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The Power of Intelligence

Senao: Master of Half the Handset Market

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Meticulous intelligence on retail sales, inventory, and product maintenance have allowed cell phone vendor Senao to cut costs, get a clear picture of consumer preferences, and become Taiwan's largest handset distributor.

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Senao: Master of Half the Handset Market

By Benjamin Chiang
From CommonWealth Magazine (vol. 418 )

On Feb. 23 Taiwanese mobile phone maker HTC launched its new Touch Cruise smartphone. At the release press conference more than a dozen reporters kept pestering HTC officials about their annual shipment target, but no one was able to find out how many handsets had been preordered by retail distributors.

While Senao did not get distribution rights for the new HTC model, Shih Huang-chia, Senao International vice president for telecommunication products, was the first to report competitors' sales figures for the new handset at a Senao logistics management review meeting the following day. The information that he had obtained was so detailed that it even included the number of preordered handsets for every single retailer.

In the meeting Senao International president Pao Yung Lin immediately discussed how to adjust handset prices to counter its rivals' moves.

Accurately grasping market information and quickly responding to it are the key strengths that have allowed Senao to become Taiwan's largest handset distributor.

On average, one out of every two mobile phones in Taiwan is sold by Senao.

"Through Senao, Chunghwa Telecom gets to understand information about the handset retail market," says Joseph C.P. Shieh, CFO at Chunghwa Telecom, which is Senao's largest shareholder.

In 2008 Senao posted a record annual turnover of NT$22 billion, while its gross profit margin bucked the trend, growing to 16.2 percent. "Our gross profit margin grew 2 percentage points over the previous year. We made NT$400 million in net profits," boasts Senao International executive vice president Bruce Chiu with a smile.

At any given time about 200 different handset models are for sale in the Taiwanese consumer electronics market. More than 120 of these models are marketed through Senao as distributor or agent.

Controlling Retail Means Controlling Profits

After Chunghwa Telecom bought a stake in Senao International in 2007, Senao began to run Chunghwa Telecom's 300 outlets. So now every Chunghwa Telecom telephone bill payment center also has a Senao handset sales and service counter.

At the same time Senao has expanded the number of its own retail stores from 148 to 215 outlets. "These two company-owned systems generate about 60 percent of Senao's turnover, which means we control 60 percent of the market information ourselves," notes Chiu. The latest information from this dense network of more than 500 outlets across the island is electronically transferred in real time to the Senao headquarters in the Taipei suburb of Sindian.

At the headquarters one can witness how all the market intelligence is quickly gathered for further analysis.

Dozens of sales persons are on the phone with store managers across Taiwan to obtain the latest sales figures for every single handset model. At the same time they use instant messaging to discuss possible price changes with product managers.

Having worked the retail distribution channels for a long time, Senao's management team has come to thoroughly understand the preferences and tastes of Taiwanese consumers. "When it comes to consumer needs, our hit rate is really high," Shih asserts.

Managing Numbers, Reducing Inventory

In the distribution industry, the efficiency of a company's inventory management is seen as an indicator for its core competitiveness.

Although Senao last year massively expanded its retail network, it managed to quickly reduce inventory levels to 29 days from 47 days three years ago. "Ordinary distributors like Synnex and Tsann Kuen Enterprise maintain inventory levels of 45 days. In comparison, Senao's inventory management is truly something," says Chunghwa Telecom's Shieh.

The company's inventory management entirely depends on accurately exploiting their market intelligence system.

A mobile phone consists of more than 100 parts and components. Therefore, materials that are kept on stock for repair and maintenance have become an important piece of "intelligence" that Senao scrutinizes in detail to detect management loopholes.

Every Tuesday afternoon, Senao president Pao Yung Lin personally hosts a meeting at which they list the parts and components with long turnaround times, and discuss how to use up surplus inventory items. Senao is also able to identify poorly selling handsets and boost their sales through promotional initiatives such as rebates or free accessory offers.

On the service system side, Senao has calculated costs down to the penny for the smallest unit. It is able to itemize costs that every single member of its 300 repair and maintenance service teams incurs for stationery, water, gas, and personnel expenses as well as their per capita production value. "We can even compute the gross profit margin of each unit," says Senao International spokesman Kevin Lin with confidence.

Moreover, since Senao has an online connection with the databases of handset makers, it has been able to repair 98.5 percent of broken or defective handsets within seven days. And 93.3 percent of handsets that are defective upon arrival can be repaired within 30 days.

"Handsets are like seafood," says Chiu. "Over time they only lose value, not keep it."

Translated from the Chinese by Susanne Ganz


Chinese Version: 神腦國際 獨佔一半手機市場

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