Tag Archives: profitability

Telstra and the National Broadband Network

IF you believe mainstream media, Sol Trujillo is the most unpopular man in Australia and Telstra is the most unpopular company [full disclosure: I am the beneficiary of a Telstra shareholding]. I don’t think I’ve ever forgiven Telstra for its monopolistic behaviour back when it was Telecom and I didn’t have a choice of carriers.

When Telstra was booted out of the National Broadband Network tender process for submitting a non-compliant tender, pundits were eagerly predicting Telstra’s demise or other “dark and awful consequences”. Telstra had submitted a tender that suited their business model, aspirations and view of the future. They signaled the only way they’d consider lining up for the $4.7 Billion AUD the government was offering. I congratulate them for having the balls to stick to their guns.

Today the Federal Government announced none of the remaining tenders were “value for money” and instead would form a new company to build a fibre to the home network to 90% of Australians. Much ink will be spilled in the future on this deviation from the tender outcomes requested, namely 98% fibre to the node.

Here’s my quick take home analysis:

  1. Submitting a tender of this size and complexity is a very expensive exercise.
  2. No tenderer was awarded a contract despite complying with the guidelines.
  3. Telstra spent a little money outlining the conditions they would accept.
  4. Who looks smart now?

This seems like a brilliant use of game theory by Telstra. Sol and his team have been called arrogant and out-of-touch, I think they protected their shareholders interests well.

Just because a deal is on the table doesn’t mean it’s always wisest to take it.

A&R Scandal: Tower Books’ Michael Rakusin Replies

Michael Rakusin, Director of Tower Books replied to Charlie Rimmer‘s letter. I’ve emailed a request to reproduce Michael’s email here, but in the meantime you can read it at Susan Wyndham’s Undercover blog. That way the conversation can allow trackbacks around the blogosphere.

I look forward to watching the fall-out in the industry over this. When a major market player decides to flex their muscle, they should make sure they are a big enough player. I suspect that at a claimed 18% of the Australian book retail market Angus & Robertson will find it is not enough to succeed.

Bunnings on the other hand does have enough market share. But more on that later.

Update Michael Rakusin has granted permission to reproduce his letter below Continue reading A&R Scandal: Tower Books’ Michael Rakusin Replies

Angus & Robertson Scandal: Demands cash from 40% of suppliers

Angus & Robertson letter to unprofitable suppliersAngus & Robertson sent a letter to 40% of their suppliers demanding cash payments and rebates as a condition of continued business. The scandal broke at Susan Wyndham‘s Undercover blog over at the Sydney Morning Herald, firstly in Bookshop chain puts bite on small publishers and then in more detail today A&R Dumps Books.

A friend describes it as “Bookselling, The MBA way”. This is bound to be one of the case studies I’ll use in my MBA.

Here is the text of the letter for the screen readers and the blind:

 

Angus & Robertson

30th July 2007

Michael Rakusin
TOWER BOOKS
Unit 2 / 17 Rodborough Road
Frenches Forrest
NSW 2086

Dear Michael

I am writing to inform you of some of the changes to the way we manage our business.

We have recently completed a piece of work to rank our suppliers in terms of the net profit they generate for our business. We have concluded that we have far too many suppliers, and over 40% of our supplier agreements fall below our requirements in terms of profit earned. At a time when the cost of doing business continues to rise, I’m sure you can understand that this is an unpalatable set of circumstances for us, and as such we have no option but to act quickly to remedy the situation.

Accordingly, we will be rationalising our supplier numbers and setting a minimum earnigs ration of income to trade purchases that we expect to achieve from our suppliers.

I am writing to you because TOWER BOOKS falls into this category of unacceptable profitability.

As a consequence we would invite you to pay the attached invoice by Aug 17th 2007. The payment represents the gap fro your your business, and moves it from an unacceptable level of profitability, to above our minimum threshold.

If we fail to receive your payment by this time we will have no option but to remove you from our list of authorised suppliers, and you will be unable to complete any further transactions with us until such time as the payment is made.

I have also attached a proforma for you to complete wand return to me, with your proposed terms of trade for our financial year commencing Sept 1st 2007. We have the following expectations:

  • All agreements contain a standard rebate, a growth rebate and a minimum co-op commitment to enable participation in our marketing activity.

  • Growth rebates activate as soon as our purchases with you increase by $1 on the previous year.

  • All rebates are paid quarterly for the previous quarter’s performance, you must make sure that your remittance, with calculations, is received by us by the 7th of the month following the preceding quarter. Any remittances not received by this date will attract a daily 5% interest charge.

I am also including a copy of our ratecard, and our marketing calendar, to enable you to begin planning your promotional participation now.

If you would like to discuss this with me in more detail, I am delighted to confirm an appointment with you at 1.00pm on Friday 17th August for 10 minutes at my offices at 379 Collins St, Melbourne.

Best Regards

[signed]

Charlie Rimmer
ARW Group Commercial Manager

Enc: A&R Ratecard
A&R Marketing calendar
Trading Terms Proforma
Invoice

Theory of Constraints

I got a question on my mention of Theory of Constraints (TOC) in an earlier post.

As my factory production has reached capacity, my most critical goal is to introduce TOC into my production facility. I first heard of the Theory of Constraints in the book The Goal by Eliyahu M. Goldratt and Jeff Cox.

The TOC is based on the view that there is some essential limiter in a system, i.e. at least one bottleneck. Overall increases in production can only be achieved by increasing the throughput of that bottleneck.

The steps to implement TOC are:

  1. Identify the constraint (bottlenecks are identified by inventory pooling before the process)
  2. Exploit the constraint (increase its utilisation and efficiency)
  3. Subordinate all other processes to the constraint process (other processes serve the bottleneck)
  4. Elevate the constraint (if required, permanently increase bottleneck capacity)
  5. Rinse and repeat (after taking action, the bottleneck may have shifted or require further attention)

source wikipedia article on Theory of Contraints

I’ll provide updates here on how the process at my factory goes.

You can buy the book from Amazon

Retail KPI’s – the germination

Price Tag by Sarah Williams Brisbane, QLD, Australia via http://www.sxc.hu/photo/480217I’m developing a series of KPI’s for a retail operation. They own nine garden shed outlets and don’t currently track anything. It’s late and I’ve got a pile of notes, but I’ll document the process here.

One of the key elements is avoid collecting useless data, and reward the collection of useful data that reinforces the corporate values, empowers the store managers and is an aid profitability through performance measurement.

Obviously the store managers are going to have a say in the KPI.