SETH DHANIRAM CASE LEARNING SHEET: 1.

Do you think it was ethical on JOSH's part to eliminate the entire distribution structure without passing on the benefits to Seth Dhaniram? Ans- It was not ethical on JOSHs part to eliminate the entire distribution structure without increasing the remuneration for Seth Dhanirams RDS. It had been just fifteen months when RDS started its operation of C&FA with JOSH and a sudden policy change was brought into effect from JOSH. There was an oral understanding between Dhaniram and JOSH executives that only the periodic review of the contract after two years towards renegotiation of remuneration would take place and that mostly other terms and conditions of JOSH would remain the same. This oral understanding is an aspect of trust in a business where you are a part of the supply chain. To get things going smooth in a system of a supply chain from the warehouse to C&FA to carrier dock to distributor and finally to retailers, it takes time for every unit to stabilize, to understand the business and make profits. It had hardly been just a year and this sudden elimination of the distributors will impact every individual unit including RDS that works for the delivery of the goods from warehouse to the end customers. Moreover there is no motivation factor in terms of monetary gains for Dhaniram to effectively carry out the new responsibilities that RDS has to take up due to the elimination of distributors. Without any change in remuneration, RDS now has to directly deliver to 180 retailers about whom Dhaniram has no knowledge and RDS is an unknown new entity to them. The repackaging requirements also increased due to mix demands from retailers. He required more manpower for repackaging, for handling and keeping account of credits, customer services as well as query handling. On top of this Dhaniram has to face the furious distributors who have been eliminated from this business chain. His rapport with these distributors is at stake as they have been eliminated from the system suddenly and Dhanirams businesses having a reputation in the market since many years will surely create a bad impact in the market from the stakeholders as well as customers side. Dhaniram is quite right in asking for a share of the savings that JOSH is making as a result of the policy change because no motivation factor and added responsibilities and expenses would only make him discontinue with the operations with JOSH very soon.

2. What would have been your course of action as Seth Dhaniram in reaction to JOSH's restructuring? AnsAnalyzing the situation at hand I, Seth Dhaniram, find that I have to incur huge drop in profits around 70% dip in this business for the next 8 months as my expenses would shoot up to recruit new manpower for handling additional repackagaing, customer services and query handling. COSTS INCURRED BY RDS BEFORE JULY 1999 Item Warehousing Manpower Transportation Electricity Total Remuneration Profit/month Profit earned for 15 months

Costs 12000 18000 3600 1000 34600 60000 25400 381000

COSTS TO BE INCURRED BY RDS AFTER JULY 1999 Item Warehousing Manpower Transportation Electricity Total Remuneration Profit/month Profit earned for 15 months

Costs 12000 36000 3600 1000 52600 60000 7400 111000

Drop in profits

(381000 - 111000 / 381000) *100% 70.80%

I also have to enter into a new territory of retailers about whom I have no prior knowledge and experience and they may straight away reject me to source the delivery.

The quality of services by RDS will degrade because of totally unfamiliar field without any prior experience. This will definitely create a bad image in the mind of the customers.

While the distributors enjoyed a trade margin of 7-10% of the purchase value which comes upto around Rs.2, 10,000 per month and the retailers enjoyed a margin of 15-25% of the sales, it is unethical from JOSH to compel Dhaniram to continue with no remuneration.

I have to answer my distributors whom I have been dealing with since many years now and this sudden elimination of these distributors will impact my other businesses too as it will create a negative impact on the mind of others in the business in market and my end customers.

I have a reputation in the market since many years now and if I succumb to the demands of JOSH silently, my other existing and prospect business partners would create an impression in mind that I am lenient and can be easily suppressed by others demands.

If I continue doing operations with JOSH, my family members and relatives will also be unhappy with the losses. There is another way of looking at this, if I choose to end my operations, there is a possibility the market would think a potential player like Dhaniram is not courageous enough to take risks in business. This would again create a negative impact but the other above aspects are far more critical and are at stake.

So I want to renegotiate with JOSH right now to prevent the elimination of distributors from this chain. If they do not agree, I choose to end my operations with JOSH right away considering all the above possibilities and to maintain the integrity and reputation of my business.