It's Not Luck - Eliyahu M. Goldratt [24]
“What do you mean?” I’m irritated. “You think that I can develop a generic process to find marketing solutions?!”
“Yes, that’s exactly what I mean.”
I don’t bother to answer.
9
“I think we found a way to make the wrapper department even more profitable than the box department.” Pete is excited, and so am I.
Last year, the wrapper department caused four million dollars in losses, reducing the overall profit of the company to less than one million dollars. If Pete is right, if he found a marketing breakthrough that turns the wrappers into being as profitable as the rest of the business, then. . . . Jesus, if they just break even the profit will be five million dollars!
I can’t believe it. It’s too good to be true. Could it be that Pete, in his eagerness to stop the sale of his company, has come up with some farfetched, risky approach?
“Start at the beginning. Take your time,” I say to him. “And prepare yourself for in-depth scrutiny.”
“That’s what I want,” he smiles broadly. “It all fell in place after Don’s phone call.”
“My phone call?” Don says surprised. “I don’t remember giving you any new ideas.”
“Yes, you did,” Pete insists. “A big one.”
“It’s very nice of you to say so,” Don is clearly confused, “especially in front of my boss. But, sorry Pete, what I recall is that I asked how come you can’t compete against the fast printing presses on large quantities, and you can on small ones.”
“Exactly!” Pete is clearly amused by Don’s expression. “You caused us to stop feeling sorry about our apparent disadvantages, and start concentrating on the advantages that we do have.”
“I see,” Don says. But after a moment he adds, “No, I don’t see. I don’t see how your ability to do quick set-ups can help you compete on large quantities.”
“Don, you miss the point,” I say. “Pete didn’t say he is going after the large quantities, he just said that they decided to concentrate on the markets where they have an advantage. Congratulations, Pete. I knew that if you overcame your obsession that big money can only be found in the large quantities, you would find that there are enough additional lucrative markets that require small quantities. So tell me, what are those markets?” I ask, pleased.
Pete doesn’t answer, he just clears his throat in embarrassment. I burst out laughing. It looks like it’s not Don, but me, who missed the mark, and by a mile. “Okay, Pete, tell us your brilliant idea. How can quick set-up help you win the large-quantity market in spite of the speed of your competitors’ presses?”
“Simple,” he says. “Actually, not so simple. Let me start by describing the cloud of our customers.”
“Please do.”
Pete goes to the white board and starts to unfold the cloud. “The objective of a buyer is to be in line with his corporate directives. In order to be in line with his corporate directives, the buyer must try to get the best financial deal from the vendors. In our industry, where set-up is large, the only way to get a price break is to order large quantities. So, in order to get the best financial deal from the vendor, the buyer must order large quantities.”
“This is clear.”
“On the other hand,” Pete continues, “in order to be in line with his corporate directives, the buyer must strive to reduce inventories. I don’t have to tell you to what extent corporate culture has changed in regard to its tolerance for holding large inventories.”
“No, you don’t have to tell us,” I full-heartedly agree.
“This means,” Pete completes the cloud, “that in order to strive to reduce inventories, the buyer must order in small quantities more frequently.”
“The conflict is clear,” Don says, “but the pressure to get low price is dominant, isn’t it?”
“Yes,” Pete agrees.
“Do you see any reason for that to change?” Don continues to ask.
“Maybe,” Pete answers. “As competition in the market becomes more fierce, and I’m talking about the market of my clients, their forecast becomes less accurate. This makes ordering large quantities more hazardous for