The Goal – Chapter 38 – Marginal Profits and Change

Rogo hits on two fundamental truths while working with marketing to achieve his growth goals; 1/ marginal profitability should guide plant economics, and 2/ change is often driven by those outside of a system.  These are major lessons in two very different areas.

Highlights

“You can’t rely on marketing people to solve the marketing problems. They’re captured by old, devastating, common practices to an even larger extent than production.”

This is an important observation by Rogo – organizations have inertia.  The people in an organization are rarely the right people to change it.  Team members tend to be either system builders or system users – someone who can do both is rare.

Page by Page

P309 – “So, squeezing, begging, and pleading techniques will not help.”

Looking for $10 million in sales, Rogo identifies ways that will block attempts at growth.

P310 – Sales take time, credibility is not built overnight, it’s a gradual process. Rogo knows this when he asks, “Johnny, do they sometimes demand prices that are lower than our cost?”

P311 – “Besides, if we lower prices for one client, it’s just a matter of time until the others find out and demand the same. What then?”

This is a logical fallacy.  There are ways to quarantine pricing changes.  Just because a problem might exist in the future doesn’t mean the status quo should be tolerated today.

P312 – 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.

“We’ll take it,” I say.

“What I’m particularly interested in is the products, the quantities per month, and the prices.”

Rogo wants to know what the marginal impact to his plant will be.  He knows he has capacity – no marginal CapEx or OpEx will be needed.  His only real new cost will be raw materials.  If he has the capacity and if he covers his raw material costs, he should take the work.

P313 – “Financial calculations, showing the fallacy of the ‘product cost’ concept won’t help, it will just confuse Johnny even more than he’s confused now.”

Rogo knows that more detail will not help the situation, so he pivots how he persuades Johnny Johns.

P314 – “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.”

“You can’t rely on marketing people to solve the marketing problems. They’re captured by old, devastating, common practices to an even larger extent than production.”

This is an important observation by Rogo – organizations have inertia.  The people in an organization are rarely the right people to change it.  Team members tend to be either system builders or system users – someone who can do both is rare.

“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.”

P315 – Somewhere in the scientific method lies the answer for the needed management techniques.

P316 – The second time he wanted to know if he could approach our domestic clients with the same concept.

P317 – “It all seems to be based on one key relationship: IF . . . THEN.”

As more and more predictions are verified, it becomes more obvious that the underlying hypothesis is correct.

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One Response to The Goal – Chapter 38 – Marginal Profits and Change

  1. Pingback: Goldratt’s The Goal: Chapter by Chapter Review | Fred Lybrand

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