Alloy rods corporation case study

Important facts of the case: (Supporting to the recommendations made) Welding Industry Welding equipment and supplies was a $1.6 billion industry in the United States. In welding supplies and equipment industry, over 70% of sales were made through distributors. Product quality, creation of demand, communication with the factory and price are some of the important purchasing criteria. In large companies, electrode brand, product quality, line breadth, and delivery/availabity are some of the important criteria for choice of electrodes. On a typical welding job, 2% to 5% of the total cost was power and equipment, 8% to 15% electrodes, and the remaining 80% to 85% labor and overhead.

Three types of welding processes are -

Shielded metal arc weldingi Gas metal arc weldingi Flux-cored arc welding-Gas shielded and self- shielded.i Welding electrodes end users ranged from one person mechanical contracting shops to major steel fabricators who used millions of pounds of electrodes annually. Alloy Rods The primary business purpose of Alloy Rods is to develop, manufacture, and market high quality, high-technology welding filler metal products on a worldwide basis, with emphasis on sales by Distributor and wholesaler channels. Leader in product quality, technical qualities and product innovativeness. In 1985, Alloy was the only major company in the industry to manufacture only welding electrodes. Alloy Rods prices were generally higher than those of its competitors in part because Alloy charged for freight while competitors absorbed freight expenses. Most of Alloys promotions were geared toward distributors as major sales of Alloy are through them. 75% sales through independent welding supply distributors- 13% directly to them, 41% through independent wholesalers, and 21% through company wholesalers. Alloy Rods managers estimated that their top 50 distributors accounted for 805 of the

companys sales to distributors. Of distributors 20 also sold products manufactured by Lincoln. 13% of sales were made direct to end users. Remainder is made to export, private-label, and government markets. The companys field sales force called on both distributors and end-users. Alloy Rods employed 21 field sales people responsible for distributors relations, direct accounts, and account development. Lincoln Electric Company Worlds largest manufacturer of welding electrodes and equipment. 60% of sales were made direct to end user. More --than 200 salespeople. Size and aggressiveness make distributors feel they must carry the Lincoln electrode line. Also they have name recognition and a good reputation in welding equipment. Lincolns new gas-shielded flux-cored electrode line Outer shield would compete directly with Alloy Rods Dual shield product line. Product have wide range of diameters available and priced 25% below Alloys Dual Shield
Major Issues

Should Alloy Rods attempt to take a larger proportion of its business direct, if so, how could this be accomplished with minimal disruption of its existing distributor relation? How could Alloy Rods motivate its distributors to do account development work? How to revaluate its marketing program in response to Lincolns new gas-shielded product. Whether to continue producing its line of low margin, low value-added products like mild steel solid wire and other electrodes or provide distributors full line of electrodes. Product analysis: - If we analyze purchase process and product characteristics for a customer it can fall under any of the four categories. Product related purchasing process:RISK High

Bottle neck Strategic product (Gas shielded electrode)

Low High COST Routine product Leverage product

Low

Based on the above matrix we can say that Gas shield electrode is a bottleneck product which involves medium risk and low cost for customer. For such product customer seeks reliable product in terms of quality and standards. If we analyze Gas shield product; selling approach requires certain things as given below:Numerous specification and procedures Training of welders Operating skills of customer To achieve these things customer need high level of consultation. It can be achieved through direct sales force. Distribution channel analysis:Analysis of current distribution channel and direct sales agent:Total sales:- $ 65 million Direct sales Retailers Contribution by channels 15% 85% No. of channel partners 21 2200 Revenue generated $ 9.75 million $ 55.25 million Productivity per channel member $ 0.46 million $ 0.0025 million

Cost $ 37,000 per annum ---If we see the above table we can say that the productivity of sales person is much higher than the distribution channel members. Other issues associated with distributors are:1. Order taker: they are just order takers. They have not been able to generate any new account their own. 2. Poor loyalty: they have little switching cost. They have loyalty towards current inventory only after that they can switch to other suppliers. 3. Poor customer training: The product requires high customer training, and alloy Rods Corporation have been rated poor on these parameter since distributors were not able to provide training to the customer. 4. Long sales cycle: - the sale cycle is generally range from 6-18 months; so in most of the cases distributor lose focus. So there by they sell to mechanical contractors who are mainly retail customer. Exhibit 6:After analyzing the exhibit 6 we can say that Alloy Rods corp. has been rated high on the parameter associated company directly; e.g. product quality, technical capability, product innovation. But on other parameters like quality of sales representation, communication with factory and deliveries & availabilities Alloy Rods corp. has been rated poor compare to others. These factors are directly associated with distributors. It clearly represents that product is good but company is not able to leverage the same through channel partners. Exhibit 9:From this exhibit we can see that there is decline in the sale by Welding supplier in year 1980. They account for 46% of sales but it declines to the level of 12.8% in year 1984. The sale through independent and company owned wholesaler shown an increasing trend and they are having more than 10% growth rate.

Recommendations:Alloy should use Direct sales force for large accounts, companies and major steel fabricators Distributors for Mechanical contractors and small companies. There by we recommend that Alloy need to take larger proportion of its business direct with minimal disruption to existing distributor relation. Direct sales force will be able to build brand, give customize service and locking in customers. For this we recommend Alloy needs to increase its direct sales force. Alloy should continue with distributors salespeople with training and target technically oriented promotions at them. Distributors should be encouraged and given incentives to invest time and resources in this area. Distributors should be pushed to do account development work as they are paid higher margins by Alloys compared to other competitors. For this Alloy can also go for exclusive distribution agreements.