American Tool Works Case

American Tool Works Case

GOAL: Increase ATW’s sales in small and midsize dealers

BACKGROUND:

American Tool Works want to compete with other competitors in small and midsize dealers in order to increase their sales and market share.

CURRENT CONDITION:

* Large distributors have a vendor-managed inventory (VMI) agreement with ATW, not with midsize and small distributors

* Distributors not only sales ATW products but also ATW’s competitor product

* Space is limited in ATW

* Many distributor and dealers choose ATW’s product because of good name recognition, quality and sales support

* 60% of sales pre-specified by the buyer and 40% steered by the distributor’s sales force

* Competitors use several contract approaches to the distributors and dealers to increase their profit and market share

QUESTIONS & ANSWERS

1. What can ATW do to increase inventory at small and midsize dealers?

* From many risk-sharing options available, the ones that result in inventory increase is buy-back/returns and revenue sharing contracts. ATW should launch Buy Back Contract or Sharing Revenue Contract with small and midsize dealers as an effort to attract dealer to take more product from ATW.

* Buy back contract

* Buying the unsold tools back from the dealers, this will encouraged the dealers increase their inventory. This will increase their product availability and reduce the stock out probability.

* Revenue sharing contract

* Dealers share some of its revenue with the ATW. Dealers transfer a portion of the revenue from each ATW product sold back to the ATW. ATW will provide a discount on the wholesale price to the dealers.

(This option will be difficult to be implemented as it is not easy for ATW to monitor revenue from many small and mid-size dealers)

2. What can ATW do to increase sales at small and midsize dealers?

In the existing process, dealers’ sales force can steer 40% of sales based on...