Theory of Constraints Handbook - James Cox Iii [427]
The Templates
Goldratt Consulting has taken the common templates and created Strategy and Tactics Trees (S&T)21 for each one. An S&T provides the roadmap to build, capitalize, and sustain a decisive competitive edge. Therefore, it includes the major operational changes that are necessary to capitalize on a Mafia Offer and it includes what needs to be done to sustain the offer and these improvements. These roadmaps can be very helpful, but only if the Mafia Offer fits for you. So don’t force it, do the analysis!
Here is the list of S&Ts that Goldratt Consulting has published along with the Mafia Offer that goes with each one. Mafia Offers are not explicitly stated in the S&Ts, but each states the “decisive competitive edge” that will be built and capitalized upon. The decisive competitive edge is often stated with a second phase option. The second phase is an extension of the initial competitive edge, often making it even stronger. Many companies start with the initial competitive edge and work their way to the second phase.
I have added the Mafia Offer that could be made. To get the full picture, you will need to review the entire S&T, but here are the decisive competitive edges and Mafia Offers for each:
Vendor Managed Inventory
Situation: A manufacturer or distributor creates a decisive competitive advantage to make a Mafia Offer to another manufacturer or distributor.
“A decisive competitive edge is gained by providing a ‘partnership’ that guarantees remarkable availability coupled with reduced inventories and much less hassle, when all other parameters remain the same.” As a second phase, “In mature partnerships, the company has the ability to command higher prices (alternatively, to successfully defend against pressures to lower prices).”22
This template fits the label company example we have been following throughout this chapter. Moreover, it may fit in situations where at least some of these statements are true:
Customers/prospects are not completely satisfied with the current balance between availability and inventory.
Repeat orders are placed for the same SKUs.
Customers/prospects order the exact same SKU relatively infrequently.
The value of the SKU is not negligible.
Customers/prospects are producing and ordering essentially to a forecast.
Life span of inventory is relatively limited—meaning the products are not good forever, but are good for a number of years.
There are emergency orders (e.g., 3 percent).
In other words, this template may apply if your customers/prospects are holding a significant amount of inventory and, despite that, they are experiencing too many of some SKUs and stocking out of others.
Example Mafia Offer:“Mr. Customer, don’t give me orders. Your orders are based on your best guess of how many labels you think you might need. That’s because label printers put that price per quantity curve in front of you and force you to have to guess out six months. The forecast ends up being wrong, and how can it possibly be right? Instead, tell us every day how many labels you use and we can guarantee on the one hand that you won’t have to hold more than two weeks’ worth of labels. And you know how your marketing department was complaining that they can’t make the changes they want because you have six months worth of inventory? Well, you will only have two weeks. Now, at the same time we will guarantee that we never stock you out. We will guarantee that you’ll never go to the shelf and not have the label you need. And if we ever do stock you out, we will pay you $500 per day per label. We offer all this at the same competitive price you pay today and of course you will have a lot less of your cash tied up.”
Operational Improvements Required: Implementing S-DBR23 or the Velocity Scheduling System24 and the Replenishment25 solution to replenish raw materials and the customers as they consume the product.
I don’t like the name of this template because what is traditionally meant by vendor managed inventory (VMI) is not what is being