Bill Canady identifies the Quad 4 problem: a small group of customers generating 4% of revenue but consuming 20-40% of production capacity. These low-volume buyers order non-core products and lack systems to manage orders, forcing suppliers to absorb hidden costs in processing, service, expedites, and collections that eat into profit.
Quad 4 is where profit goes to die. And here's the number that makes people sit up. In most middle market industrials, Quad 4 is around 4% of revenue. That's right. Which sounds like a rounding error. And that's exactly the trap. It may be 4% of revenue, but it's somewhere between 20 and 40% of capacity. Hmm. 4% coming in, soaking up something less than just half of your business. That's not good. 20 to 40 order lines, service minutes, expedites, credit memos, engineering changes, SKU helds, quote revisions, collection calls. Every one is a unit of capacity and Quad 4 consumes them at 5 to 10 times its share of revenue. It's easy. They're small customers buying products you don't really want to sell. They don't have the systems to handle it. They're going to depend on you to handle it and you're not making any money doing it.
