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Categories: Theory of Constraints
Mafia Offers: Beyond the setup (Continued)

Mafia Offers: Beyond the setup (Continued)

By Bob Sproull

Another Mafia Offer Example

In today’s post, I will provide other examples of what good Mafia Offers look like and then introduce what Dr. Lang refers to as “The Test” to determine if it is truly a good Mafia Offer.  Here’s an offer that addresses lead times.

Mr. 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 your lines 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 off your order.  And if we are 10 days late (which presently happens all of 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 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 Simplified DBR (S-DBR) or Velocity Scheduling System.

This Mafia Offer guarantees a 4-week lead time on delivered products, but look what happens if they miss their delivery date.  Imagine one of your suppliers deducting 10 percent per day off of your order and if it is 10 days or more late, your order is free.  In addition, this offer address changes caused by your customer.  Yes you pay more for an accelerated delivery, but again there is a provision for the order being late.  Note that this offer requires an operational improvement (i.e. the implementation of S-DBR or Velocity Scheduling System), but the return on investment is very high.

The Test – Is it a Mafia Offer?

Dr. Lang [1] advises us that “we should test the offer against our definition.  Is the offer so good our customers can’t refuse it?” Dr. Lang goes on to say that, “If we have done a good job with our analysis, it should be unrefusable to 80+ percent of the target market.” She also advises us that no offer will be 100 percent accepted by any market. There will be some people, for whatever reason, that won’t find your offer compelling.”   But imagine an eighty percent acceptance rate!

[1] Dr. Lang tells us that “when we develop a Mafia Offer, we start by asking to whom the offer will be made. We select a target market – a type of customer. The market we select can depend on a number of issues; for example:

  • What market do we want to grow?
  • What market has the best margins?
  • Do we have too much business with one customer or in one market?
  • Which customers or types of customers do we dread?
  • What market has tons of room for us to grow?

Let’s look at another good Mafia Offer from the consumer goods inventory.  This offer is also from Dr. Lang’s Chapter 22 of the TOC Handbook [1].

“Mister Customer, we know that everyone promises sell through and high gross margin, but places all 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.”

Next Time

In my next post, we’ll complete our series on Mafia Offers and Viable Vision by explaining how it’s possible to turn your current sales dollars into your future profit dollars in four years.  As always, if you have any questions or comments about any of my posts, leave me a message and I will respond.

Until next time.

Bob Sproull

References:

[1] Theory Of Constraints Handbook, James F. Cox and John G. Schleier, Chapter 22: Mafia Offers: Dealing With a Market Constraint, Dr. Lisa Lang, The McGraw-Hill Companies, 2010

 

 

Bob Sproull

About the author

Bob Sproull has helped businesses across the manufacturing spectrum improve their operations for more than 40 years.

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