Second best is the worst place to stand

The category everybody defends

Kelverin's commercial manager is Anwar Shalabi. His whole career is in woven bottoms. His best buyer relationships are there. His sample room is fastest there. He can tell you the pocket construction every one of four buyers prefers. When lesson 1's spreadsheet appeared on the table, he made the argument any competent commercial manager would make.

We are not bad at five-pocket. We win nearly two in five of the enquiries. We deliver them. The contribution is positive on every one. And they fill the lines.

Every sentence of that is true. This lesson is about why it is still the wrong conclusion. The mechanism is not effort, or price, or skill. It is selection.

Who Kelverin actually loses to

The leader in five-pocket bottoms, among the buyers Kelverin serves, is a factory called Straythorne. Kelverin is a solid second. It quotes well, it makes a good garment, and when the two go head to head Kelverin usually finishes close.

Straythorne has a published minimum. It will not take a five-pocket order below 15,000 pieces a colour. Kelverin has no minimum, because a factory that calls itself flexible rarely does.

So Wassef split Kelverin's five-pocket year by that one number. Was the smallest colour in the enquiry above Straythorne's minimum, or below it?

The 39.3% win rate Shalabi is proud of does not exist. It is the average of a 75.0% and a 12.5%, and those two numbers describe two different businesses that happen to share a machine.

Kelverin wins three-quarters of the orders nobody else would take, and one in eight of the ones that were actually contested.

Why the good win rate is attached to the bad money

Look at the last column. An uncontested five-pocket line-day returns USD 40.66. A contested one returns USD 268.60, which is 6.6 times as much. A workwear line-day returns USD 420.26. So the uncontested five-pocket work is running Kelverin's lines at 9.7% of what its own best category returns.

That is not a coincidence and it is not bad luck. It is the definition of the position.

Straythorne's minimum is a filter, and Kelverin is standing under the outlet. An order below 15,000 a colour reaches Kelverin uncontested because the leader turned it down. And the leader turned it down for reasons that are also the reasons it pays badly: short runs, many colours, more changeovers, tighter dates, more mid-production changes. Kelverin does not win those orders because it is good. It wins them because they were rejected, and the rejection and the poor return have the same cause.

Above the threshold, where the order is genuinely worth having, Kelverin is in a straight fight and loses seven times out of eight.

So the win rate in a category where you are second is not a measure of how close you are. It is a measure of how leaky the leader's filter is. Which gives you the sentence that changes how a sales meeting is run.

Of Kelverin's 39.3% five-pocket win rate, 26.8 points are a gift from a number in a competitor's sales policy. Straythorne can withdraw it by lowering its minimum, and nothing at Kelverin will have changed. 42.3% of Kelverin's five-pocket line-days are held in place by a decision made in somebody else's office.

The small orders are a tenth of the money and nearly half the factory

Read the same table by what it consumed, rather than by what it won.

The uncontested orders are 108,000 pieces, which is 20.0% of the five-pocket pieces. But they occupy 425 of the 1,004 five-pocket line-days, which is 42.3% of them. They return 17,280 of the 172,800, which is 10.0%.

Nearly half of the category's capacity, for a tenth of its money. Short runs and five colours do that. A changeover takes the same time whether the run is 6,000 pieces or 60,000, and it is charged to the small one.

The mistake nobody made

Every one of the nine uncontested wins was handled correctly.

The costing desk priced each at Kelverin's standard rates, and each carried a positive contribution. Shalabi was measured on win rate and delivered 75.0%, the best number in the company. The planner had lines to fill and filled them. The floor made them on time. The accountant saw a positive margin on every job and had nothing to raise. Not one person in the chain did anything a reasonable person would not have done. And there was no meeting at which the decision could have been challenged, because the decision was never made in one place. It was made nine times, each time on its own, each time correctly.

Here is what those nine correct decisions cost. It is measurable, because Kelverin keeps a log of enquiries it declined or lost on lead time.

Of the 425 uncontested five-pocket line-days, 196 fell inside the eleven weeks in which Kelverin turned away or lost a workwear enquiry because the lines were full.

196 line-days at USD 40.66            =  USD    7,969
196 line-days at workwear USD 420.26  =  USD   82,371
at Kelverin's 61.8% workwear win rate =  USD   50,876
net cost of the nine correct decisions=  USD   42,907

The second figure is the fantasy version. The third is the honest one. Kelverin would not have won every workwear enquiry it turned away, so the alternative is worth what it is worth times the rate at which Kelverin actually wins workwear, which is 21 of 34. USD 42,907 is the number. It is roughly half the contribution the whole tunics-and-blouses business produced in the same year.

Second best, or unremarkable somewhere better

The tempting answer to all of this is get better at five-pocket. Price it before you believe it.

Suppose Kelverin fixed everything within reach in that category and started winning the contested orders, the ones above the threshold, at the good return. Those come in at USD 268.60 a line-day. Kelverin's worst workwear category returns USD 401.15 a line-day.

Perfect execution in the category where Kelverin is second returns 33.0% less than ordinary execution in the category where it is first. No amount of improvement in five-pocket reaches the bottom of workwear, because the ceiling in the category is set by the leader's price, and the leader is Straythorne.

That is the general result, and it is uncomfortable. The category a factory is second in is very often the one its commercial people know best and enjoy most.

Being second best in a category you love is worse than being unremarkable in one you can win. Not because the work is worse, but because the selection is worse. In the category you win, you get chosen for the orders that suit you. In the category you come second in, you get chosen for the orders that suited nobody.