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offered here. Traditional VMI typically requires someone to forecast and for the manufacturer to hold inventory based on that forecast. The forecast ends up being wrong, and despite the fact that the manufacturer is holding inventory, there can still be stockouts. Moreover, as manufacturers try to minimize stockouts, it’s inevitable that they end up with too many of some SKUs. In this scenario, the customer still places orders. With the Mafia Offer, there are no orders. Daily consumption data is passed from the label customer to the manufacturer. The manufacturer holds zero inventory. The only inventory in the system is the two weeks’ worth of inventory the label customer is holding.

Reliable Rapid Response

Situation: A manufacturer or service company creates a decisive competitive advantage to make a Mafia Offer to another manufacturer, distributor, or project-based or service company.

“A decisive competitive edge is gained by the market knowing that the company’s due-date promises are remarkably reliable, when all other parameters remain the same.” And, as a second phase, “On a considerable portion of the sales, high premiums are gained by the market knowing that the company can deliver in surprisingly short lead time.”26

This template may fit in situations where at least some of these statements are true:

The standard lead time in the industry is relatively long (e.g., ~6 weeks).

The standard DDP in the industry is relatively poor (e.g., ~80 percent DDP).

Customers/prospects are ordering essentially to a forecast.

Unavailability has significant consequences for the customers/prospects.

Customers/prospects do not find it easy to pursue an alternative solution when they are out of stock. In other words, the product is not a commodity and not readily available in the market. In addition, there is no alternative product that can be easily adjusted or modified.

The product is highly customized and not typically sold again or the customer/prospect purchases a high number of SKUs.

The purchase price is negligible relative to the selling price (e.g., ~5 percent, for the second phase to apply).

In other words, this template may apply if your customers/prospects suffer from unavailability, from not having your product or service (and can afford to pay a premium to eliminate the damage for the second phase).

Example Mafia Offer:“Mister Customer, we know that everyone quotes a 4-week lead time but rarely does anyone ever deliver in 4 weeks. This causes you to juggle your schedule or sometimes for your lines to go down. So, we are going to give a 4-week lead time at our current competitive pricing, but we are going to back it up with a penalty. For each day that we ship late, we will deduct 10 percent per day late off your order. And if we are 10 days late (which presently happens all the time), your order is free. [Second Phase] In addition, we know that sometimes your needs change because your customer has made changes, so we can also offer a 2-week lead time for a 2X price, but if we ship a day late we deduct 50 percent per day. And, in the rare case that you need it in 1 week, we will do whatever it takes. This is a 4X price, but if we ship late your order will be free.”

Operational Improvements Required: Implementing S-DBR27 or the Velocity Scheduling System.28

Consumer Goods

Situation: A manufacturer or distributor creates a decisive competitive advantage to make a Mafia Offer to a consumer goods retailer or e-commerce store (that holds inventory).

“A decisive competitive edge is gained by providing a ‘partnership’ that delivers superior inventory turns (better availability coupled with substantially reduced inventories), when all other parameters remain the same.” And, as a second phase, “A decisive competitive edge is gained by providing a partnership that secures the clients an increase in TPS [Throughput Per Shelf]29 and provides a realistic chance of sharing (the increase in revenues) in a much higher increase.”30

This template may fit in situations where at least some of these