In the last issue, we talked about how pricing is management in “The Concept of Selling Prices”. Today.
This is my experience with my obsession with numbers. You may be fed up with all the talk about numbers, but please bear with me.
The Truth About Increasing Gross Profit by 3
In FY2001, Section 59, of which I was the section manager, had broken out of a five-year performance slump and achieved sales of 2.08 billion yen, 110% of last year’s level, gross profit of 17.74%, 115% of last year’s level, and operating income of 150 million yen, 148% of last year’s level, and I was proud that we had achieved a good performance.
However, at that time, the Product Department’s goal was to achieve a gross profit margin of 20%. However, I was aware that there was no way that this section, which handled casual products, could achieve such a high gross profit margin. Since 17.74% gross profit margin was the highest gross profit margin in the past 15 years, I went to the president’s interview with my heart pounding.
However, as I was expecting praise from former President Akihiro, I could not believe my ears when he said something I did not expect. He said, “What do you mean? I told you to aim for a gross profit margin of 20%. Why can’t you do it?
I replied, “It is impossible to achieve a gross profit margin of 20% for a young, casual product line. If we force ourselves to achieve it, our sales will be cut in half. If you do that, you won’t be able to make a profit.
I countered.
The former president said, “Sales can be halved! If you can’t make 20% gross profit, I won’t recognize you as a section! I won’t even recognize you as a section manager.
I was halfway to saying, “Let me show you what will happen if sales are cut in half,” and halfway to saying, “I understand! I will make sure to achieve a gross profit margin of 20%! I’ll make sure to achieve a gross profit margin of 20%!
I had pride in the fact that I had challenged myself in a new field that no one else in the company was doing, started a section from scratch, and had done so for 15 years without a single loss.
It was a shock to me to be told by the president that he would not recognize me as a section manager.
I will achieve 20% no matter what! With this in mind, I declared to my section staff from that day on.
The staff said, “Your sales will be cut in half. They were bombarded with claims of impossibility and impossibility: “It’s impossible with our current customers,” “It’s impossible with our current products,” “It’s impossible with our current suppliers’ grades.
I said, “I don’t care if sales are cut in half. I don’t care if sales are cut in half, I will change my clients, suppliers, and products if necessary, and I will do whatever it takes to achieve a gross profit margin of 20%. I demanded that not only the sales staff but also designers, pattern makers, clerical staff, and delivery staff, be diligent, make efforts, and take action in order to achieve a gross profit margin of 20%.
We will be calling for 20% gross profit margin from morning to night. Of course, the Monday morning meeting is about how to achieve 20% gross profit margin. Every week, every day, from morning to night, we only talk about 20% gross profit margin.
The sales policy was simple and clear: stop doing business with clients that are inconvenient for achieving 20% gross profit margin, stop doing projects that do not allow us to earn 20% gross profit margin, and stop doing business with suppliers that are not worthy of 20% gross profit margin. We also cut back on other expenses, such as name-attaching and labeling, which had been done domestically, by using cheaper overseas factories, and reducing transportation fees by consolidating shipments as much as possible.
I became an ogre of 20% gross profit margin and thoroughly implemented this for one year.
As a result, one year later in 2002, we achieved a gross profit margin of 20.71%, an increase of 2.97%, or approximately 3%. And sales, which had been poised to decline by half, were able to increase 104% to 2.17 billion. Operating profit increased by 80 million, and unrealized profit increased by 90 million. The only decrease was in overhead (90.1%) and inventory (67.5%). As for clients, low-priced specialty mass merchandisers and apparel, which were the top five in 2001, declined sharply, and the top five were all SPA apparel, which was very strong at the time.
The challenge to increase gross profit by 3% not only brought good results, but also forced changes in planning, production, sales, and delivery, and brought about a transformation in sales.
I thanked the former president and the section staff. I struggled to find a way to express my gratitude to the former president, but not to the section staff. And, although I thought it was a bit of a quip, I wrote a letter of thanks to the wife of a wife-beater, saying, “With your support, your husband has done his best and achieved excellent results. I sent her a thank-you letter and a rose flower, saying, “I sincerely appreciate your support.
Confident sales would increase by 440 million to 2.61 billion the next year, while maintaining a gross profit margin of 20%. And until I retired as section manager in 2007, the gross profit margin never fell below 20%.
This single-minded focus on gross profit led to changes in everything. The challenge to increase gross profit by 3% was to force change: ……. This was the truth.
I think the former president saw that I was falling into a rut after 15 years as a section manager. If it had not been for the blackmail at the president’s interview, Section 59 would not have been de-morphed.
I am still sincerely grateful for that blackmail.
When you were saying it was impossible or impossible, it was because it seemed impossible or impossible with your ability at the time, but it was possible if you could change yourself. The real thrill of work lies in setting a goal that seems impossible, persevering to reach it with persistence and never giving up, and turning the impossible into possible.