(Un)conventional Wisdom

All wisdom comes from God.  The wisdom God has given us generously is meant to be shared with fellow believers.

At exceptional times like recession, certain decisions made against conventional bias are necessary to stay afloat in business.

I would like to share on two business strategies which make a difference in recession times – turning a disadvantage into an advantage;  and risk pooling which is a mathematically proven stratagem.

Strategy Of Turning A Disadvantage Into An Advantage

When every competitor sees a disadvantage in certain business situation and reject or walk away,  we can triumph through accepting the challenge of the disadvantage and turn it to our advantage.

After the 9/11 terror attack on New York World Trade Center, the dot com bubble burst and the world plunged into recession.  All over the world, the factories were cancelling orders.  I was working for a global distributor of electronic components as the chief executive in Asia then.  I allowed all cancellation knowing that the customers would bully us by not accepting deliveries anyway.  I tried cancelling the same with our suppliers at the same time otherwise I might end up with a lot of inventory booked at higher prices in case there would be price erosion due to the recession.  The group CEO and the board of directors of this NASDAQ listed company thought I was rash to allow such cancellation causing a huge drop in order backlog.  The bigger competitors of ours faced the same dilemma but they refused to allow cancellation from the same customers.

Over the next few months, I received the main bulk of the orders back from our customers at lower prices but I also got lower prices from our suppliers who were keen to keep their factories going.   The customers simply kept rescheduling the orders retained by our competitors which were booked at higher prices as compared to ours.

We had the best sales performance in this particular recession year as a result of this unconventional decision.

Strategy Of Risk Pooling

Risk pooling is a known concept in controlling inventory.   Instead of having several warehouses in several countries to service the customers better but running the risk of having the wrong inventory in the wrong country all the time,  it is better to pool all inventory in one location and service all countries.  Today, the logistics capability of delivering to the doorstep by the courier services is efficient, fast and relatively cheap.  Even for sea freight, any delivery within Asia can be accomplished in one week including custom clearance.

Risk pooling has the advantage of reducing inventory carried in total in all locations and enables sharing of the same inventory across all locations.  It also enables savings in using less human resources to manage multiple warehouses and the rental cost as well.

I have one centralized warehouse in Singapore servicing Hong Kong, China, Taiwan, South Korea and Southeast Asia with satellite sales and marketing offices in all these countries as opposed to our competitors having an office cum warehouse in each Asian country.   As a result, the delivery performance of my company is consistently above 98% while the rest of the bigger competitors are at 90% giving us a place to be competitive against the much bigger competitors.


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