Anyone who knows me semi-well can tell you that I AWLAYS carry a notebook with me wherever I go. Yes, I am in the technology age of IPhone, IPad and IPod, but I still require my notebook. The purpose of such is simple: whenever I think of something, day or night, and at any location, I write it down. It can be business related, personal, or just a phrase that I heard that I want to remember. The title of my blog is one of those comments I wrote down inadvertently that someone said to me at a CPE course I attended over this past summer.
The definition of predicament according to Merriam-Webster.com is as follows: “a difficult, perplexing, or trying situation from which there is no clear or easy way out.”
The definition of problem according to the same site is: “a problem difficult to solve or a situation difficult to resolve but needs resolution.”
Let’s assume your biggest customer comes to you and mandates that you reduce your selling price by 5%. Looking at the definitions above, you have two different approaches. I would argue that if you have a valid cost model in place you will view this mandate as a problem, a puzzle to be solved. If you have accurate cost information regarding these products, you will start a logical approach of questions to “solve this puzzle” such as: what changes can I reasonably make to afford a 5% reduction on the sales price? Can I lower my material cost? Can I counter with a 3% reduction and still make a profit? Should I terminate this relationship? Because you have the information you need to make the right decisions, this demand is likely the beginning of a negotiating process that will result in a solution that is acceptable to both parties.
Now, let’s assume that you do not have a valid cost model in place. In fact, you cannot properly identify costs to a part without significant amounts of effort, and even then, the validity of the costs would be in question. This is the point where you will view this mandate as a predicament because you don’t know if you can afford that 5% reduction. You are now in an extremely unpleasant situation with no clear direction. Your choices become to accept it – not knowing your eventual fate, or to not accept it, and risk losing the customer that may be feeding your company even WITH the 5% reduction in sales price. Hence, no clear or easy way out.
Where would you rather be if faced with that question or one similar? Would you like to have the information available to solve the problem? Or would you like your outcome to be forced because you do not have the information to pave a way out?
