Making Vendors and Employees Into Stakeholders
Lawrence Koh is the founder and CEO of International Diversified Products (IDP). Established in 1987, IDP is built on Lawrence’s commitment to a relationship-centered approach to business and is a natural legacy of his decades of work as a motivational speaker and personal development facilitator. He also founded the Students for a Better Tomorrow Foundation (SBT), which mentors youth in relationship-building and entrepreneurial business skills. In 2003 he received the America’s Promise–Marketable Skills Award for his work in empowering teens.
In addition to IDP, Koh is the founder of The UTOPIA Project, which seeks to relieve the effects of poverty by creating jobs opportunities to manufacture and distribute UTOPIA-branded products worldwide. Profits from the Project are used to provide food, clothing, shelter, clean water, education, personal development programs, and skill training to those in need.
Question: Why should companies get involved in their vendors' business?
Lawrence Koh: Our vendors basically dictate the majority of our performance. So we excel and are known by most of our customers for on-time delivery, price competitiveness, and assured quality. And our vendors are the ones who actually perform those services. They’re the ones who give us competitive pricing, they’re the ones who perform the on time deliveries and they’re the ones that perform the quality assurance. And so we’re basically, you know, receiving the merits... those accolades on their performance, and we’re the ones who get all of the praise for that.
Another way that they’re able to provide competitive pricing and assist in providing competitive pricing is, most of those companies, eight out of ten, finance us. So it doesn’t start off that way, it usually starts off with letters of credit, or making a wire transfer at the time the shipment is ready. And then we will, over time, ask them if we can pay them once the shipment gets on board. And then maybe we ask for a portion of that to be deferred for 30 days. And then, if possible we ask them if they would be willing to defer the entire amount for 30 days. And eventually we will work to try to get that to 60 days, and we’re pretty successful at that. And because of the type of relationship we have with them and how closely we work with them, as an example, one of the vendors contacted us and said that they weren’t going to be able to produce the product for us. And I asked why? And they said there was a problem with the vinyl, the vinyl was bubbling. And I said, "I know exactly what that is."
So the next day I caught a flight to China and explained what the problem was. Well they didn’t have anything in China that they could identify that would help address the problem. So we got a hold of some vendors and we modified some equipment and I was there for about five days and we finally solved the problem and that became one of their biggest programs. And they were so amazingly appreciative of the fact that we actually got involved with them rather than just taking the program from them and relocating it to another vendor. And, you know, we get as involved in their business as much as they get involved in our concerns and help us resolve those concerns for our customers.
Question: How can a company make its employees larger stakeholders?
Lawrence Koh: The majority of people that we bring in for an interview, when we do have an opening there are always a bit taken back when I tell them that we have a different pay schedule, a pay policy in our company. In that when somebody comes into the company, their base salary, which is related to the skill sets that they bring into the company is established. And once that’s established they never receive an increase in that base salary.
But after the 12 months that they work, they switch over to their base salary times the number of months they work there will equal their individual quotient. And then we take the sum total of everyone’s quotients and we divide that into their individual quotient and that becomes the percentage of the profit sharing that the company shares with its employees.
So in many cases, people who have been there 10, 12, 15 years, their bonus can be close to half of their base salary. And it gets them engaged and it makes them a significant stakeholder in the company.
Recorded on October 28, 2010
Interviewed by John Cookson
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