Critical Chain - Eliyahu M. Goldratt [78]
"How come?"
Aggressively, he answers. "Let me tell you the full story. At the time we sign the contract, our prices are very low. Competition is so fierce that we don't have any choice. You can win or lose a bid on a three percent difference in price. Everybody is cutting everybody else's throat. Where do we make our money?" He pauses for a second as if waiting for me to answer.
I don't know the answer.
"On the changes!" And then he elaborates. "Our motto is, the client is always right. They want changes, we won't argue, we'll gladly do them, the more the better. But at this stage we are not afraid that our dear client will turn to our competitor, so they pay. Handsomely." Ted looks as if he has just revealed the secret of his trade.
Judith just finished major repairs on our house, so I know how much they charge for things that are not spelled out in the contract. I suspect that if Judith hadn't initiated changes, the contractors would have their ways of inducing her to ask for them. Come to think of it, they probably did. Who needs eight inches of insulation in the roof?
Ted is right. For his company, what's the point of finishing ahead of time?
Getting paid earlier? Can't be a major consideration, they get progress payments.
Before I give up, I try to understand more about his business environment. "Aside from the money you overcharge for the changes, what is the damage to your client of having the buildings ready three months late?"
"I don't know, but isn't that his problem?"
"Maybe. But let's think about it. Three months' delay. What might be the damage for him?"
"For the developer?" Ted thinks a little. "He will sell the apartments three months later than he expected."
I keep asking, "Is that a big deal for the developer? It must impact his cash flow."
"That might be a problem," he agrees. Then, slowly, he adds, "It might be a big problem."
"Why?"
"Most developers don't have enough capital; the investments are far too big. They borrow money. I don't think I know any developer who is not mortgaged to the hilt. Cash flow is their major concern.
"Actually, I can give you more than one example where a three-month delay bankrupted a developer." Smiling, he adds, "Thank God it's not our problem. We get paid one way or another...I think."
After a moment of silence, he says, "You might have a point. I'd better check how much money we lost because developers went bankrupt. As a matter of fact, their tight cash flow affects us all the time. They delay their payments to us. Which is a problem."
He stands up. "Thank you." He shakes my hand, and with a warm smile, he is gone.
"See you next weekend," I say to the closed door, and return to my work.
Not for long. Another knock on my door. I didn't know they turned my office into a train station.
"Come in."
This time it's Johnny. I stand up to welcome him.
"I haven't made any progress on bottlenecks in projects," I warn him.
"Neither did I," he smiles. "I came for something else. Charlene told me about something interesting she picked up in your class."
"If you mean ‘net-present-value,' I don't teach it, and in spite of all Charlene's efforts, I don't even understand it. I know she claims the opposite, but . . ." And I leave the sentence open.
"I'm sure you teach many interesting things, but the one I'm particularly interested in is how to negotiate with vendors. The shorter lead time aspect."
I like this subject. I started to really like it after Roger gave his brilliant presentation. He described all four meetings, using such sharp and dry humor I almost started to like him.
"What do you want to know about it?"
"Everything." And then he explains. "You know that I'm connected to UniCo. You also know that UniCo is putting a large operation here."
Of course I know, who doesn't? "But isn't