Chapter 10

On the following Monday, Sandy came into Cliff’s office carrying a stack of papers and looking puzzled. “Cliff, there’s something wrong here. I need help. I’ve been going over the Stores Division local-store accounts and I can’t figure it out.”

“Let me guess,” Cliff replied. “We’ve got too much money in the store accounts?”

She looked at him, amazed.

He just grinned and continued, “We’ve got about seventy-five stores around the country, each with its own account. They’re run on an imprest basis at amounts ranging from $2,000 to $5,000. That means they run like petty-cash accounts. The balance we carry on our books is fixed, and we balance it against deposits and disbursements. I guess the large majority are around the $2,000 level, so our total book balance on the accounts is around $200,000 or so. Am I close?”

“It’s $225,000,” Sandy supplied, still puzzled.

“Okay,” he continued. “Each store deposits its receipts into its account each day. We clean out the accounts from here. So I guess you’re puzzled because you found about $25 million or so in accounts that are supposed to have about one-tenth of that?”

Sandy looked stunned. “It was over $30 million! Didn’t I do something wrong?”

“Not at all. You just found the money to pay for reconditioning our production equipment and then some.” His smile widened into a grin. “Now what do I get for solving your problem? Something nice, I hope?

“Sandy, I’ve been teasing you. I did a little checking awhile ago and expected about what you found. It works this way: First, the $2,000 level is fixed. The people in accounting who balance our bank statements never look at the absolute numbers, they just reconcile them. Our typical store does about $50,000 a week in volume but we only clean out the accounts and bring the money in once a month. Assuming four-week months — and there are 4.3 weeks, actually — an account with a nominal $2,000 has about $200,000 at the end of the month.

“Then with the usual accounting delays, it’s probably mid-month in the following month before a check is written to bring the account back to its imprest level. But by that time, there’s another two week’s deposits, or $100,000. Keep in mind, I’m rounding low. First, there are 4.3 weeks, not four, and I’m not allowing for clearing times. We could easily be three weeks into the new month before the check hits the bank. So, when our accounting says an account is back to $2,000 it is really still greater than $150,000. How does that sound?”

“It sounds like I hope our children get their brains from their father, not their mother!” Suddenly, Sandy glared at him. “Clifford Fitzpatrick, you are a beast! You can access all my data on your computer screen and probably did. You knew I was going over and over these numbers, and you never said anything! You just wanted to see me suffer. I hate you!”

“Golly!” Cliff said with a grin, “You didn’t hate me last night. In fact, I would have to say you were ... quite affectionate.”

She put her nose in the air. “That was different. I was so frustrated, I needed some affection. You lured me to your bed under false pretenses! It doesn’t count.”

He tried to look puzzled but his grin kept breaking through. “Lured? Gee, I sort of remember being attacked by a slim young woman who wasn’t wearing many clothes ... any clothes at all, as a matter of fact. I guess it must have been someone else.”

She gave him a light kiss. “It had better have been me! Anyway, Clifford Fitzpatrick, back to the mundane. Given the glint I saw in your eye, there’s an easy way to handle the problem. What is it, so I don’t have to reinvent the wheel.”

“There are a couple of things we need to do first. Number one: How are we coming on the proposals from the big banks? Number two: I’ve got to check with Steve Muller on that West Coast store chain that’s interested in buying our units.”

“As far as the banks are concerned, I’ve received proposals from all except one,” she replied. “As it stands now, the best offer by far is from Bank of Chicago. They’re committing to a $50 million line of credit, as well as being prepared to work with us on our cash management program.”

“Okay, here’s what we’re going to do,” Cliff said. “We’ll get depository transfer checks and shift the store accounts to deposit only. When the store manager makes his deposit, the form he uses combines a deposit slip with a no-signature transfer check. There’s a postage-paid envelope he uses to mail the check to a regional clearing bank. The regional bank wires each day’s collections to our principal bank. This way the full amount of the deposit is taken out each day. We could even fine-tune it after it’s up and running, by running a negative book balance with the deposit banks depending on how good or bad the mail service is. But that comes later.

“Miss Treasurer, it sounds like you just picked up about $30 million. There’s one more thing: For any local payments the store manger writes checks on a zero-balance account at Bank of Chicago; for payroll, we’ll do something similar, although we’ll need local paying banks to cash the paychecks. Several states don’t look kindly on what they see as playing games with their voters’ paychecks.” He looked at her and smiled. “How does it sound to you?”

“It sounds like we’re in some money.”

Just then there was a knock on the door. Bill Stevens came in with a load of papers. “Cliff, I got the information you asked for. The machine tool company’s estimate just came in. It came to just under $6 million! Now where in hell are we going to get that kind of money?”

“Our esteemed treasurer has already taken care of your problem. The key question now, Bill, is how long is it going to take for repairs, particularly for the five operating machines?”

“Cliff, you’re serious about the money, aren’t you?” Bill said. Sandy and Cliff both nodded in unison. “What do I need to do to get the authority to move ahead? I’ve got a couple of my guys working on an investment proposal, but as financial writers, they’re pretty good operating people.”

“What investment proposal?” Cliff asked. “Those guys will take more time writing the proposal than it will take to overhaul the equipment! Have you combed through the estimate? Do you have other quotes?”

“Yes, sir! The estimate is complete. The one we want to accept is from the people who built the machines. We got four other prices, three of which were higher. The fourth is a little lower but we’re not satisfied the company knows how to handle the equipment we have. It’s at least semi-custom stuff, and I don’t think this is a time to learn-while-you-earn, particularly when they would be learning on us.”

“What do you say, Sandy? Go for it?” Cliff asked.

She put her thumb up. “Let’s do it. Bill, could you get me the name of Micronics financial type? That’s the company isn’t it? I may be able to save a few more dollars on payment terms. I understand they’re about three times our size and very highly rated for credit. You wouldn’t have any problem with at least a partial prepayment, would you?”

“Not at all! Anything that moves the project along faster has to help. I’ll be right back.” Bill went back to his office, made a phone call and came back with a slip of paper which he gave to Sandy. She looked at it and went to her office. Thirty minutes later she came back with a big grin on her face. Bill and Cliff were reviewing the staffing proposals: Neither were happy with the picture that emerged. They both looked up when Sandy returned.

“I think I just saved between $120,000 and $150,000,” Sandy said proudly. “I agreed to a $2 million payment up front, in return for a four-percent credit. Then we’re getting 2 percent for cash on the balance. I agreed to pay invoices within ten days by Federal Reserve wire. And I was invited to join the Association of Corporate Treasurers. Bill, the slip you gave me said M. A. Kahn. It turns out the M is for Marcia.”

She glared at Cliff and added, “And as for you, you have been holding out on us again. It seems Marcia is a fan of yours, having read several cash management articles you wrote ... which, of course, you neglected to mention.”

The glare changed to a grin. “She asked me to give you her very best wishes for a great success at Murphy, and she’s delighted we’re working with her company again. Incidentally, Bill, she’s going to get her people on this right away. It seems there’s nothing like a chunk of cash up front to stimulate a supplier’s interest. A crew could be here as early as this afternoon. Are you ready for them?”

“I’ll call off my guys who are sweating on that investment proposal. We should be all set. Sandy, I think you ought to know what we’ve been talking about. There are going to have to be major work realignments on the shop floor. Over the last few days a junk dealer has been taking away that dead inventory. It’ll mean an asset write-down on the balance sheet, but actually, we’re way ahead. Incidentally, you’ll be getting a big check from the scrap company. We don’t have the final numbers, but they’ve been hauling it out as fast as they can load trailers. We’re getting about 30 tons to a trailer, and I suspect we’re already over 500 tons. The price per ton isn’t bad at all.

“The problem, though, is all the quality checkers. Believe it or not, it turns out we really do have two people checking for every person making! It is far worse than anyone thought. Cliff and I agree there will have to be a major layoff. There’s just no way normal attrition will take the work force down to where it needs to be.

“Cliff, how about if Sandy calls a meeting of the Grievance Committee? Normally, we only have the regular meetings plus any the union asks for. But we have the right to call for one ourselves, although I don’t think we ever have.”

“It makes a lot of sense to me, Bill,” Cliff replied. “Sandy, why don’t you check with Max and explain what we want to talk about. He may want to bring a somewhat different group of people with him.”

Sandy agreed and went off in the direction of the shop floor.

When she returned, Cliff was alone in his office reviewing customer reports and planning on a trip to visit key customers starting with Magna Motors. He didn’t like what he was seeing. A major change from the Flood days was that the sales reports read very differently now. It was clear Flood didn’t like to receive bad news. As a result, the sales reports used to read as if Pollyanna herself had written them: “Every day, in every way, things are getting better and better!”

Following the planning meeting, it was clear the sales force had taken to heart the need for accurate market intelligence. There had been a sudden and dramatic change in the tone of the reports. The one on Magna, particularly, scared him. The list of product complaints was way too long, particularly coupled with Murphy’s prices, which, while a bit lower than Ajax’s, were not low.

Before turning to Sandy and the union, he called Bill Stevens again. “Bill, it’s Cliff. I’m going to visit Magna Motors in the next couple of days. What can I tell them about product quality? How soon will we be able to make promises?”

“I’m not sure, Cliff,” Bill replied thoughtfully. “What does Sandy say about meeting with the union? It’s largely up to the workers ... and I’m not confident about their attitude at all!”

“Last question,” Cliff continued. “When will the revamped cafeteria be ready? With the upcoming layoff, it’s more important than ever.”

“With a little overtime, we can be all set on Monday. How’s that?”

“That’s great, and do it. I’ll get back to you after Sandy and I talk.”

Sandy was seated in a chair waiting for him to get off the phone. When he hung up, she said, “Cliff, they can meet at four this afternoon and I set it up. I heard you ask about the cafeteria. Could we hold the meeting there? I’d like to get the workers as comfortable as possible, because the subject matter is going to be rough.”

Cliff called Bill again. “Can the cafeteria be in shape for a union meeting at four? We could start with a little show-and-tell. If we can reopen formally on Monday, we ought to be in pretty good shape now.”

“Can do, Cliff. You might pass the word to the union folks, though, so they don’t bother to dress up.”

Sandy made the call and was back quickly. “What are we going to tell them, Cliff? There are some people who are going to be very upset.”

“I wish I knew.” He smiled at her. “Trust me? I don’t have the faintest idea what either one of us is going to say. I do know the situation we’re looking at is real. We’re not trying to pull a fast one on anybody. Care to wing it with me?”

Instead of answering, she climbed on his lap, put her arms around his neck and gave him a long, lingering kiss.

They were waiting in the cafeteria when the union representatives came in. Clarence Budd was obviously nervous, not knowing what to expect from the meeting. Bill and Janet Simmons gave a tour of the revamped facility. Since it had been in operation while the renovation was in progress, Janet focused on the behind-the-scenes changes that they were less likely to be aware of. Kaufman liked what he saw and said so. Janet’s people had set up a table for them in the back of the room, and they all sat down while Janet went in back to rejoin her staff.

Sandy opened the meeting. After the formal segment, she turned her notes face down on the table. “Max, we’ve got a problem. Its dimensions just became clear this morning and we wanted you and your people to hear it from us as soon as possible. This is the Grievance Committee, and I’m not even sure it’s the right forum. That’s why I talked with you this morning about the subject matter.”

Sandy had already noticed that the union group had five more people than it had had the previous time. “It’s not a grievance, it’s a layoff. Bill will explain it to you.”

Stevens reviewed for the union people the findings of the planning session. They had all seen the stale product being trucked out and a crew from Micronics was already busy dismantling one of the good machines. This brought Bill to individual responsibility and inspections. “Guys, believe it or not, we really do have twice as many people inspecting as we have making. There are some companies that brag about things like that. We are no longer among them. What we want to do is make each person responsible for his own quality. We’re building up the maintenance staff so we’re not going to have the equipment problems we have all been living with for so long. Things should be a lot better for all of us.”

Then he explained how the statistically-based quality control system would work, and finally came to the layoffs: “What it means is nearly half the work force is looking at a layoff. We can’t figure out a productive way to use them. What we’ve been doing is living with poor raw-materials utilization and terrible scrap rates, combined with lousy delivered quality. The company can’t survive that way.”

Bill looked very unhappy as he said, “How do you want to proceed now?”

Kaufman looked around the table at his people. They were visibly upset by the news they had just received. He asked if they could meet alone at the table for a few minutes.

Cliff rose to his feet, followed by the other management participants. “Max, we’re going to get some coffee and take it out on the floor. Why don’t you ask one of your people to come and get us whenever you’re ready? There’s no rush. Take as much time as you need. Come on, folks.”

Cliff got a cup of coffee in a Styrofoam cup and left followed by the others. He was amused to see Budd scurry off in the direction of his office. “I wonder who he’s going to call? I’ll bet it’s the estate trustee, Ezra Stiles. Sandy, what about Stiles? We’ve still got about five months to go.”

“I don’t know, Cliff. I don’t think he’s going to like what he hears, but I think your contract is solid. I don’t think there’s anything he can do.”

They walked around the plant and spent some time watching the technicians from Micronics working on a machine tool. Bill talked with the crew chief and came back to report they had found the machine in better shape than they expected so the price would be adjusted downward, at least for the first unit.

Then they just continued to walk around the floor. At one point they were near the cafeteria and even with the new sound insulation they could hear the sound of angry voices coming from inside. “I don’t like the sound of that,” Bill said.

Cliff shrugged his shoulders. He didn’t, either, but there was nothing he could do.

Sandy was looking very worried. “I’m scared,” she said finally. “It’s taking much too long. They’ve been going at it for over an hour.”

They walked out to the parking lot in time to see Clarence Budd scurrying towards his car. Cliff noted it was well in back on the lot indicating he hadn’t arrived very early that day.

“I don’t like to see that, either,” Sandy said. “And he doesn’t look like he’s going home.” She turned to Cliff, “I hope your agreement with Stiles is as solid as I think it is!”

Suddenly, she grinned at Cliff and added, “Just because I own this joint is no reason you need to pay any attention to me, but I think Mr. Budd is about to be numbered among the missing, too.”

Bill Stevens had looked at her in astonishment when she referred to her ownership. He knew it, of course, but didn’t know Cliff did. “How long has this young man known about you, Sandy?”

“Since he was here about a week,” she replied with a smile. “Jane spilled the beans, and frankly, I’m delighted she did.” She took Cliff’s arm in hers and squeezed. “I’ve developed a close working relationship with my new chief executive officer!”

Bill kissed her on the cheek. “I noticed the way your eyes glow whenever Cliff’s in range. But I always assumed the way he looked at you was a function of a weak mind. But I guess love is like that sometimes.”

He looked at the couple standing arm in arm. “You know, the Murphys would be very proud. The two of you are going to be taking this company places ... very good places.” He put out his hand to Cliff. “Congratulations. I assume this is your secret, so of course I’ll maintain it. Nevertheless, I think you’re a very lucky guy. She’s a very special girl. But looking at you, I think you already know that.”

“Thanks, Bill. I appreciate that. As far as being lucky, I certainly know that, too.”

He looked around, saw they were alone, and kissed her soundly. She ignored Bill and wrapped her arms around Cliff’s neck and melted into his arms.