(A) General Motors has announced plans to open 75 regional distribution centers

Question

(A) General Motors has announced plans to open 75 regional distribution centers across the                    

United States with large inventories of cars and light trucks. Some of the centers will     carry as many as 2,000 vehicles. This plan will move some of the dealer’s inventory, which GM subsidizes to the new regional centers. With 75 new regional distribution centers, GM’s inventory interest charges will increase. (a) How will the new centers help the retail dealers? (b) How will they help GM? (c) Evaluate GM move from a strategic point of view, and (d) What type of distribution intensity strategy is used by G.M.? Explain. (12 pts)

(B) Avon Products Inc. is one of the largest direct sellers of cosmetics and other products in        the world. It has a corps of over 450,000 sales representatives who sell to customers in their homes and workplaces. The company has announced plans to open its first ever retail outlet in the United States. Why is Avon making this move? Would such move affect members of their channel of distribution? How? What you suggest to do in this situation?

Explanation / Answer

The new centers will help retail dealers in having to keep fewer inventories, which will reduce their working capital requirement. The new regional centers will facilitate ex-stock delivery of inventories and spare parts, thus leading to improved service levels and fewer instances of stock-out and backorder.

This will help GM in providing better service to the end customers by having direct control on availability of inventories of cars, trucks and spare parts. Particularly in case of trucks, which require frequent service and spare parts, the improved service levels will result in increased customer satisfaction.

Also the new model will be an attraction for new retail dealers to invest in General Motors business and become their dealer. This will help General Motors expand their distribution and retail network, which will again have an exponential impact on customer satisfaction, as they will enjoy services of a wider network.

For a strategic point of view, the move will result in benefits for GM in the long term, it’s a strategic investment, which will take time to provide reasonable returns. But this strategic move will go a long way in facilitating growth of business, through a wider sales and service network, improved customer service and satisfied and motivated dealers.

Multi-channel distribution strategy has been used by GM by creating its own parallel distribution network to assist the retail dealers, which will help it to expand its distribution network further.

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