I wish to explain a certain practice that hypothetically takes place in the automotive industry.
Whenever a car manufacturer roles out a new car model, or an updated version of a current model they typically spend hundreds of millions of dollars building dedicated tooling to produce the new vehicle. Much of this money is given to parts suppliers. The car companies however typically retain ownership of the tooling because they don't want to be at the mercy of any given supplier. In any eventuality they want to be able to move the tooling wherever they want, perhaps to a different supplier, or occasionally back into their own factories. That being said they expect that the supplier be responsible for the actual manufacturing and maintenance of the tools and when they give them the money to do so they expect it to be a direct pass through. In other words the supplier is only allowed to bill the car company the exact amount of money they actually spent to have the tools built. In other words...no mark-up!
And of course they come and check up on you in the form of what's called a tooling audit. They show up at your door and expect to see all of your financial records related to the cost of building the tools. If you don't have appropriate documentation you can expect to give them money back.
And that's the way it's supposed to work.
Here's how it really works.
Once the supplier has secured the work from the car company they then go to a tooling manufacturer who they know quite well and make a side deal. They agree on the actual pricing of the tooling, and then they agree on the actual amount of the invoice that will accompany that tooling. The latter is inevitably higher than the first. And since the invoice from the tooling manufacturer supports the suppliers case when the tooling audit takes place it's a big win for the supplier.
But wait you may say! The books won't balance! Oh, but actually they do. They balance because the supplier actually pays the invoice amount to the tooling manufacturer even though they agreed privately that the price should be less. In actual fact as part of the audit, the car company will want to see the cheque that was written.
But wait you say! Now the tooling manufacturer ends up with the extra money!
Oh.... but only temporarily. That's where the real creativity takes place and I won't bother to get into that since the whole thing is only hypothetical anyway.....and highly illegal!
The rationale behind this imaginary cheating is twofold.
1) You have to do it to be competitive!
2) Everybody does it!
Sound familiar?
While I was never a big fan of Lance Armstrong the person, I was a big fan of the athlete. I believe that he is the best cyclist the world has ever seen, and aside of course from his genetics, I believe his success came about primarily because he invested more time, money and effort than anyone else.
And while I have absolutely no sympathy for the man or the athlete now, I can totally understand what happened to him. He didn't invent most of these ways of cheating and he certainly did not bring the problem to cycling. His biggest problem has been his unparralled success which ultimately required him to continue to live the lie right up to the very end. Can you imagine the stress he must have lived with day in and day out? Almost....I say almost...I can feel a bit sorry for him.
Today I made my first ever donation to a terrific charity, the Livestrong Foundation.
(swim drills, run hills)
“Everybody wants to know what I am on. What am I on? I am on my bike busting my ass six hours a day; What are YOU on?”---Lance Armstrong
“The riskiest thing you can do is get greedy.” ---Lance Armstrong
Love
Peter
Whenever a car manufacturer roles out a new car model, or an updated version of a current model they typically spend hundreds of millions of dollars building dedicated tooling to produce the new vehicle. Much of this money is given to parts suppliers. The car companies however typically retain ownership of the tooling because they don't want to be at the mercy of any given supplier. In any eventuality they want to be able to move the tooling wherever they want, perhaps to a different supplier, or occasionally back into their own factories. That being said they expect that the supplier be responsible for the actual manufacturing and maintenance of the tools and when they give them the money to do so they expect it to be a direct pass through. In other words the supplier is only allowed to bill the car company the exact amount of money they actually spent to have the tools built. In other words...no mark-up!
And of course they come and check up on you in the form of what's called a tooling audit. They show up at your door and expect to see all of your financial records related to the cost of building the tools. If you don't have appropriate documentation you can expect to give them money back.
And that's the way it's supposed to work.
Here's how it really works.
Once the supplier has secured the work from the car company they then go to a tooling manufacturer who they know quite well and make a side deal. They agree on the actual pricing of the tooling, and then they agree on the actual amount of the invoice that will accompany that tooling. The latter is inevitably higher than the first. And since the invoice from the tooling manufacturer supports the suppliers case when the tooling audit takes place it's a big win for the supplier.
But wait you may say! The books won't balance! Oh, but actually they do. They balance because the supplier actually pays the invoice amount to the tooling manufacturer even though they agreed privately that the price should be less. In actual fact as part of the audit, the car company will want to see the cheque that was written.
But wait you say! Now the tooling manufacturer ends up with the extra money!
Oh.... but only temporarily. That's where the real creativity takes place and I won't bother to get into that since the whole thing is only hypothetical anyway.....and highly illegal!
The rationale behind this imaginary cheating is twofold.
1) You have to do it to be competitive!
2) Everybody does it!
Sound familiar?
While I was never a big fan of Lance Armstrong the person, I was a big fan of the athlete. I believe that he is the best cyclist the world has ever seen, and aside of course from his genetics, I believe his success came about primarily because he invested more time, money and effort than anyone else.
And while I have absolutely no sympathy for the man or the athlete now, I can totally understand what happened to him. He didn't invent most of these ways of cheating and he certainly did not bring the problem to cycling. His biggest problem has been his unparralled success which ultimately required him to continue to live the lie right up to the very end. Can you imagine the stress he must have lived with day in and day out? Almost....I say almost...I can feel a bit sorry for him.
Today I made my first ever donation to a terrific charity, the Livestrong Foundation.
(swim drills, run hills)
“Everybody wants to know what I am on. What am I on? I am on my bike busting my ass six hours a day; What are YOU on?”---Lance Armstrong
“The riskiest thing you can do is get greedy.” ---Lance Armstrong
Love
Peter
Good Analasys I think, and fairly generous to Lance as well. I am sure you are right about the stress he must still be under, and I would not trade that for all the success he has had. I have always believed the stories of his cheating, mostly because of the everyone is doing it idea. The one thing that I always thought was a bit ironic is that he was championed partly because of his fight with cancer, when he may well have brought that on himself with chemicals he was using? There isno way to question his commitment to raising money to fight it however.
ReplyDeleteLove old John