot more ways with the
data as he has the authority to do so.
The impact of the use relates to whether the data helps take decision for the short term (next month
planning) or the longer term (launch of a new product). The channel leader has more use for the
information than the channel members. Independent channel members like wholesalers and retailer
collect limited data suitable for their use and hence their information system are simple and adequate for
their use only.

Volume and Value Information

In any system relating to channels, the data is always collected in two streams-one is in units (like
kilogram, liters, boxes, cases) and the other is in currency terms (Rupees, dollars, yen). Both volume and
value data are equally relevant.
Channel information starts as raw data, which on proper analysis becomes usable information.
Only when the information is in an actionable form can it be part of the decision support system.
If the data has to be analyzed into actionable information, it has to have a purpose defined first.
There should be a source for the data after proper analysis and interpretation. It should be used to take
action for improving the channel performance.

A Good CIS
Like any good MIS, even the channel information system should have some basic characteristics. A good
channel CIS will:
 Be an integrated system to handle all regular data,
 Be a useful decision support system,
 Reflect the style of the marketing organization,
 Have to be user friendly and user oriented,
 Be convincing to the providers of the information as to why they should keep providing the
accurate information in time,
 Be cost effective,
 Not need verification from other sources, and
 Be fast and totally reliable.
Element of Channel Information System
Discuss the various element of channel information system and for each of these element , try
and understand the purpose, source of data, action possible and the impact on service delivery. First, a
list of the elements of information that will interest sales managers dealing with marketing channels:
Market information-Is vital for sales managers across industries, including industrial products, FMCG,
pharmaceuticals, and automobiles. It must be regularly updated and accurate. This data encompasses
market potential, key players, competition activities, channel players' actions, and related products.
Distributors need daily review, while sales managers may require weekly updates, with more frequent
checks during significant events like product launches. Keeping abreast of market dynamics aids strategic
decision-making and competitive advantage
.
Distributor Profile and Database-The distributor profile and database compilation, discussed in Chapter
11, is a crucial exercise for sales management. It is a one-time effort but requires annual updates. The
profile includes comprehensive details such as distributor name, address, partners, years in business,
relationship duration with the company, contact person, financial standing, banking details, market
reputation, property holdings, investments, sales performance, covered markets, serviced outlets, and
infrastructure.
Competition tracking -Is a critical aspect of market information, especially for mass consumer products
like FMCG and pharmaceuticals. It involves closely monitoring competitors' activities, which often
influence operational strategies. Key information includes current product pricing, trade and consumer
promotions, market coverage effectiveness, new product launches, distribution changes, and special
events. This data is collected and analyzed almost daily, primarily through oral communication
supplemented by periodic reports. Keeping abreast of competitive dynamics informs strategic decision-
making and ensures responsiveness to market shifts.
 Primary sales -Represent the company's sales to distributors and are easily compiled by capturing all
dispatches from company warehouses or C&FA. With a computerized setup, this data can be recorded
daily. The information is readily available and includes details such as product, brand, and pack,
presented in both units and rupees (net of any deductions). This data provides a clear snapshot of
distribution performance and revenue generation.
Secondary sales-Represent the actual consumer off-take and are crucial for assessing market shares. This
involves sales made by distributors to their customers, including wholesalers, retailers, and institutions in
their respective territories. Secondary sales can be compiled by either maintaining and daily updating
retailer cards or through deduction at the end of a period using the formula: opening stocks + stock
receipts during the period - closing stocks at the end of the period.
Retailer cards-Particularly relevant for FMCG and pharmaceutical businesses with extensive daily outlet
coverage. They contain vital information about outlets, including the name, address, and contact person,
along with buying records by pack size, stock levels during visits, competitor purchase values, and visit-
specific purchase values. Cumulative sales in units and values by pack size over a month or quarter help
gauge outlet importance relative to others
.
Pricing trends- As a routine for most consumer products, pharmaceuticals, engineering goods,
automobile spares, salespeople and dealers/distributors/agents are required to collect competitors' price
information. These are used for any immediate corrections required or to track the pricing trends. The
data collection becomes serious and on a daily basis if one is dealing with highly priced volatile products
like edible oils, cotton yarn or precious metals. The prices to be collected are normally the company price
to dealer/distributor, and the price to wholesale/retail.

Promotions history- Is a record of trade and consumer promotions conducted by companies to boost
stock pressure, encourage trials, and drive increased sales at the retail level. Trade promotions, more
frequent than consumer promotions, aim to limit competitors' stocking opportunities. Information on
promotions includes details such as the product/pack-size, set objectives, actual sales achieved, promotion
costs, and competitor reactions.
Promotion Evaluation-Consumer promotions are designed by people from marketing (like product
managers) in consultation with sales people and operated by salespeople. Trade promotions are designed
and implemented by salespeople. Companies evaluate the success of their promotion based on the sales
volume and the associated costs. They check the increase in sales against a baseline and calculate
additional profit compared to what the profit would have been, had the sales promotion not taken place.

Secondary Freight-The secondary freight is the transport cost for sending the finished goods from the
company depots or C&F As to the distributors. As the distributor orders are managed by the salespeople,
they should also keep track of how much it is costing to arrange stocks at the distribution points.
Secondary freight works against a strict financial budget and does not give flexibility in sending less than
vehicle loads or sending special loads outside regular dispatch schedules.

Inventory Control -Inventory forms the biggest component of the working capital and has to be
effectively used to maximize sales (both primary and secondary). Most of the inventory in the field
(depots, C&FAs, distributors, dealers, wholesalers and retailers) is the direct responsibility of the
salespeople. Common finished goods stock norms in number of days’ sales at different stock point
indicated below:
 Factory or plant :7 days
 Depot or C&FA in same states as the plants: 14 days
 Distributor or dealer or stockiest: 14 days (assuming weekly deliveries)
 Wholesaler or retailer: 10 days (assuming weekly deliveries)
Orders/indents from Channel Partners- It is necessary for the C&FA or depot to keep documented
proof of all orders/indents received from distributors/dealers/stockists. Even when the orders are received
by phone, they need to be entered into the system. This is necessary as:(a).The channel partner cannot
later on say that he did not order some item,
(b).services level can be tracked by comparing the dispatch made against the order, and
(c).the distributor can be advised if an item is not available and if other item can be sent instead (such
substitutions can be tracked later if necessary to work out lost of sales opportunities).

Distribution Costs-Performance of the sales function is also judge by the distribution cost of the
marketing channel used by the salespeople to achieve sales result. Distribution cost includes the following
elements:
  The cost of operation of company-owned depots or a C&FA. This includes the cost of secondary
freight (depot/C&FA) to distributors, storage cost (warehousing) and the administrative costs.
 The margin paid to the distributors-if this is a mark-up, it does not reflect in cash outflow, but has
still got to be tracked as it adds to the consumer price. The distributor has to meet all his
operating expenses out of this margin.
 Any subsidies given to the distributors for covering difficult territories or rural areas.
 Cost of any credit extended to the channel partners of credit extended to any institutions.
 Cost of all damages, shortages and losses in the channel.
Distributor Return on Investment (ROI)-This is a critical parameter to be measured to keep
distributors motivated to work effectively for a company. Depending on the industry and the products the
company can assure a certain ROI to the distributors on its business.

Statutory Information and Reporting -There is a lot of data and records to be maintained in the
depot/C&FA and the distributor point to meet legal and statutory requirements. These can be inspected at
any time by the government authorities like sales tax/VAT officials, Shops and Establishment Act,
Prevention of Food Adulteration Act and so on.

Distributor Payments Record-Company appointed distributors or stockists or dealers normally pay for
the goods bought by them from the company by demand drafts or pre-signed blank cheques. It is
necessary to keep complete and updated information on the payments received against each invoice billed
on them.
Storage and Processing of Information
Most of the operational data and information listed above is enormous and is not possible to collect and
process it manually. It is obvious that information processing today, even relating to the channel system,
has to be information technology (IT) enabled. The IT system to support channel information systems
could be:
 An IT system developed and maintained by the company.
 There are a number of software companies who can develop simple IT systems which are
customized for the collection of data and processing/analyzing it.
 It could be an off-the-shelf decision support system.
 Most of the ERPs, in their sales and distribution (S&D) modules support channel information
systems.

CHANNEL PERFORMANCE EVALUATION

Expert opinion says that the purpose of distribution is to get company products within arm reach of
desire. Any channel evaluation system has to keep this in mind and find out how well the distribution
channel is serving this primary purpose.The frequency of channel member evaluation is based on a
number of factors like:
 The degree of control the manufacturer has on the channel members.
 The importance of the channel member to the performance of the company itself.
 The nature of the product is also important in the evaluation frequency decision.
 The number of channel members.
 The category of the channel member.
 The agreement or contract in operation with the channel partner.

Channel Performance Evaluation Criteria
Channel members distribute products, evaluated based on sales targets, coverage, merchandising, and
promotional activities. Contract members receive formal evaluations, with monthly sales cycles for
performance and corrective action.

Criteria for Evaluation

The criteria for evaluation of the channel members varies with their categories. Channel members to be
evaluated are the company depot or C&FA, the distribution/ dealer/stockists and the wholesalers and
retailers.
Most common of the channel members, namely the distributor, the criteria for evaluation of performance
could be some of the following explained Table 14.1.

Criteria for evaluation Popular Performance Measure

Sales target achievement  Primary sales
 Secondary sales (for FMCG)
 Achievement of sales target
 Sales growth by period
Market share achieved
Inventory management Average level I of inventory maintained
Inventory turnover (inventory to sales
ratio)
 Inventory of slow moving packs
 Storage quality
 Number of salespeople
 Target achievement by each salesperson
Selling resources
Market coverage  Calls per day Productive calls per day
 Extension of credit
 Support to new product launches
 Support to promotions
Back office support  Use of PCs
 Trained manpower
 Reports, records
Table 14.1 Criteria for Information

Each of the primary criteria can be given a weightage and the performance scores can be calculated as
follows. However, this is the simplest way of evaluation followed by many companies.

Criteria Weightage(%)- (X) Criteria Score-1 to 10 Wtd Score (X)' (Y)

(Y)
Sales target 50 7 3.50
achievement 15 8 1.20
Inventory management 15 7 105
Selling resources 10 8 0.80
Market coverage Back 10 6 0.60
office support Overall performance 7.15
rating
Table 14.2 calculation of Performance Scores

As similar rating can be given for each of the individual criterion( performance parameters).

Criteria Weightage (S)-(X) Criteria Score-1 to 10 Wid Score (X)'(Y)

(Y)
Primary sales 15 8 1.20
Secondary sales 50 7 3.50
Achievement of 20 7 1.40
secondary sales target
Sales growth by period 10 8 0.80
Market share achieved
Sales target 5 6 0.30
achievement
100 Performance rating 7.20

Table 14.3 Performance Rating Criteria

Once the overall performance rating has been arrived at for each of the channel member being evaluated,
we could then rank the channel members by these numbers to measure their relative performance to
identify the good performance to identify the good performance and the laggards.

Channel Member Overall Performance Score Ranking

A 7.39 1
B 7.20 2
C 7.15 3
D 6.89 4
E 6.56 5
F 5.60 6
 Table 14.4 Overall Performance Score

Checklist for field force visiting a distributor

A checklist indicating if the distributor or his salespeople are doing the following:
 The distributor has to open his office at least 30 minutes before the market opens up.
 The distributor or his sales/back-office people check the stocks available for the day's market
work.
 All damaged and unsaleable stocks are segregated and accounted for.
 They plan the sales for the day.
 All records are to be updated before starting the day's work.
 Understand the promotion for the day properly and plan to maximize sales on the promotion
products/brands/packs.
 Special emphasis is required on the recently launched product/brand/pack.
 Ensure that FIFO is followed on all the stocks.
 The distributor or his salespeople should strictly follow the beat plan given by the company both
for markets to be covered and the outlets to be called upon.
 All trade and consumer promotions should be conveyed properly to the trade customers and
utilized properly.
 Status on filling up Retailer Cards.
 Check the point-of-purchase materials available and take them into the market regularly for use in
the outlets they are meant for.
Checklist while visiting a wholesaler or retailer
 Stock level of the company products in the outlet.
 Stock level of competitors products in the outlet.
 How much of the stock is on display shelves and how much is in the back store?
 The total potential of the outlet on business would be evident from its size, space, the variety,
assortment and quantity of stocks of all products in the shop.
 Quality of displays and effective use of point-of-purchase materials.
 If a company has managed to get a good shelf space display and POP use, this can be emulated.
 The importance given by the outlet to newly launched products.
 The distributor or his salesman has to first sell the slow moving and normal stocks to the retailer
before mentioning any brands/packs with promotions on them.
 The distributor or his salesman should not leave an outlet without selling something.
 Action to be taken on disposal of damaged stock.

Channel Implementation Is more relevant when the channel principal has a channel which is bound by
agreements and contracts and all the channel partners are part of the channel system.

Intensive Distribution It aims to make a company’s product available to customers in as many places as
possible.
Selective Distribution It’s where business selects certain retailers or distributors to sell their products.

Most of the Channel implementation steps are decided at the time of the channel design itself. In the
actual implementation, the intensity gets all the focus. Intensity of the distribution is not written on stone.
Companies can use it as appropriate.