Policy matrix is just here that instead of market you’ve got key costumers. Each one of this blobs is an actual costumers and name of the costumer so you're saying each of this costumers in this case you’ve probably got to say 20 and some of them are bigger than others in terms of the wallet size and what you're saying is which ones are more or less attractive to us and the answer is, it is going to be the size of the wallet isn't it? It's going to be the percentage return on sales that any supplier can make out of them because some screw their suppliers. Some are much more benign and it's the percentage growth isn't, some costumers aren’t growing, some in declining businesses.
And I think you’ll agree that attractiveness means the potential for growing the profits over the next three years and it's not beyond the wit of mankind to work out which of these key costumers is going to offer you the best potential for growing your profits over the next four years.
So that puts them on the vertical axis and on the horizontal axis your saying have we got a good relationship with them or haven't we. Now the way you do it properly and correctly if you’re doing a proper key account management program is to do a proper swat on your key account but I don’t want to go into that.
Now when you’ve done that and you’ve got the point of intersection you will see that for example there is a big one like that and what it says it's not very attractive and we haven't got much of a relationship with them but why are you dealing with them. and I will give you a little case history this was a paper company I cannot mention the name of it but I was talking to the directors and one of them said to me “The biggest paper user in the world” again I will not say who it is they said “They're getting rid of all their paper suppliers and they are going to just choose two to supply their paper needs all over the world” and he gave me the name of the company and I said “I know what's he's going to do with this guys he's going to choose on price isn't he?” he said “How did you know that Mark” and I said “Because I'm a professor”.
And he said “Well what should we do?” and I said “Well you are a high fixed kinds of business aren’t you paper metals” I said “What would happened if you lost hundreds of thousands of tons of production from one of your mills?” and the answer is “The fixed cost is still there aren’t they” so you're going to have to absorb them in whatever volume is left.
Which means you're going to have to put your prices up in static or declining market you can't do that. I said “So you need this costumer don’t you?” and he said “What shall I do?” and I said “Well do the internet bidding, do all that” and I said “Make sure you win the contract of whatever price make sure you win it and you're one of the two. And when you’ve won it withdraw all support from them that isn't in the contract.”
In other words, you manage that costumer for net free cash flow, you don’t sit out to delight them do you, and excite them in all the city things we put our mission statements you can outsource things, you can get your cost stand you can actually make money out of that, not if you start behaving stupidly. But it's the key account isn't, not a very nice one and it still it, and you need don’t you? You will need costumers like that and then you get sum down here like that one there it's a big generator of cash.
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