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One (1%) Percent More

Few weeks ago, when I was having an event to empower HR audience in Manufacturing industries, I talked with CEO of one of partner, who seems ever been my lecturer in Bina Nusantara University, taught about Object Oriented.

When I talked with him, I said, my final project in university was "Business Process Reengineering" and he showed me his presentation slides about business process reengineering in his company, and how he focused on internal improvement rather than competition in the market. And that is very similar with my way of thinking.

I was doing that in ASUS, when we built the business. I am very focus on how to have one percent more. That's imbedded under my unconscious mind, together with the end in mind we would like to achieve in Indonesia. 

Do you believe that ASUS Notebook price was always higher than other competitors? But ASUS in Indonesia could reached market share 51.7% for consumer Notebook when I left back in 2016Q4.

How ? One of fundamental reason,

The secret recipe in order to have bullets to crawl from 1.5% market share became 51.7% market share, I t is about getting One Percent More.

But, Before I continued with my experience how to have one percent more in ASUS, let's talk about Michael Porter's theory on Supply Chain scheme.

Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers. Using this viewpoint, Porter described a chain of activities common to all businesses, and he divided them into primary and support activities.

 According to Porter (1985), the primary activities are:

  • Inbound Logistics - involve relationships with suppliers and include all the activities required to receive, store, and disseminate inputs.
  • Operations - are all the activities required to transform inputs into outputs (products and services).
  • Outbound Logistics - include all the activities required to collect, store, and distribute the output.
  • Marketing and Sales - activities inform buyers about products and services, induce buyers to purchase them, and facilitate their purchase.
  • Service - includes all the activities required to keep the product or service working effectively for the buyer after it is sold and delivered.

So, let's focus on these primary activities which more and less influence how to generate One percent more and why it is very important to the company.

10 years ago, the cheapest notebook is about 7-8 million rupiah in Indonesia. Now, we can have it with 3 million rupiah. What has changed ?

Production factory moved from Taiwan to China to have better production cost and also ecosystem. Materials shifting from carbon to plastic; IMR and non IMR. But, technology wise, it is continued to have better quality; better CPU performance, better GPU performance, better screen, better connectivity, better battery life cycle, etc. All vendor competed to give better quality, better design with more affordable price to end users. Therefore, the margin in between the chain has been squeezed.

 In this case, how a notebook brand with very small, only 1.5% market share could have enough bullets to rise and hit No.1 market share in Indonesia ? It means from 11K notebook per year become 1 million notebook per year.

 Why to save 1% more is very important in hardware industry ? Market competition has driven all the margin down.

 Every vendor would have pretty similar cost. So in order to win, to save one percent more become very important.

One percent (1%) more for hardware business is quite big. You can consider 1 notebook average selling price is about $350, and you just multiply with total market size 3 million pcs, then with one percent more (1%), you have $10.5 million budget to spend. It is huge.

 So if we can save 1% more, that’s also very important for the company, as bullets to win the game and have good profit. It can be used for profit itself, R&D, marketing fund, subsidize other country's business, subsidize other product business, etc.

 If you have ever ready 7 habits book, by Stephen Covey, about Principle of life. We can't control outer aspect, but we can control inner one. We can't control other competitors pricing and their go to market strategy. But we can control our own way. In order to have more bullets to fight in the war, we shall have more reservation to buy the bullets. And so this one percent more is very important.

 Margin in hardware is super thin. If we make mistake, it will eat the profit. We have heard many vendors that have minus margin. For example, if we make wrong forecast, there will be huge cost on inventory and on marketing program to clean the stocks. So The risk to make mistake is very high.

 There is several key important action to save one percent more that become most key success factor of ASUS business in Indonesia.

Supply chain

Everybody in hardware business know how difficult to manage supply chain precisely, and right time to the market. So, 8 years ago, when I took the notebook business, the ratio of air and sea shipment for notebook was 40% with 60%. Very easy decision to ship goods by air because of the lead time of decision making to arrival. There would always have many reason to ship by air, sales increase, stocks not enough, distributors just confirm Purchase Order, etc.

But, did you know that the cost difference from sea shipment to air shipment is $0.82 with $11. it is $10 difference. With $10 cost different per notebook, it can be used for huge marketing fund or even keep it as profit.

It is equal to about 3%. If it is for 1 million pcs, it means saving $10 million.

 Air shipment will take only 2-3 days from Performa invoice signed. Because it can easily have inspection ready within 1 day notice and every day have many air flight. And take another 1-2 days for custom clearance and delivery to distributors' warehouse (POD).

Despite of the cost different is big, the lead time is Sea shipment is very long. It take about a month from Performa invoice signed to POD at distributors' warehouse.

bove is only from shipment perspective. We also need to take into consideration for production lead time in factory. In order to save cost of inventory in country or hub or in factory, we shall provide precise forecast for upcoming 8-12 weeks sell out to factory, and factory will produce based on our forecast. Why it has to be plan ahead 12 weeks ?

Based on above information, we did plan ahead. We reduced possibility to have sudden order and shipment by air. But sometimes, distributors might not want to order 12 weeks before, due to many issue, cash flow, market situation, competition, etc. So, what we have to do is we got to make our own forecast for distributors and convinced them to order based on forecast quantity and time to market schedule.

 And how to convinced distributors ?

Our understanding about market has to be strong and we built our credibility for right forecast, right time to market and right sell out.

Marketing activities, marketing cost

 1. Public Relation cost

In ASUS, everything planned, organized and executed by the team. We have in-house creative, EO, PR. We don’t spend money on agency.

 I took example of PR. If we hire PR agency, one press release could cost minimum $2K. So, assuming every week, we will release article or press release, as ASUS has variety products release.

1 year already cost $104K. So by doing in house, means we could save minimum $104K.

 While if we have in house, we can as many articles published as we want based on our strategy and of course product technology should be good, so media also willing to publish the press release or article. And not mention that with in house, we built media network by ourselves, we had good relationship with media as we built friendship with them.

2.Material production cost

Another experience is with materials production in channel marketing.

We were going to produce 1000 pcs signboard as first phase of channel penetration support. In the beginning, the offering from different contractor was around $300 - $500 per pc with different specs.

So when we produce each mock up and the mock up in our office. We re-assembly the signboard, check all materials and the cost.

Nowadays, information is very open. We can easily googling or check on the shop for the cost of materials, such as different lamp brand with different price (LED or non LED, OSRAM? Samsung? Made in which country?), then we also check cost of cabling. We also check how they structure all material inside the signboard. And also simulate cost of manpower, estimation margin for services and profit.

We simulate which structure will give better result by using which materials is the best.

 Then we make our own structure cost proposal. Based on all information we got, the signboard with particular specs we expected should cost at $150. we assume some profit for the contractor, so we negotiate at $200. And that’s how we save at least 50% of cost of signboard. You can imagine, as business was growing, we gradually produce not only 1000 pcs, but much more than that. With 1000 pcs, we save $100K.

If we produced 10K pcs, we save $1 million.

3.In-house Event Organizer

Also same as for events. ASUS has hundreds of event every year. Usually event organizer will have extra charge in each operation, with % organizer fee and overall become quite expensive. Rather than that, ASUS built in house event organizer team. This already save at least 20% EO fee & operational cost. Assuming one year could have events with total $1 million,

so 20% means $200K cost saving.

Product, Price Strategy with N+1 formula

 1. Two years Global Warranty

Have you ever heard about N+1 ? It is from mathematic formula. So what we did in order to compete with others, we were focusing on making ourselves strong. Rather than reduce quality and design to offer lower price, we provide better feature and sell higher. Take example as warranty. Other vendor only provide 1 year local warranty, while ASUS provide 2 years global warranty and sell higher $10 than the competitors. The value of 2 years global warranty is much more than that $10 in end user side. While, the real % cost of services of 2 years global warranty is less than 1%.

So, by global warranty policy, we could have another 1% saving.

2. Sell Up with different color

Back 10 years ago, other notebook brand only focus on few sku and few color because of the complexity of managing supply chain and inventory. When other brand only have black, grey, silver color, ASUS came out with multi-color glossy design (with IMR) and sell higher $10 compare to other black/grey/silver color. the total production cost is actually pretty similar, just the risk of multi-color is higher than normal grey/silver/black ones.

So, by that, actually ASUS also save another one percent

courtesy photo of @Maseko Yudisthira for 2016Q3 result, based on IDC

Perhaps people thought that is easy to manage hardware business, but it is not. It is about managing all costs to win the market.

Managing hardware business is like an art.

You got to understand end to end chain system to make it succeed. And to crawl from 1.5% market share to 51.7% market share, need the understanding how to have one percent more as bullets to do more actions to win the market, with still making profit, as hardware business is tough.

Wish that this experience sharing could help others to understand why having one percent more thinking is very important ~

 ==^_^V==

References

  • Porter, Michael E., "Competitive Advantage". 1985, Ch. 1, pp 11-15. The Free Press. New York.
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“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work is to love what you do. I you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.”
JULIANA CEN
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