I Begin my Journey To The Dark Side

I am working on something sneaky.

We have this thing called the hockey-stick effect where we sell most of our volume at the end of the month. The accumulation of orders is mild in the first three weeks of the month relative to the last month, hence the image of a hockey stick (laid on its side). Since the capacity of the factory to produce is more or less a straight line, this means that we get over our capacity at the end of the month (and especially, the end of the quarter), and we remain behind for a week or two. So even when orders are coming in at a lower level in the first weeks of the month, we are working our way through backlog.

It occurred to me that if we could give our customers a financial incentive to place their orders before they wanted them shipped, by about a month, we could more successfully build ahead and keep shipments moving. The problem turned out to be that the sales force has no incentive to get the customers to book orders in advance. That is, the sales force is not measured on whether the booked order ships on time (that’s the factory’s problem); they are actually paid on margin. Of course they are still pushed by their supervisors to meet sales targets by the end of the month, and especially the end of the quarter. So this means the sales teams hold out to keep their paychecks fat, then fire sell and the end of the month.

The discounting is mostly done on terms of payment, which I think still lets the salesmen keep their bonus (while hurting the company’s cash flow). To a considerable extent, it is just convenient for customers to order at the end of the month when they know our prices and terms will be as good as they get, and they know how much money they have left in their budgets. But whatever leverage the sales force has, it will not and cannot reserve that only for scheduled orders because they must make their sales targets. If we say you get discount X or terms Y for future-scheduling your orders, we will wind up giving the same terms with no strings attached except “book this month” when a financial period comes to a close behind target.

So how can I work an incentive in for future scheduled orders without rebuilding our entire sales strategy and corporate culture?

My idea is this. Do not allow customers to make any modifications whatsoever to their future-scheduled order once booked. No tweaking the quantities. No adding a few more items. No removing items. No changes. Then, any modifications to the order that are requested have to be booked under the more favorable (for our company) terms and prices.

You see, if our customers were able to predict a month out exactly what they need, they would already be telling us. Our forecast accuracy is lousy. Therefore, our customers don’t know exactly what they need.

So they would then have a choice: sit tight and take exactly what they ordered (reducing the sudden changes to production schedules) or pay more to change their mind at the last minute–at a higher rate to the salesperson.

It’s a hook. Offer the discount on the gamble they will need to change their order later. But how likely are they to change their minds later?

It’s hard to say for sure. Behavior would change once you bias the choice as described. But what I need before I even pitch my idea to sales is some baseline figure for how often it happens now. I ran some numbers. I think the number is high enough.

I have begun thinking of ways to stick it to the customer while offering a deal. I may go far in the business world.

Leave a Reply

Your email address will not be published. Required fields are marked *