Taking care of the range that is being discontinued is a challenge. In the last blog I described the way we handled it in the Linköping store. Now I will give you an example of when we succeeded in our goals only to discover that we have failed in reality.
The best way to ruin news launches
My first discontinued round or “outgoing” as we called it in IKEA was tough. The central purchase organization had gone overboard with commitments and purchase agreements and we literally had a mountain of textiles to take care of, especially bed linen and sheets. We pushed these goods really hard, slashed prices so low that it was ridiculous. A sheet cost €0,5. At the end we moved the mountain together. It was fun, exciting and exhausting at the same time; one of the many reasons IKEA is such a great place to work at. People bought sheets for their bedroom, the kid’s room, the guest room, their sisters, brothers, mothers, fathers, sons, daughters, you name it. They even stocked up so they could give some as bonus Christmas gifts (the sale was in August). At the end of the sale I guess that 95% of the people in the region where sleeping on an IKEA sheet. Fantastic result wouldn’t you say?
Not really! We cleaned up the sales space, restocked the new articles with their modern colors, textures and prints and we sold…nothing. Of course not, we just flooded the market, what did we expect? It took us 4 months to recover, and then it was time to plan the next outgoing round. This time it was less, but I the last round had an effect on this round as well and it was still had a painful amount to take care of. Since I later took over the forecasting system I can say with certainty that the initial forecast of the news had not taken the sales effect of the mountain of outgoing into account, and the contracts with the suppliers had to be renegotiated during the sales period. The Textiles department had to dig deep in their margins that year.
Be clear on your goals (is it to clear out stock or to sell news).No matter how much you want to protect your investments in the supply chain, you cannot jeopardize your sales.
The world is much easier to explain in black & white and when I was younger I lacked the knowledge and wisdom I have earned over the years, not that I’m old, but I can now appreciate the shades of grey in life. Someone told me once that we learn from our actions, but it is our mistakes that give us wisdom. I want to share some of my mistakes or mistakes I was part of.
Learn when to listen
As in store logistic manager in the Linköping IKEA store I worked close with the sales team in the store to take care of the articles that were being taken out of range. Two times a year we repeated the process of emptying out the old to leave room for the new products. Every time we faced the challenge of selling out the stock at a preset budget of price reduction. Best practice was to simply take the forecasted sales for the remaining period and see if we ended on plus or minus with the stock we had. If we had a minus we looked if the article was critical for our sales and looked if we could either get more of the old article or if the replacer was available earlier than the switch date. Then we looked at the plus too see where we would invest price reductions. We did not have advanced tools for price elasticity, so it was up to the sales organization to select what articles to push with price and articles to push through commercial actions. In some cases we traded articles that had not been delivered yet with other stores so we could focus on fewer articles and push bigger volumes. This was all done in Excel (blessed tool), and it was the plan. We only had the task to execute, but if the pile of stock was too big, this would be communicated back in the chain to see if we could change the time horizon (that very seldom had any effect).
One year we got a huge pile of 2-seat sofas. Let’s say that the original price was €60, because I can’t remember. Only problem was that the supply chain had delivered 120 sofas and ZERO covers. Another 80 sofas where to be delivered 6 weeks before the end date and there was no input on when the covers would arrive. Our feedback to the supply chain was very clear, if the covers don’t arrive with the last shipment of sofas, don’t bother sending them to us. Then we slashed the price of the sofa to €1.99, ordered some extra bedspreads that fit and sold it off as a package. The sofas where displayed everywhere in the store and we cut a deep whole in our price investment budget. The second delivery arrived, still no covers. By now I would cringe at the mere sight of these sofas, but we battled on. Two weeks before the end date we had 5 sofas left, that’s when we got a delivery of 200 covers. 195 covers that could not fit with anything, simply a waste of space. We could not even give them away. So we threw them out, costing us and additional €10-20 for disposal. My irritation is the fact that we spent money on cutting the fabric, sewing the covers, packaging, transport to the warehouse, handling in the warehouse, transport to the store, handling in the store and disposal costs when it could have started and ended with disposal. All that time and energy for nothing. If both sofas and covers had come at once, we would actually have made money, but that is sometimes too much to ask. My boss Stefan wrote about the supply chain being the good guys and sales being the bad guys. How good are we, really…
Supply Chain need to be able to understand the sales capabilities in their company and not just shrug off the sales input as a nuisance. In the end, if sales can’t do it or won’t do it, it won’t get done. No matter how sophisticated your forecast systems and supply chain processes are.
Also, the earlier in the chain you can take the cost, the lower the cost is, no matter what budget it affects.
I’ve written to you about S&OP and sales responsibility in the process. While writing I asked myself “If sales is not taking part in common planning, what are they doing instead?”. My assumption was that they were meeting customers (pitching articles that later would not be delivered).
What do sales reps spend their time on? What do I know? I have never been a sales rep so I could not say from experience. All I can say for sure is that whatever they do has a huge effect on the rest of the company.
So I turned to Google to find wisdom.
I came across several sites posting statistics. My personal favorite was the one by the “Industrial Performance Group”. They also highlighted what the best sales reps spent their time on.
I was not really surprised that the studies presented different results, but the time a sales rep is meeting the customer accounts for 10 to 45 percent of their time. That is a big variation. The effect of this is also disputed. Does more time with the customer actually lead to more sales? Summarizing the studies I would have to say that it would depend on the complexity of your product.For complicated products you don’t win the sales by meeting the potential customers and sell your product, you win when you meet the potential customer and explain the product based on their needs. Sales reps need to do their homework, because without that, it is just going to be a pointless meeting. The most successful sales reps also spend most of their time prospecting and qualifying — twice as much time as average salespeople. To sum this up I’ll quote Theodore Levitt:
People don’t want to buy a quarter-inch drill, they want a quarter-inch hole
A part of the surveys that caught my eye was that up to 14% of the time is spent on problem solving and customer service. I’ve seen this happen so I wasn’t surprised that it was one of the things that turned up, but it’s a huge time consumer. Sales reps that prepared better had considerably less time spent in cleaning up. This not only gives benefits to the sales rep, it saves the company a lot of money. The worst sales reps are the ones who land a lot of deals and then leave it up to the rest of the organization to clean up the mess. They usually hit or exceed all the sales targets, so their hard to reason with and the sales managers are scared of losing them.
On the other hand my boss, Stefan, wrote a great blog in the Swedish sales process blog on the need hunters in poor times. You can probably translate it in Google translate. If the farmer’s conditions are too poor to make the crops grow, there is a problem. I could not agree more. This becomes the time of the hunter, the sales cowboys as I call them. They ride out into the sunset and come back with whatever they can catch, and it’s not always appetizing or even eatable. The problem from a supply chain perspective is that if all the sales reps are renegade cowboys, who’s taking care of the farm? And if all that lands in the supply chain is risk prone, how can they deliver? That might be the current situation on the barren market that you are facing, but then you need to be prepared for the costs and the delivery issues that follow…because they will come. It should be a strategy set by the company as a whole, not just the random result of sales. The supply chain can take this more flexible strategy, choose the propper supplliers, sign more flexible contracts and be prepared for more random orders. It will cost more, but save money and customer relations in the long run.
These where the two major areas where the statistics pointed in the same direction.
Now what am I doing writing about sales reps time? Because it is not their time, it is company time and they are all over the place it’s because you are not managing them. Creativity in a framework, that’s what you need to create.
Because you’re never going to get a grip of sales reps time without a sales strategy, a well-defined sales process, a sales plan and a formalized connection to your supply chain.
You will not understand how much time you need in the field, you will never be well prepared and your sales reps will take risks on the company’s behalf to land orders.
It’s just not a good way of making money. That’s why.
After this study I have even more respect for sales reps. You do not have an easy job, but I still can’t excuse your foolish behavior from a supply chain point of view. In the end a bad deal is a bad deal, no matter what the intention or excuse is.
I’ve read the theory. I read it twice. I had a really hard time placing B2B sales in the Sales & Operation Planning (S&OP) mold. Until I realized that I wasn’t focusing on the most important component in S&OP, communication. I’ve said before, but I like repeating this message. It’s all about communication.
I immediately ran into a communication problem. In S&OP, the “Sales” = Demand Planning. Now who in sales identify themselves with being drivers of demand? “I’m not selling more of the products, I’m driving demand…”. Yeah, right! Sales people sell and they are proud of it. I like the sales people who don’t see it as sales as much as helping the customers finding the right service or product. Solving a customer’s problem is very rewarding. Sales are a critical part of the demand plan. One of the cogs in the machinery if you will.
As a Sales Manager you are a part of demand planning. Demand planning also includes the components marketing, statistical forecasting, product/brand management and the business plan. As a Sales Manager YOU can only deal with the areas within your own responsibility, but you’re in the same boat as the other managers, so you need to be open and honest about what your plans are and the rate at which you will carry out the plans, the same way they need to be open and honest about their plans. How you should work with your sales is my manager Stefan’s specialty, read his blog postings for more insight. I will step you through the plan and what to communicate.
Let’s look at a year cycle. In the beginning of every year you as a sales manager will be handed a sales budget. Best case, you were involved in setting the budget, worst case it’s a financial goal, not connected to the “real world”. Find a way to communicate what this budget means. You need to review your sales strategy, aligning it to the business plan and corporate strategy. Once you have the strategy you write a sales plan. A sales plan is a detailed description of how you intend to meet the goal, your game plan. In this game plan you need to include what the statistical forecast (or history if you don’t forecast) is saying about your product areas (high potential, no potential). You need to take in account how the products and brand will change during the year (new articles, change of styles, change of packages, and so on…) and you need to take in account the marketing strategy.
Like I said before, you’re not alone. The final plan is going to be collaboration between Demand, Finance and Supply. If you make your plan detailed enough, you can discuss product areas or individual products with the supply chain manager. He/she can become your allied in validating the budget. Find focus areas and set common, measurable goals. If you together cannot find a way to meet the budget you compile your facts and go back to the CEO or CFO and set a reasonable budget. If the answer is no then you need to assess the risks. Be prepared. Put it the risks in your game plan.
Finance / Pricing
Connecting to finance, you need to have a game plan for pricing. To control your sales organization you need to set clear goals on GM% either per department or by individual. This will give you room to leverage price reductions within the GM frame. If you lower the price a lot in one area, you also need to sell more products with high GM% to balance out the score.
How do I help secure a good demand plan?
Once you know what you can do and the risks and potentials are clear, you need to leverage the other areas in the demand plan (Marketing, Product / Brand management and Statistical analysis)
Your next allied is the marketing manager. Marketing is the fuel that feeds the sales engine. It either inspires or educates the customer to either contact the company or be more susceptible once they are contacted. It is critical that Marketing is in sync with sales and vice versa. Otherwise you risk a conflict in messages and you lose the customer in the first 30 seconds of the conversation. This is an opportunity to flag some of the risks and find ways of minimizing them with the market communication. Find focus areas and set common, measurable goals.
Product / Brand management
To manage the risks and potentials in your plan, can there be changes in the product portfolio? Is there a need to clarify the message to the customer?
If you are working with statistical forecasting, make it clear what you are going to do different next year compared to the current year. In areas where you are not changing anything the forecast will be more accurate than you to predict the outcome.
So you have a year plan, then what?
Once the year starts rolling you need to stay on top of things. Monitor your pipeline, your GM% and the orders. It helps to set sales goals on individuals to support and coach continuously in order to meet your overall goals.
On a regular basis you need to connect with Finance and the Supply Managers and assess the situation. If you’re on track, no problem, just discuss potential issues in the near future. If you’re not on track, then Demand Shaping is a good way to ensure that you can reach your common goals.
Plan-Do-Check-Act is an excellent model to work with. Plan what to do, execute the plan and measure the results, look at the results and analyze the outcome, present alternative actions, set the plan again and start the cycle again.
Demand shaping is the ability to guide customers to the best choices at point-of-sale. This is the key to increase revenue and supply chain efficiency. However, demand shaping is more efficient if you have product intelligence at point-of-sale to guide customers to the best choices. Some of the ways to demand shape are –
Make a more complete offer, when a customer is asking for a product; use your sales history to extend the offer to include other items that are commonly sold together with the customer’s area of interest.
If you offer a product with many attributes, every sale will begin with the customer calling out a few attributes. The opportunity to demand shape is to recommend a good choice based on the partial list of attributes the customer has called out. Demand Shaping requires the ability to complete the order with the right attributes. The best way to complete the order is to have sales intelligence these attributes are bought with these other attributes. If there are capacity constraints on any of the attributes, steer them out of the discussion. Focus on what’s available.
The biggest opportunity of Demand Shaping is guiding customers to close-enough products. In most cases you know the products better than the potential customer. Listen to their needs, weigh in the availability issues, there are a large number of products that are similar or close-enough that they can satisfy the customer. So there is a significant opportunity to guide a customer to a similar or close-enough products at the point of sale, it is a win-win. You have served the customer. You have won the sale. You have moved your inventory or avoided a shortage or late delivery. And your competitor did not get this customer.
Use price to stimulate products or product areas. This can steer the customer behavior to the right attributes, product or product areas. Offer other incentives that affect price, like free delivery or discount on volume.
What to focus on should be put in your sales plan and communicated to sales reps, supply chain, finance and marketing to secure a common way of approaching the customers. Once again, communication is key. Sure, you might meet objections from the other managers, but if you can get input now instead of later once the sales reps have put time and energy into executing your plan, don’t you stand to gain?
What’s in it for a Sales Manager?
As a sales manager you need better ways of steering your sales force, and you need help and direction in what to steer against. Running a one man (or rather a one department) show is not good for business. By working the right way you will increase your margin, have a better chance at achieving your goals and your customers will be more satisfied. Will you sell more? That’s not what this helps you do, but you’ll sell smarter. Remember, companies don’t survive on sales volume, they survive on profit.
Why take my word for it
Been there, done that. One of the reasons for IKEA’s success is its ability to shape demand. It is done all the time. In the store the techniques are refined and exercised every day, and from time to time signals are generated from little Älmhult to set focus on an item, the information ripples through the matrix and actions are taken on the shop floor. Granted that we did not succeed every time, but the principles and understanding is there and I was a part of it. It was just common sense at the time, but as I study the theory, I understand what we actually accomplished. “Yes, but that’s retail” you might say. So? A good model can be cropped in one place and sown in another. That’s the beauty of a model, and this model is GOOD!
Looking back at my IKEA days I can smile and see how much fun we had trying to create order out of chaos. The truth is probably that the chaos was a bit exaggerated. It’s just that sales people live on Pluto (with only a fraction of Earth gravity, they where floating free) and Supply Chain people live on Jupiter (with twice the normal gravity holding them down). When I was working with Logistic issues I was determined that there was a best way of doing things and if I calculated all the potential outcomes I would be able to find the optimum, “THE PLAN”. I was weighted by my own conviction that I was going to find the answer and sales people where constantly sabotaging my plans and screwing up my numbers, so I never found the optimum. Then one day the truth set me free of my burden. The truth was that I was trying to find the Holy Grail, a myth, a relic. What I found instead was a new type of language that could be understood on Pluto.
It’s not about who is right and who is wrong; it’s about the common goal. If we all agree to do something, it will be done. It’s a simple fact, but it is so difficult to manage.
Our approach was to create a platform to speak this common language and this was done in Excel (Excel is the most useful application in the world, by the way), focusing on a few areas that would drive big change. We then found that some sales people messed up the sheets to translate closer to their language, so we didn’t understand what they were saying. This was done by the most “creative” sales people. So we looked close and hard at what they were trying to say and could see that it would not translate, so we changed platform to Access in order for us to keep them from changing the language. This worked like a charm. At this point we could make some simple follow-up queries to summarize the main topics to give the supply chain a heads up of what was happening on Pluto. They were thrilled.
The final change was putting the platform in an environment where we could connect it to other information and follow more closely what was happening. We could also connect on a lower level and make reports that were really interesting for the supply chain. The end result was that the sales organization understood the positive effects of planning, making them sharper in their task, and the supply chain got better insight.
I don’t know if the supply chain got there in the end, but what they should focus on is the risk management to loosen their burden of finding “THE PLAN”. It is not only about the plan; it’s about the plan and the expected quality of the plan. If the reliability is 30% the supply chain needs to find a way to mitigate +/-70%. If this is not possible you need to make this clear to sales, what can be done and what can’t. Make sure you speak on a regular basis about the current status of the plan and use a common platform to have this conversation around. If you don’t, you’ll be back to not understanding each other.
While my colleague Håkan is a really experienced demand planning strategist originating from IKEA and with decades finding the right way of managing supply chain; I’m the one that comes from the Sales Side – the home of the bad boys.
I have always seen “supply chainers” as very clever people that are not only extinguishes fires, but also handles the sophisticated supply chain tools with excellence, the huge data volume, the simulation queries or multi-colored graphs without hesitating what’s right or wrong.
They always have total control over the delivery process, the suppliers, the Capacity. They can predict the future just by one-clicking a button providing my management team solid, fantastic overviews illustrated in gauges and trend diagrams.
They are telling the truth. They have the facts. They know the way things have to be done.
The supply chain people are, honestly, the good guys.
It’s not strange they become angry when the bad guy comes into the picture saying he neither sells the red truck that was planned, nor the green one. But he will sell twenty more mountain bikes every week, even if the plan was only five.
Maybe he will sell the mountain bikes, it depends. It should happen next week or next month, the probability is 99%. Which is changing to 10% just a few days after the original clear statement of 99%…
You’re getting it. It’s like planning for a ride to the moon, but the people that will drive the starship only have driver’s license for a Volvo.
Like Håkan said, if you don’t have the people onboard, there is no sense planning the details. In many ways, I can say the sales people don’t have a clue what the supply chain are planning. They are definitely not onboard. Why?
Let me introduce the Bad Side.
Of course a sales rep has goals, even in detail. It can be like this:
– One red truck per week
– Two green ones per week
– Five mountain bikes per week
But the goals seldom control that this will happen. Sales people still go for opportunities they love, not the one that follows the demand plan and they are in most cases measured by revenue alone, doesn’t matter what they sell. And they often get more appreciation when they exceed their goals rather than meeting the goals on target, even if the supply chain then has to re-invent their selves to manage the increase of a product or business area volume.
Sure, many enterprises today have a sales process, with checkboxes to complete, just to be sure they go for the right opportunities and to predict the sales pipeline volume. However, very few companies have the communication to supply chain in place, in order to match sales pipeline to the demand plan and vice versa; to get input from supply chain to the sales organization.
By this lack of steering, it’s not surprising they are not “in sync” with supply chain people’s sophisticated plans – the plans are not in the same language!
The sales guys often tell they cannot sell that or that; the market is changing, the competition is harder than expected and so on. Well, that can be true. But it shouldn’t be a surprise when it comes to September or October – it really should be discussed from Day One! It’s much easier to catch up small deviations in February or March, when the alarm noise only is a whispering sound, than the ear-blowing whistle later on.
So, some advices:
Create an action plan that tells the sales rep what to sell and when
A sales process that secures actions will be done in the right order
Translate the demand plan into sales language
Consider not to start sales processes that wouldn’t be finished within the time frame of your goals
Keep up communicating and try to be as good guys you can, Sales people!
I think there is a misconception when it comes to Demand Planning and Forecasting. I’ve done it for years and I realized the error in my thinking. I was caught up in the illusion that if I worked hard on my forecasts, if I set the right parameters, if I weeded out inconsistencies, my forecast will become better. I was soooo wrong. The problem is in people, people do not act the way you want unless you tell them how to act (and even then they don’t).
My best and most used quote when teaching others how to forecast is
“The best way to predict your future is to create it!”
– Abraham Lincoln.
It says it all. And it is not about securing 1000 products, It’s about the 10 you hang your strategy and your profitability on, these are the ones that are the future you are trying to create.
I remember sitting in discussions with sales leaders about these 10 heroes and how they would get more room in the catalogue, how the price investments will be tuned to support them with lower prices, and so on. Our forecast was sound, and based on good statistics, a proven algorithm and solid qualitative input. Then the catalogue was released and…nothing happened, no dramatic increase. Why?The guys and gals on the shop floor had no clue that there was a focus on these articles. They had been given highest priority by the supply chain to sell out some other 10 articles because there was an over capacity in production due to that those articles where over forecasted last year (or we would lose money). My forecast was now crappy on 20 of my biggest articles (10 under performing and 10 over performing) and eyes were on me for making a poor forecast. What do you think happened a year later?
If the sales organization had been clear on its priorities we could have made money in both last year and current year sales. If the WHOLE organization had been acting on the same prioritizations, we would have met the forecast. It’s all about communication.
So when talking about forecasts and how to increase forecast quality, remember that outside your structured systems there are people…
Forecasts give companies the probable outcome of the future, sales plans secure that the outcome is the way you wished!