The Choice
It was the age of exploration and discovery several years ago as I left oil industry to assess a career in academia. My friend Jack* was also embarking on a journey of his own with his startup in Sydney. He supplied plastic Australian flag key-chains to vendors targeting tourists in Sydney.*
Jack was facing the first major decision in his business. He had been obtaining his key-chains from a supplier in China. However, he had considered switching over to a local Australian supplier. At that time, I was a informal consultant in my circle of friends on matters ranging from job hunting to personal finances to romance. So, Jack turned to me for advice.
I could use a SWOT analysis (see my previous article here), but it did not suffice. I needed to know the likelihood and magnitude of the opportunities and threats. I proceeded to organize my thoughts using a risk probability and impact analysis.
Switching from the Chinese supplier to the Australian would result in:
Opportunities
- Faster delivery - The Chinese and Australian supplier both took the same time to produce the key-chains (per unit). However, international shipping from China to Australia took a week, while Jack could drive to the local supplier in Sydney! This was important to his customers as they had high demand for the key-chains and stock ran out often.
- Cost per key-chain was slightly cheaper from the Australian supplier, though not significant enough to make a major impact
Threats
- The Chinese supplier was flexible in quantity orders while the Australian supplier had a minimum of 500 units per order.
Given the consistent demand from his customers, I advised Jack to switch to the Australian supplier. He did so, and happily told me a year later that the decision made him a lot more money due to the increased sales capacity. He rewarded me with two tickets to the Sydney Bridge Climb, which led to further adventures with another friend, but that is a story for next time.
This is my last article of this year. Happy Holidays folks, and see you again next year!
*The name of my friend and his product type has been changed to maintain privacy. However the nature of the actual business is the same - B2B sales of souvenirs aimed at tourists