CONTROLLING THE MANUFACTURER: THE RETAILER'S WAY

I am sure when you read the title you would be baffled. I just want to show how a retailer could control the manufacturer. Let us assume that you start a retail store(a supermarket kinda place). You make 3 stores in a small city. To keep things simple we assume that the your store (lets name it A) sells bulbs only. Now why should someone come to your supermarket and buy bulbs for himself? So you think for a while and finally decide that the price of each bulb would be at 10% discount of the marked price. if you buy bulbs at the marked price and sell it at a lower price you are surely going to incur loss. so you think for a while and then decide to get some information about the manufactures of bulbs in your city. so after acquiring details of the manufacturer you come to know that there are three manufacturers namely x,y,z. Then you also find out that the profit x makes is $480000 per annum. This by selling 2000 bulbs per month for $20 each. Through some internal sources and using some calculations you find out that cost of manufacturing one bulb is $5, so for 2000 bulbs per month the cost is $120000 per annum. Therefore the profit is about 480000-120000=$360000. you go and make an offer to this guy x and tell him that you want to purchase 1200 bulbs per month BUT you say you will pay only $18000 per month for those, you justify saying that their profit margin would increase, as shown below : 2000 bulbs already at 20$ each= 40000$ and an additional of 1200 bulbs but for $18000. so total earning per month is $40000+$18000=$58000. Per annum it is 58000*12=$696000. And cost of manufacturing is (2000+1200)*5*12=$192000. Therefore new profit is $696000-$192000 =$504000 which is higher than the previous profit. So he readily agrees. Now what you do is that you start selling those bulbs at a lower price of 10% discount that is at $18. Assume that you 100% sales because there is a big electrical boom in your city, and since you are selling the bulbs at $18 a piece you make an earning of $18*1200=$21600 per month which would be about$21600*12=$259200 per annum. But you had a deal with the manufacturer that you would pay $18000 for the 1200 bulbs per month. That is $216000 for the entire year,SO you make a profit of $259200-$216000=$43200 per year. But as i mentioned there are three manufacturers in the city so you get $43200*3=$129600 per annum profit. So what if you get a profit. How do you control the manufacturer?
So where were we! Ah yes, the annual profit of $129600 per annum. So how do you control the manufacturer or in other words 'squeeze the juice out of him'. The day you started your super store there were some people fretting about it. These guys are small scale retailers who were once doing good business but when you came in with the offer of $18 per bulb, these guys simply ran out of business. now in this small city with about 8 small scale retailers, 4-5 of them have already closed in a years time. So the manufacturer looses contract of about 1000 bulbs. X is sad because he lost contract for about 1000 bulbs but he consoles himself thinking that he has got a contract of 1200 bulbs from you and hopes that he gets more. He is in luck, you go there and say that you want another 1000 bulbs. He gleams with happiness and then you say something and all of a sudden he becomes heart broken. What on earth did you say? well you said that if i would give you an additional of 1000 bulbs contract adding to a total of 2200 from you(i.e you buy 68.75% of the total bulbs produced) ,IF AND ONLY IF i get those 2200 bulbs for $30000 per month. Therefore he gets has an earning of (30000*12)+(20000*12)=$720000. The profit is, Earnings - cost expenditure= 600000-(3200*5*12)=408000. But X couldn't have declined the offer. why? Because you immediately say that you will not buy the total of 2200 bulbs from you. So X thinks and calculates and realises that if you did not buy bulbs what would be his loss? let us take a peek into his mind. Total selling Cost for all the bulbs(1000) which is(1000*20)=20000 per month and thus 240000 per annum. The manufacturing cost is (1000*5*12) =$60000. thus the profit is $180000, which is less than the profit in the previous case when you were his customer. The initial profit was 408000. And besides, with your place sellinging bulbs at a lower price, you caused the shutdown of many smaal scale shops. So its not syre whether there would be demand for the initial 1000, bulbs. To put it simply, you are bound to be his only customer and thus you could dictate terms to him.SO HE GOES IN FOR THE DEAL. So you can see how you demand the price you want. you control the the manufacturer. This is how the retailers control the manufacturer. Once the manufacturer sees the decreasing profit margins, he begins to outsource his manufacturing plants to countries with low cost productivity. This causes the shutting down of the factories of the manufacturer and thus causes unemployment.