Theory of Constraints Handbook - James Cox Iii [429]
The retailer frequently “sells through” or stocks out of fast movers.
The retailer has limited shelf space (or storage space).
The retailer places orders with the distributor/manufacturer based on a forecast.
A large portion of the retailer’s shelf space is taken up with relatively large quantities of slower movers.
Slow movers are discounted after a while.
Expecting to find an SKU and being disappointed severely erodes the consumer’s (the retailer’s customers/prospects) impression and increases consumer disappointment.
A long replenishment time (relatively) causes shortages and high inventories that block the shelf space and impair the ability to adjust the offering to the actual market preferences.
In other words, this template may apply if a retailer is experiencing slow inventory turns and margin erosion due to discounting of slow movers.
Example Mafia Offer: “Mister Customer, we know that everyone promises sell through and high gross margin, but places all of the risk on you to forecast and manage the inventory. If the forecast is wrong, you miss an opportunity with fast movers and then end up discounting the slow movers. So our offer is to manage our inventory on your shelf and we guarantee we will meet or exceed your historical return on shelf space or we will pay the difference.”
Operational Improvements Required: Implementing S-DBR31 or the Velocity Scheduling System32 (if manufacturer) and the Replenishment33 solution to replenish consumer goods as they are sold. Switching to a mode of operations that is based on actual consumption ensures very high availability coupled with surprisingly high inventory turns and will minimize slow movers and the need for discounting.
Projects
Situation: A company that delivers projects will create this decisive competitive edge and make some version of the Mafia Offer that follows.
“A decisive competitive edge is gained by the market knowing that the company’s promises are remarkably reliable, when all other parameters remain the same. In the multi-projects arena, remarkably reliable (very high DDP without compromising on the content) is defined as delivering well over 95 percent on (or before) promised due date, while in cases of late delivery the delay is much smaller than the prevailing delays in the industry.” And, as a second phase, “On a considerable portion of the projects, bonuses (for early delivery) are gained.”34
This template may fit in situations where at least some of these statements are true:
A delay in delivery is very likely to cause a delay in the completion of the overall project.
The standard DDP in the industry is notoriously poor.
Late delivery of the overall project has major consequences for the client.
The benefits of early delivery are significant and customers/prospects can afford to pay a premium to gain benefits of earlier deliveries for second phase. Moreover, customers may have even asked for or impose late delivery penalties.
In other words, this template may apply if customers/prospects frequently suffer from late deliveries and may gain substantial benefits from earlier deliveries.
Example Mafia Offer: “Mister Customer, we know everyone quotes an aggressive project lead time in an attempt to gain your business, but rarely does anyone actually complete the project in that time. These delays have a significant cost to you and delay your income. So, our quotes will include a guarantee. We will pay you 5 percent of the total project fees for each day we deliver late. At the same time, we can allow you some flexibility in making final project spec changes. In addition, we will make every attempt to deliver our project ahead of schedule, allowing you to generate income sooner, if possible. And if we can do this, we ask for a 5 percent bonus for each week we deliver early.”
Operational Improvements Required: Critical Chain Project Management (CCPM)35 or Project Velocity System36 can bring projects to have DDP of almost 100 percent. Moreover, a mature implementation can cut project