Case Study Sales and Distribution

5. Sales and Distribution

5.1 Organization

5.1.1 Sales Organization

Business in the Philippines is divided into two sales organizations, one for the ABC Motors International and one for AMI Marketing. Each sales organization is responsible for negotiation and fixing of conditions and characteristics of business transactions.

5.1.2 Distribution Channels

Both the ABC Motors International and AMI Marketing sales organizations use two distribution channels through which to sell their goods:

  • Wholesale trade
  • Retail trade
5.1.3 Divisions

The products of ABC Motors International are divided into three groups. All product lines can be sold through both distribution channels by both sales organizations.

  • Street motorcycles
  • Motorcross motorcycles
  • Accessories
5.1.4 Sales Offices

It has been decided to use sales offices to differentiate the sales made by the various regions. This will allow easy reporting of business volume by office. The following sales offices must be defined:

  • Laguna
  • Cebu
There is no freight charge or profit, thus there is no accounting implication re transfer of stock between distribution points.

5.1.5 Distribution Centers

As discussed earlier, Laguna is responsible for all manufacturing.  The other locations Cebu, do not manufacture any products.

Inventory at the Cebu distribution center is replenished through plant transfers that result from sales forecasts. There is no accounting implication since ABC Motors International owns both locations.

The Marketing Company (AMI Marketing) purchases inventory in Cebu from ABC Motors International according to annual agreement. This agreement is in the form of a scheduling agreement, which outlines quantities and dates. 

ABC Motors International serves as a vendor for AMI Marketing, and AMI Marketing is defined as a customer of ABC Motors International. Therefore a scheduling agreement is created by ABC Motors International for the delivery schedule of their customer AMI Marketing. The lines in the scheduling agreement appear as demand in the Laguna distribution center.

5.1.6 Shipping Points

Each plant has two shipping points that are responsible for the processing deliveries. For normal delivery there is a shipping point which processes the bulk of the deliveries. In addition ABC Motors International offers its customers an express delivery options using Guaranteed Overnight Delivery (G.O.D) which guarantees delivery in one day anywhere in North America. This shipping point represents a special shipping area reserved for express deliveries.
Shipping  point  Description
R001 Laguna Regular delivery
REXP Laguna Express delivery
C001 Cebu Regular delivery
CEXP Cebu Express delivery

5.2 Functions

5.2.1 Pricing

Pricing used during order entry and invoicing is the responsibility of each sales organization. Therefore any material pricing, discounts and surcharges can vary depending on the sales organization. It has been decided that each sales organization is to have a separate pricing procedure to reflect its own pricing policy. Therefore certain condition types procedure used for Canadian customers.

Furthermore, the distribution channel also influences pricing. A special discount is to be defined for wholesale customers, which reduces the gross price of the product. It has been decided that the price group field in the customer master will be used to determine if a wholesale discount applies. It would be possible to simply make the discount dependent on the distribution channel alone, but the use of the price group field was decided upon since it allowed for multiple discount rates based different price groups.

The following conditions apply to pricing at ABC Motors International:

  • A basic material price is established for each sales organization scaled by quantity.
  • Customer –specific material prices are possible
  • At 25%discount applies for wholesale customer orders
  • Pricing determined at order entry is firm and is not re-determined at billing time
  • The value of discount based on the terms of payment used should appear in the pricing details for an item.
  • Material cost should also be included in item pricing details along with the computed Gross profit margin.
  • An addition freight charge should be included in the item in the case of express delivery. The amount is dependent on the weight of the goods shipped and is triggered by a special Incoterms that you enter in the sales document for express delivery.
5.2.2 Availability checks and Transfer of Requirements

Both ABC Motors International and AMI Marketing., would like to track each requirement generated by a sales order separately. This means that individual requirements will be passed for the materials. The alternative would be to accumulate demand into collective requirements for a day or a week but then the details of the source of the requirements is not available.

5.2.3 Shipping

The data required for shipping should be defaulted as much as possible by the system. Areas where this determination is to be automated included shipping point, and picking location determination. Shipping points

The shipping point is specified for every order item. In the determination tables, one shipping point is specified as default and others can be specified as alternates. The default shipping point is influenced by the shipping condition from the customer master, loading group from the material, and delivery plant. Ensure that two shipping conditions, one for regular and one for express delivery are defined as well as the related determination table. A single group can be used since all materials are located onto trucks using a forklift.

The shipping point should be determined as follows:
Delivering plant Shipping Condition  Loading Group  Shipping point
Laguna 01 002 ROO1
Laguna EX 001 REXP
Cebu 01 001 C001
Cebu EX 001  CEXP

5.3 Additional Sales Information

Configure the system to satisfy the following requirements:

  • Use the standard order type available in the system to process regular customer orders. ABC Motors International does not require specialized orders.
  • ABC Motors International has decided that in addition to the standard order type, credit and debit requests as well as the return order type will be used. Configure the system so that these document types are available at order entry but no others, e.g. Consignment order types.
  • It has also been decided that the business terms in the sales document header are valid for all items and cannot be changed at the item level.
  • The only partner function that can be different between items in a sales order is the ship-to-party.
  • An incompletion procedure based on the standard procedure is to be used for order entry. However, do not include the purchase order number in the list of fields to be checked. Also issue a warning message if weights and volumes are missing.
  • Input facilities must be used in order to facilitate fast and efficient order entry by defining a product proposal.
5.4 Additional shipping Information

The shipping must be processed optimally and quickly. The shipping team has decided the standard functionality is adequate and that the standard delivery document type will be used for sales orders.

  • Due to the volume of deliveries expected, the creation of the delivery documents will be done daily using collective processing. The exception to this rule is the case of a order where the customer has requested the express delivery option. For express delivery, the delivery document will be created separately for the individual order.
  • Warehouse management will not be incorporated since the warehousing structure is not complex. However, the storage location for picking should be proposed in the delivery document.
5.5 Additional Billing Information

Consider the following billing related requirements:

  • A standard invoice related to a delivery is to be used.
  • Customers normally receive individual invoices for each delivery. However, it has been decided that billing schedules will be supported for customers who request it. Initially a bi-weekly calendar will be defined to consolidate all deliveries into a billing date falling on the Friday of 2nd and 4th week of every month.
  • The accounting department maintains customer credit limits. The credit control area is the organizational unit, which sets the credit limit for customers and controls it. A credit control area at ABC Motors International contains only one company code. For every sales document (order type etc) it can be determined, whether a credit limit check is warranted.

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