"Forget it," Johnny is practically shouting. "That bastard is asking us to give him the goods for basically nothing, not to men- tion 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 imag- ine, 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
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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 pro- duce 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."
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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, show- ing 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.
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"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 immedi- ately. 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."
Only after we pull out of the parking lot do we let ourselves go; it takes us more than fifteen minutes to settle down. That is, Lou and Ralph dive into polishing the numbers. From time to time they come up with a slight correction, usually not more than a few hundred dollars. Compared to the total deal it's not signifi- cant at all. But Lou finds it relaxing.
I don't let it bother me. I sing at the top of my voice.
It takes us more than half the way home until they are satis- fied. Lou announces the final number. The contribution to the net profit of the plant is an impressive seven digits, a fact that doesn't deter him from specifying it down to the last cent.
"Quite a profitable deal," I say. "And to think that Johnny was about to drop it... What a strange world."
"One thing for sure," Lou concludes. "You can't rely on marketing people to solve the marketing problems. They're cap- tured by old, devastating, common practices to an even larger extent than production.
"Try to imagine," he continues, "the reaction of people when I start to explain to them they are the ones who believe too much in cost accounting."
"Yes, I sigh. "Judging from today I shouldn't expect much help from these guys. Even though, you know, there might be something in Dick."
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"Hard to tell," he comments. "Especially when Johnny is holding him so tightly under his thumb. Alex, how are you going to do it?"
"Do what?"
"Change the entire division?"
That puts an end to my euphoria. Damn you Lou, why did you have to bring it up?
"God have mercy on me," I say. "Yesterday we were talking about inertia. We were complaining about the inertia that we have. Compare it to the inertia that we are going to face in the division."