Separating Sales and Production: The Key to Solving Problems





Separating Sales and Production: The Key to Solving Problems

By:  Erin Mahan

Pretend that you are the President of a paper converting company.  It’s 10:30am on a Tuesday, and you’re at your desk going over the numbers on the latest order.  You notice that the profit margin on the order is significantly lower than it should have been.  You’re not particularly happy about this, and so you immediately call your sales representative in order to get to the bottom of the issue.

President:  “Leah, I don’t understand why the profit margin was so low for ABC Converting’s 50,000-pound order.

Leah:  Sir, honestly, it’s not my fault! The warehouse screwed up the order that I sent to them. I accurately quoted ABC the price of processing the order, but the machine operator messed up and processed the order from the wrong roll.  It caused a ridiculous amount of waste, which hurt the profit margin.

Still unsure of what to think, you head to the floor to question the machine operator about the situation.

President:  “Brian, I don’t understand what happened with ABC Converting’s order.  This is simply unacceptable.”

Brian: “I don’t know what to tell you.  Sales repeatedly misquotes customers on how costly an order will be to produce. ABC’s order was taken from the wrong roll, but even if it had been taken from the correct roll, there is no way it could have been produced at the low price quoted to the customer.”

So now you’ve approached both parties involved in the situation, and neither one wants to accept responsibility for the problem.  So what do you do when both are blaming the other?

 

Separating Responsibility

Playing the “blame game” is a common occurrence in any company.  Employees naturally try to shift the blame when problems arise that don’t have a clear origin.  The ability to confirm where a problem originated is the only way you and the employee can adequately solve it.  Misplaced orders, confusion regarding inventory pricing, and an inefficient shop floor are common problems that plague converters.  The key to solving problems such as these is having the ability to see what sector they came from.  In this case, the converter lacks a system that separates fiscal responsibility in sales from that in production.  If the two were separate, the sales department would be able to quote jobs knowing with certainty that their profit margin would stay the same regardless of any mistakes made by the production department.  It would also allow the production department to examine if they are staying in-line with the job estimate, and how much acceptable waste there would be from all production runs.

Complete Visibility to Every Sector

The ability to see the actual cost of producing the inventory creates a precise estimate inclusive of labor and overhead costs. At any given time, from sales to production, information can be accessed that chronicles what is going on at any given time with the inventory, and who is responsible for the action. Tracking the variances between actual and standard waste in regards to labor, overhead, and run time, allows production to be held responsible for their output, and sales to have set-in-stone margins without worrying about problems in production. In this way production is not penalized for misquotes given to customers, and sales is not reprimanded for inefficiencies on the shop floor.

Ironically, the separation in responsibility of sales from production does not isolate the two departments.  In fact, having complete visibility to activity in both areas opens the flow of communication between the two, allowing them to work with one another.  Should problems arise, they can be easily traced back to where they came from without hassle, giving you the power to end the blame game and get right to the root of the problem.