“Death of a Salesman” -November 1st, 2016 

-Dean Cantrill

The Board of our company decides growth is the burning platform for all company initiatives in the New Year. This is communicated throughout the organization. So far so good.  Next, the Board decides the best way to lead the company, in support of the burning platform, is to hire a General Manager with a sales background.   Great idea again, right? It is obvious; we need more sales to grow the company.

 

My advice; go hire an experienced leader. Go hire a leader who truly understands the relationship of Safety, Quality, Cost and Delivery, not just Sales. Go hire a leader who can evolve a strategy for the long-term health of the business, looking out 10 to 15 years into the future. Go hire a leader who focuses on the value to the customer.
 
Most likely, this leader will not have a Sales background. Not to say you cannot find a successful leader who could deliver long-term growth and have a Sales background. In my opinion, the odds are not in your favor. I have seen this scenario play out five times in my career. The company declares that “Growth” is their burning platform and they search high and far for a new General Manager with a “strong” Sales background. In all five cases, the company did not grow. In two cases, closure or bankruptcy followed within 18 to 24 months. In one case, the company hired and fired three different General managers over a five-year period, all with Sales backgrounds. The result: the company’s revenues dropped steadily over the five-year period.
 
In all five cases, I observed a similar pattern of actions and decisions that generate the opposite result the company set out to achieve.

 

We need more sales, so;  1) Hire more sales people,  2) Offer our products for a lower price to increase volume,  3) Drive up inventory to reduce lead-times, and  4) Go after higher volume opportunities.

 

This series of actions and decisions became the company’s growth strategy. Absent a plan to harmonize their Supply Chain and Operations Team, this is what happened next.

 

Step 1) Hire more sales people

• Overhead increases immediately, lowering profit on existing sales
• Company culture is diluted with the influx of new people with their own priorities
• Morale lowered because leadership set the tone that “Sales is King”
• Layoffs are executed in manufacturing to address the lower profits created by increasing overhead
• Product quality is negatively impacted due to the new higher workload and low morale in manufacturing
• Customer complaints increase due to quality issues forcing customers toward the competition.
• Cost of manufacturing increases due to increased scrap and rework
• Supply Chain consolidate vendors to low-cost vendors to counter increasing manufacturing costs
• Part shortages increase due to startup problems with new suppliers
• Material is pulled in ahead of planning to help resolve part shortages
• Inventory levels rise, cash flow drops

 

Step 2) Offer our products for a lower price to increase volume

• More stress on manufacturing and supply chain to maintain profit levels on lower margin sales
• More layoffs in manufacturing to support cost reduction efforts
• Outsourcing of manufacturing starts in support of cost reduction efforts
• Overhead rates continue to rise, caused by lower absorption (smaller labor pool)

 

Step 3) Drive up inventory to reduce lead-times

• Cash flow continues to suffer, caused by the sudden increases in inventory
• With reduced cash flow, Accounts Payable holds vendor payments
• Vendor holds create havoc in the Supply Chain
• Due to increased stress in Supply Chain and Planning, some parts do not arrive in support of the build schedule
• Lead-times do not improve due to part shortages
• Work-orders are released into manufacturing short parts
• Labor inventory increases because products sit in WIP short parts
• Product costs increase caused by inefficient workflow in manufacturing (Stopping and Starting work-orders)
• Additional layoffs in all functions to address poor profitability
• Quality continues to drop as costs continue to increase

 

Step 4) Go after higher volume opportunities (the Hail Mary pass)

• The Sales team negotiates a high-volume, low price contract with a large distributor
• Manufacturing kicks into high gear, working tons of overtime
• Quality issues continue, but exponentially due to the reduction in their support staff
• Part shortages continue
• Delivery is impacted by Supply Chain and Manufacturing issues
• Penalty clauses kick-in with the high-volume customer
• Profit and cash flow continue to drop
• No levers left to pull

 

I would like to say I made all of this up, total fiction. Unfortunately, this represents, to some level, what happened in all five cases where I witnessed a leadership change to sales-minded individuals when the burning platform was “Growth”.

 

In contrast to the “sales only” mindset to create growth, consider adding a few additional steps and actions to help balance the organization functionally in support of the burning platform.

 

For example:

• In addition to identifying and communicating the burning platform to the organization, use Policy Deployment (Hoshin Kanri) to develop supporting strategies and actions for all functions in the business.
• Implement Sales, Inventory and Operations Planning (SIOP) to balance the actions of your Sales team with the Supply Chain and Operations Team
• Consider lower volume / higher margin markets rather than high volume / low margin markets (Go to market strategy)
• Hold Supplier Conferences with key suppliers to communicate your company expectations of them in support of your SIOP results
• Focus on eliminating waste to reduce cost and improve quality and delivery
• Focus on standard work and improving processes to shorten lead-times
• Insource rather than outsource to control quality, cost and delivery of critical parts
• Recruit a business leader who can demonstrate long-term success and value creation, rather than a background in Sales
• Build a supporting leadership team to deliver the new strategies and actions

 

There are several potential strategic actions necessary to build long-term value and growth depending on market conditions and industries. I have listed a few that would have helped the 5 companies I referenced above. I believe that Policy Deployment is a tool that brings the entire organization together, focusing all efforts on addressing a company’s burning platform. Once the supporting strategies are developed, a clearer long-term path with executable actions is born.

 

Here is a thought, would you rather have a burning platform for “growth” and end up with a fire sale, or would you rather have a burning platform for “profitable growth”? I think you will find the latter requires more than just an amped up sales department.