Do we have too much business with one customer or in one market?

Which customers or types of customers do we dread? (If our competitors also dread these customers, they may be more easily acquired.) What market has tons of room for us to grow?

Mafia Offers can be aimed at others besides your customers and prospects. You can create Mafia Offers for your vendors, your employees, your bank, your partners or affiliates, or for whomever you choose to target.

Once you start thinking along the Mafia Offer lines, you will also find it useful to ask, "Why should anyone you interact with do business with you?" This line of thinking will help you to make sure that all the interactions you have are as good as they can be. For example, if you want to start using Twitter, my question for you is, "Why should I follow you?" If you approach Twitter18 with the answer to this question in mind, you will be more successful at getting followers. Similar comments can be made about your personal interactions as well.

There is no limit to the number of offers you can develop or to the amount you can increase your sales. In addition, Mafia Offers are possible for the majority of companies. The reason that most companies don't know that they have one or know what it is, is because they just don't know how to develop them.

Can You Create a Mafia Offer?

If you read Dr. Goldratt's (1994) book, It's Not Luck or one of the other TOC books, you are familiar with how we use cause-and-effect logic (also called TOC Thinking Processes) on your customers, your industry, and your company to create the offer.

Historically, to develop a Mafia Offer you had to hire a TOC expert and spend about 2 weeks creating your Current Reality Tree, Future Reality Tree, and then your Prerequisite and Transition Trees. It is time-consuming and expensive but absolutely worth it.

As I've worked with clients, I've noticed that the majority of the population has a tough time building logic trees. They can understand them, but building them can be a challenge. Therefore, we tried another approach and have had success with a process19 that uses the logic without requiring the building of trees. So can you create a Mafia Offer? Yes, if you can delve into the logic from your customers' perspective.

In It's Not Luck, Dr. Goldratt develops three offers for three different companies (printing, cosmetics, and steam) in three very different environments. One was for a printing company and it was based on the price per quantity curve industry practice. Despite that, and despite the fact that all the logic is laid out, printing companies don't imitate the offer.

Even if you have trouble with the logic, you probably know enough about your industry and customers to create an offer. It's not only the logic that can be tough, but also seeing what your industry practices are. You may need an outside resource or fresh eyes to help you identify your industry practices.

Another resource that you may find helpful is the Mafia Offer templates. As with any template, there are pluses and minuses. On the plus side, templates can save time and give you some ideas about what your offer might be. On the negative side, because a template exists, you may not do the full analysis and come up short, or the offer doesn't work because it didn't fully apply and you didn't do the analysis to understand how to modify it.

We don't use templates in our Mafia Offer Boot Camps.20 Instead, we do the full analysis for each company and market. It takes 2.5 days, but the mistakes are limited. So, use the templates if you must, but do the full analysis and take care to tailor them.

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 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 statements are true: 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 lead times to be as short as 50 percent of regular lead times.

Pay Per Click

Situation: This template applies to manufacturers of equipment or capital-intensive products.

"The company gains a decisive competitive edge in large markets by providing its equipment in a way that does not involve (almost) any risk for the client."37 This template may fit in situations where at least some of these statements are true: The initial investment that is required to purchase the equipment is not negligible.

The level of usage that the customer/prospect needs is highly uncertain.

Using the equipment is beneficial to the customer/prospect.

The initial investment required is very high for the customer/prospect.

The income stream is tied directly to the equipment and is unstable.

In other words, this template may apply if customers/prospects want the equipment but regard the investment in the equipment as too risky. Alternatively, lack of experience causes the potential customer to doubt both the benefit and the level of usage.

Example Mafia Offer: "Mister Customer, most equipment suppliers put all the risk of purchase on you. At best, you might be offered a lease or rental agreement. We can reduce your risk to 5 percent of the purchase price and you pay only as you use the equipment. Since you pay per use, our incentive is to maximize your uptime and quality. Then you can focus on your business instead of worrying about when and if to buy."