38
alex goes to headquarters with lou and ralph to ask johnny jons for more orders.
they’d need over $10 million in additional sales to fill up all their capacity. alex thinks jons can’t have that much business in reserve and they’ll need to come up with new ideas about how to get sales.
jons meets them with dick pashky. jons sez he can’t get them $10 million in new business.
alex sez they can deliver anything in two weeks and their quality is the best in the market.
jons sez sales take time. he has to build up credibility with potential clients.
alex sez he has 20% spare capacity so he needs 20% more sales. he asks jons to consider orders he’d usually decline cuz the quality requirements are too high or the delivery time is too short.
jons sez he accepts any order, but the pressure is too high. lou sez that must mean clients want lower prices.
jons sez he is asked to provide stuff with no marin or below cost.
alex sez he’ll accept orders at 10% below cost. jons sez that makes no sense since they’ll make no money and other clients will start to demand the same prices.
dick sez djangler isn’t connected to their regular customers and they can claim they gave him a volume discount. jons sez djangler wants the $992 model 12 for $701.
alex asks about the materials cost for the model 12 and lou sez it’s $344.07. alex sez he’ll accept the order cuz they’ll get $701 and only pay $344.07 and air freight is less than $30 and he asks to see the details of the deal.
alex points out that cameras from japan are cheaper in new york, but the japanese wouldn’t do a deal where they lose money.
they start working on the deal. alex sez he wants to get into europe so he wants to lock in djangler for one year.
alex some way to compete with european companies other than price. he asks what the shipment time is in europe and jons sez it’s 8-12 weeks. alex sez he’ll deliver any reasonable quantity in three weeks since he already has it in stock.
alex, lou and ralph are happy about the deal, but they think johnny is too attached to cost accounting since he was going to throw away a profitable deal. and division will be even worse, so alex needs to figure out what management techniques to master.
alex thinks that jonah is a physicist and somehow figured out business stuff, so maybe he should read a popular science book.
jons gets the deal and wants to know if he can offer the same 3 week delivery to domestic customers. alex agrees, but he wants to ensure he won’t have to go back to firefighting, so he goes to the library to read science books.
alex reads for some time then asks julie to join him for tea and asks her about why she likes greek philosophy. she sez it’s hard to explain why it’s good and he should read it.
she asks him about science books. he sez physicists don’t start by collecting data. they start with some phenomenon and guess about its cause, then they work out other consequences of that cause and try to verify them and these verifications make it more obvious that the guess about the cause is correct. and they find out that lots of apparently different things have the same underlying cause.
julie sez the socratic dialogues work the same way but they’re about human behaviour.
alex sez business is about materials and human behaviour. so jonah must use these techniques.
julie sez that jonah’s ideas must be about thinking methods not just techniques.
alex sez jonah asked him to figure out what techniques he should learn not how to do them so he’s skipping a step: he should figure out how he operates and how he should operate.
39
alex receives a call from bill peach to congratulate him on his profits. hilton smyth’s indicators are doing well but his plant is losing money.
bill peach sez ethan frost has tried to explain why the indicators don’t produce good results but he doesn’t understand and wants alex to explain it to him at headquarters, and he should come out to find out more about his new job.
stacey sez she needs a meeting because she and bob have been playing expeditors and despite overtime orders will be late.
alex asks if the bottlenecks are overloaded and ralph sez no. stacey points out that the bottlenecks are spending some time idle and then getting overloaded by a wave of work.
they’re doing lots of overtime, but that risks making the plant chaotic and delaying more orders.
ralph sez they should examine a bottleneck but bob thinks they have many travelling bottlenecks. alex sez they should go ahead anyway.
ralph asks what happens if they have a problem at a bottleneck. throughput is lost.
if they have a problem before a bottleneck, then the stream of tasks to the bottleneck is interrupted.
bob sez they always make sure the bottleneck has some inventory.
ralph asks how they know how much inventory they should have in front of a bottleneck.
ralph sez they previously cut the amount and bab suggests increasing it again.
ralph continues to say that if they have enough inventory in front of the bottleneck to last the time required to fix problems earlier, then the bottleneck will keep working.
stacey sez that can’t be true cuz the problems haven’t changed but the bottlenecks are running dry. so they have wandering bottlenecks.
alex sez they should continue to pursue ralph’s line of thought. once the problem is corrected they have to build up stocks in front of the bottleneck again in addition to providing the bottleneck’s standard consumption.
bob sez the fact that they have bottlenecks is necessary cuz if upstream resources don’t have spare capacity they won’t be able to use the bottlenecks to capacity.
ralph asks how much spare capacity they need and stacey sez it’s a tradeoff.
bob sez new orders didn’t create new bottlenecks but did reduce the spare capacity at non-bottlenecks so they need more inventory in front of the bottlenecks.
bob asks ralph to identify the orders that are on short delivery and for them release material one week in advance, for others release it two weeks in advance.
bob asks stacey to get the non-bottlenecks to work through the weekend and not to promise less than four weeks for new orders.
alex is unhappy about what bob had to do. sales will drop their campaign to promise delivery in two weeks, so future throughput will be down.
lou points out that they’ve consumed their whole overtime budget for the quarter.
alex points out that means operating expense is up, throughput is down and inventory is up so everything is going in the wrong direction. they’re also reacting to events instead of planning. alex thinks he must have made a mistake.