PETALING JAYA: PKT Logistics Group Sdn Bhd has signed a memorandum of understanding (MoU) with Daisei Holdings Corp of Japan to explore the possibility of pursuing joint business opportunities in Malaysia.

TRIMMING the fat has become an imperative in the current economic climate, says PKT Logistics Group Sdn Bhd chief execuitve office Datuk Michael Tio.

Certainly, the steep depreciation of the ringgit has caused jitters among small and medium enterprises (SMEs).

While export-based businesses may be enjoying brisk sales, businesses that deal with imported materials, services and products, have had to grapple with rising prices and thinning margins.

According to Tio, now would be a good time to take a hard look at a company’s operations and cut out unnecessary costs to cope with the weak market and currency decline.

During this crisis, we should take the opportunity to look into our books. Look for the ‘fats’ in the company that you can trim and make sure that the operation is lean. You need to increase the company’s efficiency and increase efficient people in the operations.

Management rarely look into all these details when times are good. But now, you need to focus on being lean so this is a good opportunity to look at your fundamentals,” he says.

Tio’s advice to SMEs is to manage their margins through such cost-cutting measures such as reducing the cost of travel, operations and sales to minimise the impact of slowing sales.

He says companies should try to renegotiate their terms with suppliers to ensure their cost of doing business stays competitive. He reasons that suppliers may agree to more reasonable credit terms as they too are probably striving to maintain their customer base.

It would be a good idea for SMEs to go through their profit and loss statements to identify where cost can be reduced or adjustments made. Logistic providers should also look into cutting the cost of shipping and trucking.

Tio recalls that these same cost-cutting measures in 1998 had helped PKT weather a similar currency crisis when sales dropped by 30%.

We looked through our operations, and where we could, we cut our cost to make sure we stay profitable. Our sales dropped by 30%. But because we could ‘cost-down’, we managed to increase our margin by 7%.

In net effect, we managed to make the same profit even though our revenue dropped, so we were all right,” he recalls.

This time around, PKT is again applying the same principles and measures such as temporarily reducing bonus payout to conserve cash, postponing its much-loved management trip and relooking its margins to stay lean.

Tio adds that if companies can manage their margins and remain aggressive, they would still be able to find ways to increase business.

Because of the weak economy, we can’t raise our selling price to cover the shortfall in sales. But there are still opportunities to increase sales by increasing our volume because customers are also looking to lower their costs by looking for cheaper products and solutions,” he argues.

If you price yourself well during this time, you can still gain new business,” he says.

Careful planning can certainly help businesses ride out the current tough economic conditions and put them on better footing to thrive when the economy improves.

Malaysia still has strong fundamentals. We are backed by reserves, we have had good economic growth for the last 10 years and our banking industry has consolidated and is stronger. Over the years, we have recovered very quickly from recessions. So I think we will also bounce back this time around.

We should focus on staying lean and cut our cost now. It is about survival of the fittest now. Then we will be ready as the tide turns,” says Tio.