You Can’t Sell What You Don’t Have

Jim Klekamp

Senior Business Consultant

View From The Ridge: 66

July 22, 2016

“You can’t sell what you don’t have.” How many times have you heard that? In many distribution businesses, there often seems to be an underlying rift between the sales and supply chain departments. There is an inherent conflict of goals that prompts this:

  • The sales department is charged with bringing in quality accounts and new revenue. Without generating new accounts and revenue, growth is impossible.
  • Supply chain planning, purchasing and operations organizations must fulfill the promise of excellent service while managing the risk of excess inventory.

Yet, many times these two organizations don’t communicate well enough to get either task accomplished without causing problems that impact customers.

This Story is Real. The names have been changed to…you know…

I remember one instance early in my career when a newer sales person made a very large sale to one customer of a particular “B” velocity item. This order emptied 3 warehouses of that item and still left us with a significant amount on backorder. The customer and sales rep were not happy…and that’s just the beginning.

I bet you can guess what happened next. In an email from the sales person to the general manager, he quipped, “I can’t sell it if we don’t have it.” The general manager forwarded this quote to our team, as if to say, “Why are you killing my business?”

It was our responsibility to have what the customer wanted in stock, so I researched this situation and found some interesting facts:

  • The sale was made to one customer, and that customer rarely bought from us.
  • Sales history of that item showed that this one sale was twice the amount we had ever sold in any previous month.
  • The product was sold at a much lower than normal margin.

So at first glance, this sale made the sales person’s numbers look good. In fact, he received accolades for selling to a customer that typically didn’t buy from us. But in reality, what did this one sale accomplish?

  • It disappointed a customer with whom we might have improved our relationship
  • It angered current customers that could not get the product in 3 locations
  • It not only lost our company sales, but also margin dollars

My gut reaction was to tell the sales person what I really thought about his sale and statement, but after I thought about it (and how much I needed my job) I took a more diplomatic approach. I let him know:

  1. A sale of that magnitude is far above our normal sales forecast, and a heads up would allow us to forecast for that instance, get the product that the customer wanted, and be able to service our regular customers.
  2. We can assure that we have that item if demand will continue, and raise our service level goal on that and other “B” items if necessary, but higher service level goals have cost ramifications. Higher service goals would cost the company X amount more in inventory, overhead and carrying cost.
  3. To accommodate the increased cost of a higher forecast and service goals, executive management would need to increase inventory and logistics expenditures, which would likely impact his sales quota and compensation targets.

After showing him our regular customers’ demand on the item, his emotion subsided, and he realized this was an exceptional sale to an unexpected customer. He understood the situation… and for the time-being, vowed to keep us more informed.

Why does this happen?  What do I do about it?

A history of contentious interactions from sales, store operations, finance and others tend to trigger a knee-jerk reaction that drives too many responses and decisions in supply chain planning. Hysteria due to out-of-stocks and overstocks is natural. We must constantly be aware that if conditions are not analyzed and managed properly, improper responses will create wild swings in inventory, or service level issues, that increase problems, rather than providing a solution.

The key to avoiding the above situation is open communication between sales and supply chain. The sales person should have realized that this was a significant quantity for this item and advised supply chain to forecast for this demand. This would have allowed purchasing to satisfy this customer without alienating our existing customers.

The solution is to educate executives, sales, store operations and others to understand the dynamics of supply chain management. When your teammates know that logic, science and methodology are behind supply chain decisions, then communication will be more pre-emptive and effective. In turn, this will help improve the customer experience today and alleviate inventory and service issues in the future. In the end, the forecast and service expectations are on you— supply chain professionals. Do yourself and your company a favor and educate your team to help you meet the company’s goals.