Theory of Constraints Handbook - James Cox Iii [416]
FIGURE 22-1 Typical results with Theory of Constraints. (Source: Mabin and Balderstone, 2000.)
2. Your Industry—How You and Your Competitors Sell Whatever You Sell.
The second thing we look at to develop your Mafia Offer is how your industry sells whatever it is that you sell. A whole slew of questions will fit for your industry. Here are some examples that may or may not apply to you:
Is it industry practice to use a price/quantity curve? How do you and your competitors’ typically charge? By the hour? By the day? By the project? Time and materials? Flat rate? Who pays for shipping? Paid at the start? Paid at the end? Progress payments?
The key is to understand how your industry interacts, in the selling and delivering of your products/services, with your typical prospects and customers.
3. Your Specific Customers and How They are Impacted by Typical Capabilities and How Your Industry Sells.
Since your customers are the only judge of your Mafia Offer, we also need to understand how your current capabilities and those of your competitors affect the companies in your target market, and how they are affected by the way you all sell to them.
It is in these interactions and interfaces that we may be causing negative effects for our customers and prospects. Understanding these negative effects leads us to uncover our customer’s core problem relative to doing business with our industry.
The easiest way to understand what a Mafia Offer is, what makes it good, and how to create one is to go through an example. Most likely, this example won’t apply to you because an offer is specific to a company and its particular customers. Nevertheless, you can gain by understanding how to apply the three considerations to a specific situation.
Custom Label Printer—An Example
Let’s consider a custom label printer. The labels this printer makes for one customer can’t be sold to anyone else. However, the same customer may reorder a label for a number of years. Moreover, this label company’s customers buy 100+ different labels for their various products. Many of their customers are regional-sized food and beverage companies. They produce food products in multiple flavors and put them in a variety of packaging, causing them to need 100+ different labels.
The analysis started by evaluating the internal capabilities of this printer and those of their competitors. We found that this printer and their competitors generally quoted a 2-week lead time. We also learned that the due date performance was about 90 percent for this type of custom label printer.
Determining operational performance of the label company was straightforward. The only thing you need to watch out for is how they calculate due-date performance (DDP). Some companies will change the due date commitment if they call the customer and get permission to be late. If they get this permission and meet the new date, they consider this to be on time. So we ask them to calculate their DDP on “first date given.”
To determine if this label company’s performance was typical for their competitors as well, we simply talked to the salespeople. If a company’s performance is much better or much worse than the competition, their salespeople will have heard about it. If you don’t have salespeople, then whoever the chief salesperson is (like the company owner) is the one to ask. In this case, the salespeople indicated that the 2-week lead time and the 90 percent DDP was neither praised nor a problem.
From our experience of working with printers in the past, we expected to get the time through the shop down to just a few days and to improve DDP to 99+ percent. A quick tour through the shop verified that this should be possible. On the tour, we noticed a large amount of work-in-progress (WIP). We also noticed one of the printing press operators going through the pile of jobs in house