Selling below cost and still earning profits! #factfullness #money

Category – business and money

Reading time – 5 minutes

This story depicts out the box thinking and alternative approach to a business.

Businesses aim for profits; but sometimes innovative thinking is required to defeat competitors.

Profits are not visible directly, but are indirectly produced by a business model.

Here is one story, that shows exactly how a business can be profitable; even if it gets price below cost of raw material.

Rivopharm is a family pharmaceutical firm in Swiss Alps. It won contract to supply antimalarial drugs to African countries through UNICEF.

It was in bid with other competitors. In its bid value requested for each pill, was lower than the cost of the raw materials.

How this company could offer such a low bid.

Investigations revealed this.

UNICEF contacts are big contracts with long long tenures. It involves big money.

Rivopharm had invested earlier in robotics. It factory had speed. Its factory could make more pills per day than competitors.

Raw material arriving in to the factory on 30 day credit.

Raw material of drugs arrived to its factory in trains. And, within two and half days, it could produce and pack all raw material into final finished pills.

Raw material in the factory

By Thursday, after delivering pills at Genova headquarters of WHO; they get paid on same day. So, in 4 days they get paid for their supplies.

Robots working to make pills

Suppliers of raw material give them time of 30 days to repay.

Hence, large amount of money that they get, accumulates interest in bank account for 26 days!

Delivery of pills and payment by WHO on day 4.

It compensates for their discount and also provides profit.

It also brings more offers at their door as their brand value increase as a reliable generic drugs supplier.

This all is impossible with conventional drug manufacturing facility.

Hence, business is profitable. Not from conventional way of analysis but from Innovative approach.

And their robots don’t demand payhikes or leaves. They complete projects on time.

Inspiration – Factfullness by Hans Rosling

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