Journey 1995:Non-Stop

Chapter 359 Coordination and Decision Making
Because there was no competition and there was a future cooperative relationship, the business friendship between President Li and Yan Hui was very solid, and Yan Hui also heard a lot of inside information.

Mr. Li intended to bring Yan Hui into the industry, and Yan Hui reciprocated by working diligently and eventually decided to apply for a first-level agency directly.

The relationship between Yan Hui and another first-level agent in Jinan was somewhat distant, and Yan Hui couldn't find out much about them, so it was even less likely that they would pay attention to him before he even entered the industry.

Jinan is a large city, and it also has a local behemoth like Jinan Iron and Steel Group, so Laiwu Steel's agents here face competition not only from Laiwu Steel itself.

As mentioned earlier, Laiwu Steel and Jinan Steel merged to form Shandong Steel in 2008. Therefore, it's obvious that these two companies had already implicitly joined forces in 2007. As a result, the purchase price for their primary agents in Jinan was basically the same, regardless of who they supplied.

Through Li Shengli's connections, Yan Hui successfully contacted the relevant person in charge at Laiwu Steel and discussed the matter of becoming a first-level agent in Quancheng.

With Li Shengli's recommendation, a basic level of trust was established. Mr. Yuan, who was in charge of investment promotion, was also very interested in Yan Hui, and the two had a pleasant conversation.

Yan Hui's work style involves five steps: analysis, judgment, coordination, decision-making, and execution. He has now reached the coordination and decision-making stage.

Being an agent for a steel mill is quite different from other industries. If Yan Hui wants to become an agent for a steel mill, he doesn't want to make money from construction sites or other users, but rather from the steel mill itself.

For example, right now, Yan Hui goes to the steel mill to pick up goods. The steel mill has a listed price of 3800 yuan per ton. If Yan Hui is a primary distributor, the purchase price would be equivalent to 3600 yuan per ton.

Yan Hui sells the products to external customers at the listed price of 3800 yuan per ton, and also remits 3800 yuan per ton to the steel mill. However, the steel mill will later compensate the primary distributors for the price difference of 200 yuan per ton. Moreover, there are price differences among the primary distributors, as their sales capabilities vary.

Therefore, steel trading, to some extent, involves making money from upstream suppliers. It's like I help a steel mill sell its products, and you pay me a commission. The difference lies in the fact that primary distributors need to advance their own funds to purchase the steel, and if they don't reach the sales target, the price difference refund or compensation for the steel will be very small, or even nonexistent.

In other words, if your monthly sales volume, or even several months' or a year's sales volume, does not meet the standard, you will not receive the profit from the "price difference".

These rules demonstrate the steel mills' absolute protection of their own interests.

Payment must be made in advance, and the profits will be paid to you after the assessment is completed next month. The steel must also be transported to the corresponding urban area for sale.

Everything stems from the bloody lessons learned from the steel mill; these principles are something those who haven't experienced them won't understand.

Yan Hui has already conducted on-site investigations in some areas of Jinan. The market is currently very chaotic, with a large number of secondary agents flooding the construction site circle, all claiming that they can get agency prices.

That's absolutely impossible. Becoming a first-tier agent requires extremely high capital; it's definitely not something you can do with just ten million. Although Yan Hui only has ten million right now, he owns a cash cow with annual profits of thirty to forty million, so his sustainability is very strong. Entering this industry now wouldn't be a problem at all.

Therefore, if Yan Hui wants to enter the market, the first thing he needs to do is drive away these middlemen and bring the market back to its proper course. This will offend a lot of people, but it's probably pointless; business matters are ultimately resolved through business methods. "Mr. Yan, our prices are quite transparent. First-tier agents are required to achieve a minimum monthly sales volume of 5000 tons and an annual sales volume of at least 10 tons, especially for first-tier agents in Jinan. If the requirements weren't so high, we would have already given out these slots." Mr. Yuan drew a line for Yan Hui.

“I think annual sales volume is easier to calculate; monthly sales are more difficult. After all, as you know, demand is sometimes unstable. We might produce 20,000 tons this month, but only 3,000 tons next month, especially in winter when sales can be very low,” Yan Hui countered.

“Steel mills don’t stop operating in winter,” Mr. Yuan’s meaning was clear. “So every year around December, all the major first-tier distributors try to raise funds, even if it means stockpiling their own inventory, to meet our production targets. Otherwise, our steel mills can’t sustain it. However, because steel mills have been promoting projects such as winter waste heat utilization in recent years, they also have other revenue streams in winter that can be used to support our distributors, allowing us to make up for the price difference with more. In short, stockpiling at this time is definitely not a bad thing.”

"Winter waste heat utilization?" Yan Hui heard a new term again.

"Well, in industrial smelting, waste heat below 200 degrees Celsius is of little use for smelting, and in this season, it's just thrown away. But it's different in winter. In winter, many areas burn a lot of coal for heating, and our waste heat is free anyway, so supplying it to others is a win-win situation," General Manager Yuan explained.

"I see. If I join now, will there be a requirement to stock up on goods since winter is coming soon?" Yan Hui asked in return.

If that's the case, he'd rather re-enter the market next February, even though he might lose the opportunity to become a first-tier distributor then, it's better than taking on such a huge risk of overstocking.

As a newcomer to the industry, it's pointless to take on such a huge risk. Yan Hui finally understood why Li Shengli was willing to accept his overtures; clearly, with construction suspended, Li Shengli was also under considerable financial pressure.

“Internally, we also conduct assessments of newly recruited primary distributors. To be honest, even after signing a primary distributor contract, the first three months are just a trial cooperation. We don’t dare to easily release the primary distributors. In the first three months, we don’t have high requirements for inventory, but the returns we give are also not that much. The price we can offer distributors is about 3620 yuan per ton,” said General Manager Yuan.

"How do you calculate the shipping cost?" Yan Hui did have a place to store the goods. His factory had a large enough area and high walls, so he could just pile them up in the yard.

"Laiwu Steel is very close to Jinan. The freight cost is 30 yuan per ton via the national highway, which is the same price in Jinan city. You must use our trucks."

"Yes, so once it's done, there's a profit of about 170 yuan per ton," Yan Hui said truthfully.

"That depends on Mr. Yan's warehousing and secondary transportation costs," Mr. Yuan said, ending his statement there.

For most people, the most expensive expense is the interest on their money. Yan Hui is using his own money, so this shouldn't be a problem for him.

Overall, the profit margin for steel is about 5%. If a company can produce 100,000 tons a year, the annual turnover would be about 380 million yuan, and the net profit would be about 20 million yuan.

(Do you guys think steel trading is interesting? Other books probably haven't covered it, so take note, it'll come in handy when you time-travel, maybe you can build a steel mill then~)

(End of this chapter)