Your Director of Sales should be charged with the responsibility for maximizing sales, right?
Well, maybe not!
If he or she is, it might be worth reflecting on what this says about how your critical business functions are resourced.
Let’s assume (for simplicity) that your business consists of just two basic functions:
Ask yourself, which of these functions should be the system constraint? If we recognize that a balanced system is a practical impossibility, we have two choices:
- Maintain protective capacity in sales – so as to ensure that production is always fully loaded with work (and, consequently, operates at 100% utilization)
- Maintain protective capacity in production – so as to ensure that whatever is sold can be rapidly delivered
Now, option (2) may sound appealing but, in most businesses this is not the optimal resourcing model. To understand why, let’s start with the goal of the business:
The goal of the business is to make money (now, and in the future).
In practice, ‘make money’ means maximize the return on owners’ equity. In most businesses, the greater majority of owners’ equity is invested in production (plant).
Therefore, in most businesses, profitability is maximized when production is consistently maintained at 100% utilization.
So this analysis points to option (1) as the optimal one. This means that, if management wishes to maximize the profitability of the business it will deliberately design the sales function so that it has greater capacity then sales. It will then resource and manage the sales function to ensure that this protective capacity is maintained at all times.
If management is doing exactly this is, it really likely that the Director of Sales will be issued a general instruction to ‘maximize sales’?
It’s not, is it? If production has less capacity than sales, operating the sales function at full capacity will eventually cause on-time-delivery performance to drop to the point where clients elect to take their business elsewhere.
If production has less capacity than sales, management is more likely to advise the sales function to subordinate effectively to production. In plain-English, this means that the job of sales should be to maintain the queue of forward-orders at its optimal size.
So, remember, if you catch yourself regularly advising your sales team to maximize sales, you are making a tacit admission that you have boundless capacity in production. Is this really optimal?
If not, you have three choices:
- Reduce production capacity, until you consistently have protective capacity in sales (and, possibly enjoy an immediate reduction in operating expenses)
- Increase the capacity of your sales (which means, either adding salespeople or talking to us about improving the efficiency of this function)
- Do both!