Project 2: Channel Management
Metropolitan State University
MKTG 435: Sales and Sales Management
Link to Distribution Channels Map
A manufacturing company may choose to take its products to market in a variety of ways, including, but not limited to:
1. A dedicated sales force
2. Company stores
3. Catalog sales
4. Independent manufacturers representatives
6. Web site
7. Industrial distributors
Each of these channels is supported with a compensation plan that rewards the sales organization for promoting and selling the manufacturer’s products. This exercise tracks the course of an electric motor as it moves from the manufacturer to the end user. In this example, emphasis is placed on the role of
the distributor which serves as a “time and place” utility, making the manufacturer’s products available to its customers on a timely basis, when and where needed. As shown on the attached diagram, the product flow is as follows:
1. Manufacturer: Milwaukee Motors is a motor manufacturer, based in Milwaukee, WI. In the continental United States, Milwaukee markets its products through industrial distributors, supported by regional warehouses.
2. Distributor: Minnesota Supply is an industrial distributor, based in Minneapolis, MN. Minnesota Supply is one of several Milwaukee Motors distributors in Minnesota. Minnesota Supply serves three classes of customers: OEMs, resellers and end users.
3. OEM: Stillwater Press is a manufacturer of printing presses, based in Stillwater, MN. Stillwater Press uses Milwaukee motors in the equipment that it produces.
4. Reseller: Twin City Mechanical is a maintenance services company, based in Saint Paul, MN. Twin City Mechanical repairs printing equipment for clients in the metropolitan Minneapolis-Saint Paul area.
5. End User: Eagan Publishing is a commercial printer, based in Eagan, MN. Eagan owns and operates printing equipment manufactured by Stillwater Press.
Milwaukee Motors provides its distributors with a price list and a suggested discount schedule for pricing its products for the various classes of customers:
Explanation: Milwaukee sells motors to its distributors at a 0.50 multiplier, that is, a 50% discount from the list price. The distributor, in turn, sells motors to OEMs at 69% of list, to resellers at 85% of list, and to end users at list price.
1. Manufacturer to Distributor:
As a franchised (authorised) distributor, Minnesota Supply is required to maintain an inventory of Milwaukee motors to service customers in the territory. At the time they became a distributor, they placed a stocking order for motors with a total list price of $100,000.
Every month, the materials manager for Minnesota Supply reviews orders and shipments and places an order to Milwaukee Motors to replenish the inventory.
a) How much money does Minnesota Supply have tied up in its inventory of Milwaukee motors at any given time? (estimate) $___________ xxxxx
2. Distributor to O.E.M.
A Minnesota Supply salesperson has been working with the engineering and purchasing departments at Stillwater Press to qualify Milwaukee motors for use on a new Stillwater product. Having obtained engineering approval, the Minnesota Supply salesperson prepares a formal quotation for the Stillwater
The motor, Milwaukee model # 200, has a list price of $400. Based on Stillwater’s estimated requirements, the Minnesota Supply sales person suggests a blanket order for 120 units with monthly releases (deliveries) of 10 units.
a) How much will Stillwater Press pay Minnesota Supply for each motor?
b) What is Minnesota Supply’s gross profit on each motor? (dollars and percent) $ %
3. Distributor to Reseller:
Minnesota Supply receives a purchase order from Twin City Mechanical for a Milwaukee motor model # 300 which has a list price of $600.
a) How much will Minnesota Supply charge Twin City for this motor: $ XXXX
b) What is Minnesota Supply’s gross profit on this motor:
4. Reseller to End User:
Twin City Mechanical has a purchase order from Eagan Publishing to refurbish an older model Stillwater press. The job requires the replacement of a Milwaukee motor, model # 400, which has a list price of $900. Twin City Mechanical will purchase this motor from Minnesota Supply.
a) How much will Twin City charge Eagan for this motor: $ XXXX
b) What is Twin City’s gross profit on this motor:
5. Distributor to End User:
Eagan Publishing has a breakdown on one of their printing presses and calls Minnesota Supply to order a replacement motor. The motor is Milwaukee Motors model # 500 which has a list price of $650.
a) How much will Eagan pay Minnesota Supply for this motor? $ xxxx
b) What is Minnesota Supply’s gross profit on this motor?
6. O.E.M. to End User
For one of the presses that it manufactures, Stillwater Press purchases a Milwaukee motor, model #100, list price $350, from Minnesota Supply. Because of a special requirement, Stillwater Press modifies this motor and designates it as part #100SP in their documentation. The cost of the
modification is $50 and Stillwater lists this item at $500 in their replacement parts catalog.
Eagan Pubiishing buys one of these motors from Stillwater for the list price, $500.
a) What is Stillwater’s gross profit: $________ ______%
7. Distributor Profit:
In calendar year 2011, Minnesota Supply’s sales of Milwaukee motors were as shown in the following chart. Compute Minnesota Supply’s gross profit on the Milwaukee Motors product line for 2011.
Customer Type Sales
7.3 End User
$ 90,000 $_________
7.5 Overall GP
What was Minnesota Supply’s overall qross profit percentage on the Milwaukee Motors product ____%
line for the year 2011:
8. Salesperson’s Commissions
You are an outside salesperson for Minnesota Supply. Your compensation plan includes a base salary plus a commission of 25% of the margin (gross profit) for the products that you sell. Your sales of Milwaukee motors in calendar year 2011 were as shown in the following chart.
Calculate your commissions for sales of Milwaukee motors.
$90,000 $ ________
8.2 Resellers $ 5,000 $ ________
8.3 End Users $ 2,000 $ ________
$97,000 $ ________
It is now 1 June 2012 and you are the sales manager for Minnesota Supply. You have just received a priority mail packet from Milwaukee Motors announcing the availability of a new line of energy efficient motors.
The packet also provides the specifics of a 30-day promotion (product launch) designed to introduce the new products to the market.
1. List two or more incentives that Milwaukee Motors, the manufacturer, might offer to Minnesota Supply, the distributor, to promote this new product line.
2. List two or more incentives that you, the sales manager, might offer to your people to promote this product.
Note: Essay answers are not required; bullets will be sufficient.
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