Selling Your Company Out of Business

You respond “I’m in sales,” as the person who asked you what you do for a living smirks at your answer. Being a sales representative for any given company can almost seem like a dirty word, but why is that? While many images of a used car salesman, or a cold caller come to mind, how would it relate to the supply chain of a company? The sales rep. can be that ever persistent person that is pressuring procurement to order more product, seemingly based upon hopes and dreams. They can also negotiate terrible deals that seemingly look good on revenue goals, but end up putting the company in the red. Let us analyze potential issues that happen between the sales team, and other departments to determine how they can transform not only revenue goals, but be wholly profitable.

The goal of any sales team is to earn accounts for their company, and expand the business revenue. This comes with its weaknesses, in that when revenue is the only drive, profitability decreases. The “by hook or crook” mentality develops, and the sales team can misplace company interests. To sell a company out of business seems an oxymoron, but you will see it in the following steps. First, the sales rep tries to earn an account that will bring big revenue numbers, but carry extra costs.

Let us say that this company has several tiers of pricing for customers, and for these items the company is selling, the market is extremely competitive. To earn the account, the representative negotiates the customer to the bottom tier pricing, and decides to seal the deal with free shipping for every truckload sold. The customer signs the contract and the sales team rejoices in the big revenue its team just earned.

While the revenue of products sold may be high, the costs to handle this product end up higher than expected. Let us say that the revenue for a particular sales order is $30,000, and the gross profit is $7,000. You then incur a logistics cost of $6,000 shipping this load across the country. After free shipping, you are now left with $1,000 of net profit, but you have not deducted the work associated to move that product through the sales, warehouse, and logistics departments. Depending on how efficient this company tends to be will dictate whether there are a few dollars left over, or the sales order is in the red. To further our example, let us also say that this happens repeatedly. The question that must be asked is if this is truly a profitable account, and if a better deal could have been negotiated to make it more profitable?

"Successful salespeople and managers know that it is a balancing act between managing client expectations and internal politics, processes and people." - Ali H.

Another example in relation to procurement comes to mind. A sales team gives the Demand Planner a forecast that exceeds the actual sales amount when compared to the historical data. The planner talks to the sales team leader and their response is not that there is a promotion going on, but that they will work harder to sell the product. This happens a few months over and there is an overstock of these items that were left unsold.

In both cases, the sales teams have put the company in high-risk situations that affect the overall net profit. To be fairer to the sales teams, there is great pressure to sell the company’s products, and with that a negative aspect arises. The push for revenue can cause neglect of realistic sales numbers, thus putting pressure on the supply chain to clean up the chaos caused. While the revenue may look appealing to the eye, if the loss is unchecked, it puts the company at risk.

How do we bring balance and profitability between departments in this struggle? First, the sales team leader needs to have transparent communication of their expectations with the team. They should monitor their team’s sales and match that along forecasts. Remember, you can pump up production to pad revenue goals, but the truth comes out in the end. On the procurement side, The Demand Planner should not only track historical data, but potential exceptions for sales deals that could have more product go out the door. Having a relationship with the sales team that revolves around communication will take both groups far. Finally, the Demand Planner should force sales teams to take their excess product and sell it before anymore is produced. This will also increase the odds that inventory valuation is kept in check.

Accountability tends to ensure that profitability remains high. Through that accountability, there can be great harmony between sales, procurement, warehouse, and logistics if each strives to put company interests first. That should ultimately be the center goal of every department in a company, and if the company succeeds, then the employees would succeed as well.