Discussion: Nine Measures for Enterprises to Turn Losses into Profits

Facing losses, leaders of every enterprise are deeply anxious. It is also certain that such a situation will inevitably arise for any enterprise sooner or later. At this point, I personally believe leaders must first maintain the right mindset. This is precisely when their adversity quotient (AQ) is being tested—how they confront such a predicament and how they reverse the crisis. Mindset is critical. So what kind of mindset should leaders possess? I believe there are three essential mental attitudes: 1. Calmly Analyze the Root Causes There are six primary reasons why enterprises incur losses—and each enterprise’s specific causes may differ. At this juncture, it is vital to strike at the crux: carefully analyze what the fundamental cause is, what the main causes are, and what the secondary causes are. Do not hastily attribute losses to policy shifts, product issues, or employees’ lack of effort—these are merely surface phenomena. 2. Avoid Blindly Following Trends Once an enterprise incurs losses and financial pressure mounts, many entrepreneurs—especially those who previously made quick money—desperately seek immediate profit-making opportunities to reverse the situation instantly. A current phenomenon in China is the constant promotion of ‘get-rich-quick’ schemes promising instant wealth. Yet the truth is: the more competitive and regulated the market becomes, the fewer opportunities there are for sudden enrichment. At such times, do not invest simply because others do. Previously, we invited Mr. Wang Gongquan, a prominent figure in China’s investment community, who emphasized that the most important prerequisite for investment is momentum—is the sector poised for future growth? Therefore, when everyone rushes into a trend, avoid thoughtless, blind bandwagoning; instead, adopt a long-term perspective. 3. Maintain Unwavering Belief The challenges currently encountered are growing pains inherent to enterprise development—and at such moments, belief exerts the greatest power. If the leader or entrepreneur lacks strong conviction, it will unconsciously affect those around them—especially senior executives. Leaders must project confidence at this time, affirming to themselves that they can overcome this difficulty and turn losses into profits. Concrete measures may be relatively straightforward; the hardest part lies in the entrepreneur’s mindset. If the entrepreneur’s mindset is flawed—if they refuse to calmly analyze problems and instead seek shortcuts to rapid turnaround—the task is far from simple. Only when all three of these mindsets are fully present should one proceed to discuss implementation. Nine Measures to Turn Losses into Profits 1. Re-examine Corporate Strategy When environmental factors trigger losses, strategic adjustments are necessary. Strategy formulation must always align with the broader socio-political and regulatory environment. Thus, strategic adjustments must consider legal frameworks and local institutional constraints. If a strategy conflicts with prevailing laws and regulations, it must be halted immediately. 2. Adjust the Business Model When business performance plummets abruptly, concentrated attention must be directed toward transforming the business model. What constitutes an abrupt, “cliff-like” decline? One of my clients achieved sales of over RMB 300 million in 2015, with a target of RMB 1 billion for 2016 amid favorable market conditions. Yet actual 2016 revenue amounted to only RMB 96 million—a classic cliff-like collapse. The root cause? Its business model clashed with newly enacted national laws and regulations. If the business model remains unchanged, the company truly risks irreversible decline. Fortunately, this leader remained highly rational. After deep reflection, he engaged our peer advisory group to jointly deliberate and implement strategic adjustments. This year, the enterprise has gradually recovered and stabilized. Therefore, when facing abrupt business deterioration, proactively transform your business model—seek diverse perspectives, visit exemplary enterprises, and learn proven methodologies.

Turning Losses into Profits Is Not Solely About Cost Reduction—A Case Study of a Comprehensive Profitability Model for a Large Manufacturing Enterprise

V. Supply Chain: From Support Function to Operational Brain After redefining pricing, cost structure, and customer value, enterprises must tackle an even more challenging issue: how to execute effectively across the organization. In many manufacturing enterprises, sales teams secure orders, the supply chain handles procurement and logistics, and factories manage production. Each department works diligently—but their goals are not inherently aligned. Sales may promise low prices to close deals; factories may face repeated disruptions from last-minute orders; and the supply chain may be perpetually stuck in reactive firefighting mode. The result? Though the enterprise appears responsive to customers, it sacrifices production efficiency, inventory turnover, and profit quality. AnYue Financial Intelligence Academy assisted this enterprise in reconstructing the accountability framework among sales, supply chain, and manufacturing. We conceptualize this as a 'leading-the-ox model': sales leads demand generation; the supply chain functions as the operational brain; and the factory serves as the high-efficiency execution center. Sales’ responsibilities no longer end at 'bringing back orders.' Instead, sales must deliver high-quality, structured demand forecasts—specifying which customer, which product, and how much volume is needed—and in which month. More importantly, sales must assume accountability for inventory consequences arising from forecast inaccuracies. The supply chain’s role also transforms fundamentally. It ceases to function merely as a procurement or logistics support unit and instead assumes centralized authority over material planning and final approval of production plans. For instance, if an order involves highly customized specifications—triggering frequent mold changes and escalating manufacturing costs—or if the customer’s payment terms are excessively extended and inventory risk unacceptably high, the supply chain holds the authority to require sales to renegotiate terms—or even reject orders inconsistent with overall profitability targets. The factory, meanwhile, reverts to its core role as a high-efficiency execution center. It is no longer directly disrupted by ad-hoc, urgent demands from sales nor required to independently decide what to produce. Instead, it executes against unified plans issued by the supply chain—focusing exclusively on quality, efficiency, and on-time delivery. This transformation essentially replaces historically siloed, parallel departmental relationships with an integrated, data-driven, profit-centered operational coordination mechanism—orchestrated centrally by the supply chain. VI. Performance Evaluation: Behavior Does Not Change Unless the Incentive Compass Shifts Even the most comprehensive plan fails if performance metrics remain unchanged—because human behavior will not shift either. Traditionally, sales performance may have been evaluated primarily on volume and revenue. Such metrics naturally incentivize teams to inflate numbers—even if it means accepting low-margin orders, extending payment terms, or accumulating excess inventory—all potentially labeled as 'growth' despite eroding profitability. Under a profit-first model, sales excellence is no longer measured solely by order volume, but by three more critical outcomes: gross margin, inventory turnover ratio, and cash flow contribution. Gross margin determines whether an order truly generates profit; inventory turnover reflects the health of sales forecasting and customer mix; and cash flow contribution reveals the quality of customer payments and the enterprise’s capital efficiency. When the evaluation compass pivots from 'revenue' to 'gross margin, turnover, and cash flow,' team behaviors shift accordingly. Sales proactively seeks higher-margin, faster-paying customers; the supply chain balances materials, capacity, inventory, and profitability holistically; and factories reduce efficiency losses caused by unplanned rush orders. In enterprise management, performance evaluation is not merely about tallying results—it is about designing behavior. What you measure is what your team pursues. VII. Why This Model Drives Turnaround This manufacturing enterprise’s successful turnaround was not achieved through any single action. It did not rely solely on price hikes, nor purely on cost-cutting, nor simply on acquiring more orders. Rather, it simultaneously realigned all key profit drivers—pricing, cost, demand, supply chain, operations, and incentives—under one coherent, integrated logic.

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