Theory of Constraints Handbook - James Cox Iii [421]
In this chapter, I have laid out a very nice Mafia Offer for a custom label printer. I have been using this example for years. I have been the keynote speaker at the Tag and Label Manufacturers Institute annual conference twice. And despite that, no direct competitor has copied this offer. It is true that the offer may not work perfectly for another label printer because it has different customers. However, at least some of it would be transferable. So why don’t they do it? Why don’t other industries who have similar industry practices with similar negative effects on their customers give it a go?
First, I think the “we’re different” thought keeps us from going too far with it. Then, even if someone starts to look into it, they can get blocked in any number of ways. Developing and implementing the necessary changes for a Mafia Offer requires multiple paradigm shifts. In particular, it requires that you change the way you think. And changing the way you think about costs, setups, multitasking, WIP, scheduling, and how one is supposed to go about making money is very difficult. To make all those changes at once is even harder.
Most Mafia Offers, by definition, are not easily copied by your competitors, but another source of sustainability problems is you. Once you start making your offer and your sales start to increase, there are some potential negatives to success. The easiest way to avoid these negatives is by using TOC techniques and measures. Here are some watch outs:
Your load relative to your capacity has increased, due to the increase in sales, which causes you to:
start missing your commitments
increase your quoted lead-times
speed up operations or cut corners causing your quality to decrease
The interest in your products/services is much higher than before the offer, so
Some leads are starting to slip through the cracks
Your customer service starts to decline
The first step of your process, which is required for new customers (like design or engineering), has become a bottleneck
If you continue to measure and pay attention, you should be able to avoid these problems. They are certainly predictable and if you pay attention to your load versus your capacity (in all parts of your operations and sales processes), then you can make the necessary preparations and responses.
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Benefits to the Label Company
We previously discussed why the Mafia Offer was unrefusable for the label company customers. But what are the benefits for the label company?
They stop the blah, blah, blah and sounding like their competitors. They can answer, “Why should I buy from you?”
Sales increase (and so do profits if the TOC logistics solutions are used to improve operations).
Time wasted producing labels that are not needed is eliminated.
They gain 100 percent supply for label stock-keeping units (SKUs) included in the program.
They substantially reduce the risk of losing a customer to a competitor over a small price reduction. Customers taking advantage of the Mafia Offer ask for long-term contracts.
They became better at doing setups, and can easily run small batches, increasing their flexibility and responsiveness to the market.
They became very good at adding new customers.
Cash flow improves due to smaller batches and more frequent billing based on replenishment that is more frequent.
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It’s a Business Deal
Many Mafia Offers are business deals, and as such, are sold differently. The label company is no longer selling labels; they are selling the guaranteed availability of labels based on their customers’ actual use or consumption. For that offer to work, the label company will need to supply 100 percent of the labels that are included in the program. In addition, the customer will need to supply daily consumption data for those labels. This transfer of data sounds much scarier than it actually is. Typically, an electronic transfer can be set up to