The Goal: A Process of Ongoing Improvement, page 39
"Go ahead, Stacey.’’
"Come on fellas, don’t look at me like that. After operating for so long with mountains of finished goods, wouldn’t anybody do the same?’’
"Do what?’’ Bob is lost. "Will you please stop talking in riddles?’’
"We all knew how important it was to make the bottlenecks work all the time.’’ Stacey starts at last to explain. "Remember, ‘An hour lost on the bottleneck is an hour lost for the entire plant.’ So, when I realized that the load on the bottlenecks was dropping, I issued orders for products to be on the shelf, in stock. Stupid, I know now, but at least at the moment our finished goods are balanced to roughly six weeks. No more of that awful situation where we hold mountains of some products and not even one single unit of others.’’
"That’s good,’’ Lou says. "It means we can easily deplete it. Alex be careful not to do it too fast, remember the bottom-line ramifications.’’
It’s Stacey’s turn to be puzzled. "Why shouldn’t we get rid of the finished products as fast as possible?’’ she asks.
"Never mind,’’ I impatiently say. "Lou can, and should, explain it to all of you later. Right now we should correct our fivestep process. Now we all know to what extent Ralph was right, something is definitely missing.’’
"Can I correct it?’’ Stacey says sheepishly, and goes to the board.
When she returns to her seat the board has the following:
1. IDENTIFY the system’s constraint(s).
2. Decide how to EXPLOIT the system’s constraint(s).
3. SUBORDINATE everything else to the above decision.
4. ELEVATE the system’s constraint(s).
5. WARNING!!!! If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system’s constraint.
Examining the board, Lou moans, "It’s much worse than I thought.’’
"On the contrary,’’ I’m surprised. "It’s much better than I thought.’’
We look at each other. "You first,’’ I say. "Why do you claim that it’s much worse?’’
"Because I’ve lost my only guideline.’’
When he realizes that we don’t get it, he elaborates; "All the changes that we made so far, all the sacred cows that we had to slaughter, had one thing in common, they all stem from cost accounting. Local efficiencies, optimum batch sizes, product cost, inventory evaluations, all came from the same source. I didn’t have much problem with it. As a controller I questioned cost accounting validity for a long time. Remember, it’s the invention of the beginning of the century when conditions were much different from today. As a matter of fact, I started to have a very good guideline; if it comes from cost accounting it must be wrong.’’
"Very good guideline,’’ I smile. "But what is your problem?’’
"Don’t you see, the problem is much bigger; it’s not only cost accounting. We put on the green and red tags not because of cost accounting, but because we realized the importance of the bottlenecks. Stacey created orders for finished goods because of our new understanding, because she wanted to make sure that the bottlenecks’ capacity will not be wasted. I thought that it takes a lot of time to develop inertia. What I now see is that it takes less than one month.’’
"Yes, you are right,’’ I say gloomily. "Whenever the constraint is broken it changes conditions to the extent that it is very dangerous to extrapolate from the past.’’
"As a matter of fact,’’ Stacey adds, "even the things that we put in place in order to elevate the constraint must be reexamined.’’
"How can we do it?’’ Bob asks. "It’s impossible to question everything every time.’’
"Something is still missing,’’ Ralph summarizes.
Something definitely is still missing.
"Alex, it’s your turn to explain,’’ Lou says.
"Explain what?’’
"Why did you claim that it’s much better?’’
I smile. It’s about time for some good news.
"Fellows, what stopped us from once again taking another jump on the bottom line? Nothing, except for the conviction that we don’t have enough capacity. Well, now we know differently. Now we know that we have a lot of spare capacity.’’
How much spare capacity do we actually have?
"Stacey, how much of the current load on the oven and the NCX10 is due to the fictitious orders?’’
"Roughly twenty percent,’’ she says quietly.
"Marvelous,’’ I rub my hands together. "We have enough capacity to really take the market. I’d better drive to headquarters tomorrow morning and have a heart-to-heart talk with Johnny Jons. Lou, I’ll definitely need you. On second thought, Ralph, will you join us? And bring your computer with you, we’re going to show them something.’’
38
It is six o’clock in the morning when I pick up Lou and Ralph at the plant. We (I) decided that it will be best, since picking them up at their houses would mean I would have had to leave home close to five. In any event, we’re probably not going to spend more than a few hours at headquarters so it’s reasonable to assume that we’ll be back to work in the afternoon.
We hardly talk. Ralph, in the back seat, is busy with his laptop computer. Lou probably thinks that he’s still in bed. I drive on automatic pilot. That is, my mind is busy constructing imaginary conversations with Johnny Jons. I somehow have to convince him to get many more orders for our plant.
Yesterday, in the heat of discovering the amount of free capacity that we have, I looked only on the bright side. Now I wonder if I’m not just asking for miracles.
I recheck the numbers in my head. In order to fill our capacity Johnny will have to come up with over ten million dollars of additional sales. It is totally unrealistic that he holds so much up his sleeve.
So, squeezing, begging, and pleading techniques will not help. We’ll have to come up with some innovative ideas. Well, the truth is that so far I haven’t been able to come up with any. Let’s hope Johnny has some clever ideas; he’s the one who is supposed to be the expert in sales.
"I want you to meet Dick Pashky,’’ Johnny Jons says as we enter the small conference room. "He’s one of my best people. Dedicated, professional, and above all he’s full of innovative approaches. I thought it would be a good idea for you to get to know him. Do you mind if he joins us?’’
"On the contrary,’’ I smile. "We need some innovative ideas. You see, what I want is for you to get my plant additional business —ten million dollars’ worth.’’
Johnny bursts out laughing. "Jokers, all of you in production are wonderful jokers. Dick, what did I tell you? It’s not easy to deal with plant managers. One is asking me to persuade his client to pay a ten percent increase in price, another wants me to get rid of a pile of old junk for full price, but Alex, you’re the best—ten million dollars!’’
He continues to laugh, but I don’t join in.
"Johnny, put on your thinking cap. You must find more orders for my plant, ten million dollars more.’’
He stops laughing and looks at me, "You are serious. Alex, what’s happened to you? You know how tough it is to get more business these days; it’s dog eat dog out there. Everybody is cutting each other’s throats for the smallest order and you’re talking about ten million dollars more?’’
I don’t hurry to respond. I lean back in my seat and look at him. Finally I say, "Listen Johnny, you know that my plant has improved. What you don’t know is to what extent it’s improved. We’re now capable of delivering everything within two weeks. We’ve demonstrated that we never miss an order, not even by one day. Our quality has improved to the extent that I’m sure we’re the best in the market. We are very responsive, very quick, and above all, very reliable. This is not a sales pitch, it’s the truth.’’
"Alex, I know all this. I hear it from the best source, from my clients. But that doesn’t mean that I can immediately turn it into cash. Sales take time, credibility is not built overnight, it’s a gradual process. And by the way, you shouldn’t complain; I’m bringing you more and more sales. Be patient and don’t press for miracles.’’
"I have twenty percent spare capacity.’’ I say, letting this sentence hang in the air.
From the lack of response I understand that Johnny doesn’t see the relevance.
"I need twenty percent more sales,’’ I translate for him.
"Alex, orders are not apples hanging from trees. I can’t just go out and pick some for you.’’
"There must be orders that you decline, because the quality requirement is too high or because the client is asking for unreasonably short delivery times or something. Get me those orders.’’
"You probably don’t know how bad the economy is,’’ he sighs. "Today I accept any order, anything that moves. I know that a lot of dancing will be required later, but the current pressure is simply too high.’’
"If the competition is so fierce and the economy is so bad,’’ Lou says in his quiet voice, "then it must be that clients are pressing for lower prices.’’
"Pressing is not the word. Squeezing is much more appropriate. Can you imagine, and this is just between us, in some cases I’m forced to accept business for practically zero margin.’’
I start to see the light at the end of the tunnel.
"Johnny, do they sometimes demand prices that are lower than our cost?’’
"Sometimes? All the time.’’
"And what do you do?’’ I continue.
"What can I do?’’ he laughs. "I try to explain the best I can. Sometimes it even works.’’
I swallow hard and say, "I’m ready to accept orders for ten percent below cost.’’
Johnny doesn’t hurry to answer. His peoples’ bonuses are based on total sales dollars. Finally he says, "Forget it.’’
"Why?’’
He doesn’t answer. I persist, "Why should I forget it?’’
"Because it’s stupid, because it doesn’t make any business sense,’’ he says in a hard voice, and then softer, "Alex, I don’t know what tricks you have in mind but let me tell you, all those tricks have a very short life span before they explode in your face. Why do you want to ruin a promising career? You’ve done an outstanding job, why go and mess it up? Besides, if we lower prices for one client, it’s just a matter of time until the others find out and demand the same. What then?’’
He has a point. The last argument shows that the light at the end of the tunnel was just a train.
Help comes from an unexpected side.
"Djangler is not connected to our regular customers,’’ Dick says hesitantly. "Besides, with the quantities he’s asking for, we can always claim we gave him a volume discount.’’
"Forget it,’’ Johnny is practically shouting. "That bastard is asking us to give him the goods for basically nothing, not to mention that he wants us to ship to France at our expense.’’
Turning to me he says, "This French guy has chutzpah, it’s unbelievable. We negotiated for three months. We established each other’s credibility, we agreed on terms and conditions. It all takes time. He asked for every technical detail that you can imagine, and we’re not talking about one or two products, it’s for almost the entire range. All this time not even a peep about prices. At the end, just two days ago, when everything is agreed, he faxes me that our prices are not acceptable and sends his counter offer. I was expecting the usual thing, asking for price reductions of ten percent, maybe fifteen percent considering the large quantities that he is willing to buy, but no, these Europeans probably have a different perception. For example, Model Twelve, the one that you pulled such a miracle on. Our price is nine hundred and ninety-two dollars. We sell it to Burnside for eight hundred and twenty-seven dollars; they’re a big client and they consume very large quantities of this particular product. The bastard had the nerve to offer seven hundred and one dollars. Did you hear that! Seven hundred and one dollars. Now you understand?’’
I turn to Ralph, "What’s our material cost for Model Twelve?’’
"Three hundred thirty-four dollars and seven cents,’’ Lou answers without any hesitation.
"Johnny, are you sure that accepting this order will not have any impact on our domestic clients?’’
"Not unless we go out, and sing it from the rooftops. On this point Dick is right, no impact. But the whole idea is ridiculous. Why are we wasting our time?’’
I look at Lou, he nods.
"We’ll take it,’’ I say.
When Johnny doesn’t respond, I repeat, "We’ll take it.’’
"Can you explain what is going on?’’ he finally says, between gritted teeth.
"It’s very simple,’’ I answer. "I told you that I have spare capacity. If we take this order, the only out-of-pocket cost to produce these products will be the cost of the materials. We’ll get seven hundred and one dollars, and we’ll pay three hundred and thirty-four dollars. That’s three hundred seventy-eight dollars to the bottom line per unit.’’
"It’s three hundred sixty-six ninety-three per unit, and you forgot the freight,’’ Lou corrects me.
"Thank you. How much is the air freight per unit?’’ I ask Johnny.
"I don’t remember, but it’s not more than thirty bucks.’’
"Can we see the details of that deal?’’ I ask him. "What I’m particularly interested in is the products, the quantities per month, and the prices.’’
Johnny gives me a long look and then turns to Dick, "Bring it.’’
Once Dick is on his way, Johnny says in a puzzled voice, "I don’t get it. You want to sell in Europe for a price that is much less than what we get here, even less than the production cost, and you still claim that you’ll make a lot of money? Lou, you’re a controller, does it make sense to you?’’
"Yes,’’ Lou says.
Seeing the miserable expression on Johnny’s face, I jump in before Lou has a chance to explain. Financial calculations, showing the fallacy of the ‘product cost’ concept won’t help, it will just confuse Johnny even more than he’s confused now. I decide to approach it from another angle.
"Johnny, where do you prefer to buy a Japanese camera, in Tokyo or in Manhattan?’’
"In Manhattan, of course.’’
"Why?’’
"Because in Manhattan it’s cheaper, everybody knows that,’’ Johnny says confidently, here he’s on solid ground. "I know a place on Forty-seventh Street where you can get a real bargain— half price compared to what they asked me to pay in Tokyo.’’
"Why do you think it is cheaper in Manhattan?’’ I ask, and then answer my own question, "Ah, we know, transportation prices must be negative.’’
We all laugh.
"O.K. Alex. You’ve convinced me. I still don’t understand but if it’s good for the Japanese, it must be profitable.’’
We work on the numbers for almost three hours. It’s a good thing that I brought both Ralph and Lou.
We calculate the load that this large deal will place on the bottlenecks—no problem. We check the impact on each of the seven problematic work centers—two might reach the dangerous zone, but we can manage. Then we calculate the financial impact —impressive. Very impressive. At last we’re ready.
"Johnny, I have one more question. What guarantees that the European manufacturers won’t start a price war?’’
"What do you care,’’ Johnny brushes the issue aside. "With such ridiculous prices I’m going to lock in Monsieur Djangler for at least one year.’’
"Not good enough,’’ I say.
"Now you’re really getting difficult. I knew that this was too good to be true.’’
"That’s not the point, Johnny. I want to use this deal as a beachhead to penetrate Europe. We can’t afford a price war. We must come up with something else besides price, something that will make it very difficult to compete with us. Tell me, what’s the average supply time in Europe?’’
"About the same as here, eight to twelve weeks,’’ he answers.
"Good. Promise your Monsieur that if he commits to the quantities per year, we’ll deliver any reasonable quantity within three weeks of receiving his fax.’’
In astonishment he asks, "Are you serious?’’
"Dead serious. And by the way, I can start to deliver immediately. I have whatever’s needed for the first shipment in stock.’’
"I guess it’s your neck,’’ he sighs. "What the heck, in any event you will have full responsibility very shortly. If I don’t hear from you, I’ll fax him tomorrow. Consider it a done deal.’’
"Come on fellas, don’t look at me like that. After operating for so long with mountains of finished goods, wouldn’t anybody do the same?’’
"Do what?’’ Bob is lost. "Will you please stop talking in riddles?’’
"We all knew how important it was to make the bottlenecks work all the time.’’ Stacey starts at last to explain. "Remember, ‘An hour lost on the bottleneck is an hour lost for the entire plant.’ So, when I realized that the load on the bottlenecks was dropping, I issued orders for products to be on the shelf, in stock. Stupid, I know now, but at least at the moment our finished goods are balanced to roughly six weeks. No more of that awful situation where we hold mountains of some products and not even one single unit of others.’’
"That’s good,’’ Lou says. "It means we can easily deplete it. Alex be careful not to do it too fast, remember the bottom-line ramifications.’’
It’s Stacey’s turn to be puzzled. "Why shouldn’t we get rid of the finished products as fast as possible?’’ she asks.
"Never mind,’’ I impatiently say. "Lou can, and should, explain it to all of you later. Right now we should correct our fivestep process. Now we all know to what extent Ralph was right, something is definitely missing.’’
"Can I correct it?’’ Stacey says sheepishly, and goes to the board.
When she returns to her seat the board has the following:
1. IDENTIFY the system’s constraint(s).
2. Decide how to EXPLOIT the system’s constraint(s).
3. SUBORDINATE everything else to the above decision.
4. ELEVATE the system’s constraint(s).
5. WARNING!!!! If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system’s constraint.
Examining the board, Lou moans, "It’s much worse than I thought.’’
"On the contrary,’’ I’m surprised. "It’s much better than I thought.’’
We look at each other. "You first,’’ I say. "Why do you claim that it’s much worse?’’
"Because I’ve lost my only guideline.’’
When he realizes that we don’t get it, he elaborates; "All the changes that we made so far, all the sacred cows that we had to slaughter, had one thing in common, they all stem from cost accounting. Local efficiencies, optimum batch sizes, product cost, inventory evaluations, all came from the same source. I didn’t have much problem with it. As a controller I questioned cost accounting validity for a long time. Remember, it’s the invention of the beginning of the century when conditions were much different from today. As a matter of fact, I started to have a very good guideline; if it comes from cost accounting it must be wrong.’’
"Very good guideline,’’ I smile. "But what is your problem?’’
"Don’t you see, the problem is much bigger; it’s not only cost accounting. We put on the green and red tags not because of cost accounting, but because we realized the importance of the bottlenecks. Stacey created orders for finished goods because of our new understanding, because she wanted to make sure that the bottlenecks’ capacity will not be wasted. I thought that it takes a lot of time to develop inertia. What I now see is that it takes less than one month.’’
"Yes, you are right,’’ I say gloomily. "Whenever the constraint is broken it changes conditions to the extent that it is very dangerous to extrapolate from the past.’’
"As a matter of fact,’’ Stacey adds, "even the things that we put in place in order to elevate the constraint must be reexamined.’’
"How can we do it?’’ Bob asks. "It’s impossible to question everything every time.’’
"Something is still missing,’’ Ralph summarizes.
Something definitely is still missing.
"Alex, it’s your turn to explain,’’ Lou says.
"Explain what?’’
"Why did you claim that it’s much better?’’
I smile. It’s about time for some good news.
"Fellows, what stopped us from once again taking another jump on the bottom line? Nothing, except for the conviction that we don’t have enough capacity. Well, now we know differently. Now we know that we have a lot of spare capacity.’’
How much spare capacity do we actually have?
"Stacey, how much of the current load on the oven and the NCX10 is due to the fictitious orders?’’
"Roughly twenty percent,’’ she says quietly.
"Marvelous,’’ I rub my hands together. "We have enough capacity to really take the market. I’d better drive to headquarters tomorrow morning and have a heart-to-heart talk with Johnny Jons. Lou, I’ll definitely need you. On second thought, Ralph, will you join us? And bring your computer with you, we’re going to show them something.’’
38
It is six o’clock in the morning when I pick up Lou and Ralph at the plant. We (I) decided that it will be best, since picking them up at their houses would mean I would have had to leave home close to five. In any event, we’re probably not going to spend more than a few hours at headquarters so it’s reasonable to assume that we’ll be back to work in the afternoon.
We hardly talk. Ralph, in the back seat, is busy with his laptop computer. Lou probably thinks that he’s still in bed. I drive on automatic pilot. That is, my mind is busy constructing imaginary conversations with Johnny Jons. I somehow have to convince him to get many more orders for our plant.
Yesterday, in the heat of discovering the amount of free capacity that we have, I looked only on the bright side. Now I wonder if I’m not just asking for miracles.
I recheck the numbers in my head. In order to fill our capacity Johnny will have to come up with over ten million dollars of additional sales. It is totally unrealistic that he holds so much up his sleeve.
So, squeezing, begging, and pleading techniques will not help. We’ll have to come up with some innovative ideas. Well, the truth is that so far I haven’t been able to come up with any. Let’s hope Johnny has some clever ideas; he’s the one who is supposed to be the expert in sales.
"I want you to meet Dick Pashky,’’ Johnny Jons says as we enter the small conference room. "He’s one of my best people. Dedicated, professional, and above all he’s full of innovative approaches. I thought it would be a good idea for you to get to know him. Do you mind if he joins us?’’
"On the contrary,’’ I smile. "We need some innovative ideas. You see, what I want is for you to get my plant additional business —ten million dollars’ worth.’’
Johnny bursts out laughing. "Jokers, all of you in production are wonderful jokers. Dick, what did I tell you? It’s not easy to deal with plant managers. One is asking me to persuade his client to pay a ten percent increase in price, another wants me to get rid of a pile of old junk for full price, but Alex, you’re the best—ten million dollars!’’
He continues to laugh, but I don’t join in.
"Johnny, put on your thinking cap. You must find more orders for my plant, ten million dollars more.’’
He stops laughing and looks at me, "You are serious. Alex, what’s happened to you? You know how tough it is to get more business these days; it’s dog eat dog out there. Everybody is cutting each other’s throats for the smallest order and you’re talking about ten million dollars more?’’
I don’t hurry to respond. I lean back in my seat and look at him. Finally I say, "Listen Johnny, you know that my plant has improved. What you don’t know is to what extent it’s improved. We’re now capable of delivering everything within two weeks. We’ve demonstrated that we never miss an order, not even by one day. Our quality has improved to the extent that I’m sure we’re the best in the market. We are very responsive, very quick, and above all, very reliable. This is not a sales pitch, it’s the truth.’’
"Alex, I know all this. I hear it from the best source, from my clients. But that doesn’t mean that I can immediately turn it into cash. Sales take time, credibility is not built overnight, it’s a gradual process. And by the way, you shouldn’t complain; I’m bringing you more and more sales. Be patient and don’t press for miracles.’’
"I have twenty percent spare capacity.’’ I say, letting this sentence hang in the air.
From the lack of response I understand that Johnny doesn’t see the relevance.
"I need twenty percent more sales,’’ I translate for him.
"Alex, orders are not apples hanging from trees. I can’t just go out and pick some for you.’’
"There must be orders that you decline, because the quality requirement is too high or because the client is asking for unreasonably short delivery times or something. Get me those orders.’’
"You probably don’t know how bad the economy is,’’ he sighs. "Today I accept any order, anything that moves. I know that a lot of dancing will be required later, but the current pressure is simply too high.’’
"If the competition is so fierce and the economy is so bad,’’ Lou says in his quiet voice, "then it must be that clients are pressing for lower prices.’’
"Pressing is not the word. Squeezing is much more appropriate. Can you imagine, and this is just between us, in some cases I’m forced to accept business for practically zero margin.’’
I start to see the light at the end of the tunnel.
"Johnny, do they sometimes demand prices that are lower than our cost?’’
"Sometimes? All the time.’’
"And what do you do?’’ I continue.
"What can I do?’’ he laughs. "I try to explain the best I can. Sometimes it even works.’’
I swallow hard and say, "I’m ready to accept orders for ten percent below cost.’’
Johnny doesn’t hurry to answer. His peoples’ bonuses are based on total sales dollars. Finally he says, "Forget it.’’
"Why?’’
He doesn’t answer. I persist, "Why should I forget it?’’
"Because it’s stupid, because it doesn’t make any business sense,’’ he says in a hard voice, and then softer, "Alex, I don’t know what tricks you have in mind but let me tell you, all those tricks have a very short life span before they explode in your face. Why do you want to ruin a promising career? You’ve done an outstanding job, why go and mess it up? Besides, if we lower prices for one client, it’s just a matter of time until the others find out and demand the same. What then?’’
He has a point. The last argument shows that the light at the end of the tunnel was just a train.
Help comes from an unexpected side.
"Djangler is not connected to our regular customers,’’ Dick says hesitantly. "Besides, with the quantities he’s asking for, we can always claim we gave him a volume discount.’’
"Forget it,’’ Johnny is practically shouting. "That bastard is asking us to give him the goods for basically nothing, not to mention that he wants us to ship to France at our expense.’’
Turning to me he says, "This French guy has chutzpah, it’s unbelievable. We negotiated for three months. We established each other’s credibility, we agreed on terms and conditions. It all takes time. He asked for every technical detail that you can imagine, and we’re not talking about one or two products, it’s for almost the entire range. All this time not even a peep about prices. At the end, just two days ago, when everything is agreed, he faxes me that our prices are not acceptable and sends his counter offer. I was expecting the usual thing, asking for price reductions of ten percent, maybe fifteen percent considering the large quantities that he is willing to buy, but no, these Europeans probably have a different perception. For example, Model Twelve, the one that you pulled such a miracle on. Our price is nine hundred and ninety-two dollars. We sell it to Burnside for eight hundred and twenty-seven dollars; they’re a big client and they consume very large quantities of this particular product. The bastard had the nerve to offer seven hundred and one dollars. Did you hear that! Seven hundred and one dollars. Now you understand?’’
I turn to Ralph, "What’s our material cost for Model Twelve?’’
"Three hundred thirty-four dollars and seven cents,’’ Lou answers without any hesitation.
"Johnny, are you sure that accepting this order will not have any impact on our domestic clients?’’
"Not unless we go out, and sing it from the rooftops. On this point Dick is right, no impact. But the whole idea is ridiculous. Why are we wasting our time?’’
I look at Lou, he nods.
"We’ll take it,’’ I say.
When Johnny doesn’t respond, I repeat, "We’ll take it.’’
"Can you explain what is going on?’’ he finally says, between gritted teeth.
"It’s very simple,’’ I answer. "I told you that I have spare capacity. If we take this order, the only out-of-pocket cost to produce these products will be the cost of the materials. We’ll get seven hundred and one dollars, and we’ll pay three hundred and thirty-four dollars. That’s three hundred seventy-eight dollars to the bottom line per unit.’’
"It’s three hundred sixty-six ninety-three per unit, and you forgot the freight,’’ Lou corrects me.
"Thank you. How much is the air freight per unit?’’ I ask Johnny.
"I don’t remember, but it’s not more than thirty bucks.’’
"Can we see the details of that deal?’’ I ask him. "What I’m particularly interested in is the products, the quantities per month, and the prices.’’
Johnny gives me a long look and then turns to Dick, "Bring it.’’
Once Dick is on his way, Johnny says in a puzzled voice, "I don’t get it. You want to sell in Europe for a price that is much less than what we get here, even less than the production cost, and you still claim that you’ll make a lot of money? Lou, you’re a controller, does it make sense to you?’’
"Yes,’’ Lou says.
Seeing the miserable expression on Johnny’s face, I jump in before Lou has a chance to explain. Financial calculations, showing the fallacy of the ‘product cost’ concept won’t help, it will just confuse Johnny even more than he’s confused now. I decide to approach it from another angle.
"Johnny, where do you prefer to buy a Japanese camera, in Tokyo or in Manhattan?’’
"In Manhattan, of course.’’
"Why?’’
"Because in Manhattan it’s cheaper, everybody knows that,’’ Johnny says confidently, here he’s on solid ground. "I know a place on Forty-seventh Street where you can get a real bargain— half price compared to what they asked me to pay in Tokyo.’’
"Why do you think it is cheaper in Manhattan?’’ I ask, and then answer my own question, "Ah, we know, transportation prices must be negative.’’
We all laugh.
"O.K. Alex. You’ve convinced me. I still don’t understand but if it’s good for the Japanese, it must be profitable.’’
We work on the numbers for almost three hours. It’s a good thing that I brought both Ralph and Lou.
We calculate the load that this large deal will place on the bottlenecks—no problem. We check the impact on each of the seven problematic work centers—two might reach the dangerous zone, but we can manage. Then we calculate the financial impact —impressive. Very impressive. At last we’re ready.
"Johnny, I have one more question. What guarantees that the European manufacturers won’t start a price war?’’
"What do you care,’’ Johnny brushes the issue aside. "With such ridiculous prices I’m going to lock in Monsieur Djangler for at least one year.’’
"Not good enough,’’ I say.
"Now you’re really getting difficult. I knew that this was too good to be true.’’
"That’s not the point, Johnny. I want to use this deal as a beachhead to penetrate Europe. We can’t afford a price war. We must come up with something else besides price, something that will make it very difficult to compete with us. Tell me, what’s the average supply time in Europe?’’
"About the same as here, eight to twelve weeks,’’ he answers.
"Good. Promise your Monsieur that if he commits to the quantities per year, we’ll deliver any reasonable quantity within three weeks of receiving his fax.’’
In astonishment he asks, "Are you serious?’’
"Dead serious. And by the way, I can start to deliver immediately. I have whatever’s needed for the first shipment in stock.’’
"I guess it’s your neck,’’ he sighs. "What the heck, in any event you will have full responsibility very shortly. If I don’t hear from you, I’ll fax him tomorrow. Consider it a done deal.’’
