It's Not Luck - Eliyahu M. Goldratt [86]
“Susan, that’s not a problem,” Jeff says in a quiet voice. “We are not going to ship them merchandise the way we are doing it today. We are going to replenish to them. This means that in order to get merchandise, they will have to report what they have sold to us on a daily, or at least a very regular basis. I think that we can easily build an amicable system.”
“Hmmm. . . . Maybe. Let me give it some thought.”
“It’s all very nice,” Bob says. “But are you going to give us the cash. Consignment means that the shops are holding our inventory. Do you think that we can get back the cash that we released to UniCo when we dropped our finished goods inventory?”
By now I know the answer. Susan provided it. I decide to teach Bob a lesson. “Yes, I’ll get it for you. As much as is needed. But before I leave here, I want to know exactly how much you need.”
“No problem,” he says. “I asked Morris, my new controller, to calculate it. I’m sure he has the numbers.”
“How much is it?” I ask.
“Frankly, I don’t know. You see, a day after I asked him, we decided that it was impractical. So I never asked for his answer. But I can call him in.”
“Please.”
Until Bob’s controller arrives, they debate what to do with the shops’ obsolete product. They come up with some neat solutions. The more they examine it, the better it looks. They are on a high. My promise to provide them with the cash they need has lifted a ton off their shoulders. It’s fun to watch. Eventually Morris arrives. “I took the time to double-check the numbers, just to make sure.”
“How much is it?” Bob asks him.
“About thirty-four million, three hundred thousand dollars.” He hurries to add, “Based on the number Susan gave me, that the average time from our shipping until the shops sell is forty-five days.”
“Wahoo!” Bob is impressed. “Alex, are you sure that you can get us so much money?”
“Check your assumption,” I say. When he doesn’t get it, I turn to Morris. “Assuming that this reduction in receivables does not affect sales, will you please tell Bob who is giving this money to whom?”
“Isn’t it obvious?” he innocently asks. “Right now, we have fifty-seven million, ninety thousand dollars in receivables. This is roughly one hundred and sixteen days. According to Susan, it will drop to only forty-five days. As I said, if she’s right, we’ll be able to give back to UniCo about thirty-four million, three-hundred thousand dollars.”
I burst out laughing. One by one, they join in.
25
At dinner I’m telling my family about the marketing solution for I Cosmetics. Julie and Sharon are naturally interested. What is surprising is to what extent Dave is involved.
“Why don’t you buy more companies that sell other merchandise to the same drugstores?” Dave asks. “If it’s so good for I Cosmetics, it will be good for them as well.”
He has a point. With this type of offer—asking for shelf space rather than hard cash and promising daily replenishment—it’s bound to be good business.
“You can use the same distribution network,” he echoes my thoughts. “You said that the regional warehouses are almost empty today.”
“Dave,” I say, “it’s a good idea, but I’m afraid that UniCo doesn’t have the cash to invest in it.”
“That shouldn’t be a problem,” he continues to develop his idea. “You said that Bob’s offer will reduce the receivables from over one hundred days to about forty-five. This is a cash machine. Borrow money, buy the companies, convert their receivables into cash and pay back the loan. What’s the problem?”
“It’s not so simple. But Dave, carry on this way and you’ll become a very successful businessman.” I’m very pleased with my son. He’s sharp.
“Dave is already a successful businessman. He has an antique Cadillac,” Sharon brags. “A real collector’s item.”
“Yeah, sure,” I laugh. And to Dave I say, “So, you decided to restore the old car? Good luck.”
“Didn’t I tell you? I guess not,” he is a little embarrassed. “Thanks, Dad, I used what you taught me and that’s the result. Herbie and I are going to restore