From the start, Sun and Tu set out to establish long-term relationships with vendors, believing that is the best way to impart ballast to a business in a tempestuous industry. "We will deal with a vendor only as a long-term partner," says Sun. Kingston has never canceled a purchase order. It always works with vendors to schedule the manufacture and delivery of chips and has never backed off that schedule. It does not grind suppliers down on price, preferring to get a consistent supply and quality. In the case of smaller, undercapitalized suppliers, Kingston often prepays.
Sun says, "People in this industry tend to be greedy because the money turns so fast." He adds that not paying bills on time in order to earn a little extra interest at the expense of a creditor makes no sense whatsoever. "For a fraction of a percent you suddenly become an unethical person."
"Other customers play games and delay payments," says Al Soni of Samsung. "Because of Kingston's relationships, it's able to get hard-to-get parts before everyone else does." In turn, strong relationships with vendors allow Kingston to focus on things that really matter. "A lot of their competitors shop around all over the world. They spend all their energy on price," continues Soni. "Sun and Tu get a good price from us, good support, and consistent supply. As a result, they're able to spend more time on things that make a difference, like developing their sales and marketing channels."
Soni says Kingston has "established a new trend" for its industry by booking an order, building the product, and shipping it the same day. It is a process competitors will be forced to follow, and it is one that pays customers a considerable dividend: they don't have to carry any inventory.
One Kingston customer, Ingram Micro, based in nearby Santa Ana, sells more than $1.5 billion worth of computer equipment annually. It receives two shipments a day from Kingston. Another customer, Gates F/A, based in Greenville, S.C., places orders with Kingston nightly -- and has the product in its Ohio warehouse the next day. Jerry Lumpkin at Gates F/A says Kingston's name is synonymous with both product quality and being first to market. If Kingston can't produce it, then likely no one else can. "Sometimes we hear from other vendors, 'Even Kingston doesn't have it.' Kingston provides a benchmark for other companies to measure themselves against."
Kingston supports its distributors by drop-shipping direct to end-users when necessary. It immediately replaces defective products, no questions asked, without waiting for returns. Similarly, Kingston pours a lot of resources into technical support, knowing it will be called on to answer questions about other manufacturers' equipment that has been integrated with its own.
John Tu sums up Kingston's strategy simply: "We want to make it so the customer can't afford not to do business with us." David Sun echoes the sentiment, arguing that Kingston's just-in-time bend-over-backwards way of doing business does more than create goodwill. It makes good sense. "If we ship the same day, then there are no back orders. They create extra work. We say instead, 'We'll support you. We'll ship to you every day.' The distributor is not forced to take a lot of product all at one time." As a result, Sun emphasizes, should the market suddenly fall apart, the distributor is not put in the position of having to take delivery on thousands of units previously committed to and no longer wanted. That reduces the risk of weakening the relationship between Kingston and its customers.
Kingston and its vendors in effect hold the customers' inventory. "We are sitting here as a broker of services from our employees and vendors to our customers," says Sun. Kingston not only eliminates the cost and hassle of inventory for its customers but offers a wide array of products. Moreover, because of its favored status with strong vendors, it is virtually assured of having new products first. To Kingston customers, that translates into relative scarcity of those products -- and, accordingly, higher margins before the market becomes flooded.
In the meantime, Kingston's founders act as though the company could end tomorrow -- and even take great pains to talk down its success. Tu has been a persistent worrier since day one, figuring the company would be out of business within six months of start-up, as soon as competitors caught on to it. Sitting in his office one recent day, Tu held the simple memory chip upon which Kingston built its early success. "This is like making chocolate-chip cookies. This is really stupid," he said, shaking his head and noting there was nothing revolutionary at all about the device. "I never imagined we would get this far."
Mike Burns of Motorola predicts Kingston will hardly be a flash in the pan. Not only has the company redefined the way its industry does business, it's also pushing into new niches with entrepreneurial flair. Not only has Kingston gotten into building upgrade products for workstations, it has also delved into processor, graphics, and network cards, and recently invested in a nearby company that manufactures laser printers. It has also embarked on a joint venture to market its products through a chain of superstores, believing that type of outlet to be the wave of the future.
Kingston has always been quick to spot a trend in the computer marketplace and jump on it. With PC manufacturers at war with one another, introducing better and cheaper products at a faster and faster rate, it appears that -- despite Tu's worries -- Kingston's market is not about to dry up anytime soon.
