Rush Order

How Much Does Yesterday Cost?

Typical sales compensation schemes have a lower limit, a minimum sell price (or margin percentage) below which the sales representative will not earn a commission. This makes obvious good sense: if the company is not going to earn a profit from the sale, the sales agent shouldn’t either.

It’s also common that businesses sometimes need to waive this common-sense requirement. When a sale represents a first break at a coveted major buyer, when a sale is expected to lead to additional purchases or service work or other additional revenue, it can make better sense to take the initial sale at lower than usual profit – sometimes even at a loss – in view of the longer-term payback.

Both of these expectations ought to incorporate delivery schedules. No company is in the business of delivering products before they are ordered (but nice try, Amazon); most business-to-business (B2B) companies with a sales force that receives commission cannot offer instant delivery. Usually if a sales rep makes a commission in a B2B context, the product must either be configured or selected from a complex range of options that require specialized knowledge to make a good choice.

In other words, the sales rep needs to know the product.

Expanding on that, the sales rep needs to know the capabilities of the product and of the company – how they support the product in terms of training, warranty service, spare parts availability, and whatever else goes along with that particular product’s complexity that justifies paying a sales rep.

Barring exceptional and pre-approved circumstances, a sales rep who sells a product at no profit has done a disservice to the company, neglecting his duty, and does not deserve to be paid.

A sales rep who sells a product requiring faster-than-usual delivery has also done a disservice to the company and does not deserve to be paid—again, except in pre-approved situations. I would argue that it is actually worse than selling below cost.

Selling below normal margins has an obvious, easily countable cost; fewer dollars come in. The number is right there in black and white.

Rushing an orders sets off a chain reaction of costs, most of which are not measureable or are not clearly attributable directly to that one order. Rush orders usually first affect the salaried staff, whose pay is rolled into the overall operating overhead of a company. Depending on the business and the size of the rushed order, responding to a rush order can take up time from the highest-paid people in the company. Again: sometimes this is the right course of action. But the endorphin rush of responding to an “emergency” makes it all too easy for business managers to forget that the best use of their time is planning the company’s future. Any time an upper-level manager gets involved in the present, it is a signal that the day-to-day processes of the company are not meeting the needs of the business; it is the managerial equivalent of a machine break-down.

Managers rushing around saving the day inevitably impacts the workers, too, who must halt their usual practice (ideally following a reliably excellent process) to accommodate the boss’ special request. This might immediately lead to overtime and measurable, attributable costs incurred. But more of the cost is likely to hide in the shadows: skipping inspection or maintenance or documentation, something where the cost of the sacrifice won’t be felt immediately, and won’t even matter if the skipped step is skipped just this once.

It is never just this once.

Once the sales rep has learned that he can delight his customer with the exceptional performance, he’ll ask for it again – he’ll need it again. Once managers learn that they feel like heroes when they orchestrate the impossible, they’ll want to do it again. And once production workers learn they can skip a step without noticeable repercussions, they’ll do it whenever they need to.

A rush order is not really like a house on fire, despite the frequent reference to “putting out fires.” A house fire is catastrophic; nobody just “gets used to it.” A rush order is more like a small stone hitting your windshield. Nobody dies. Maybe it makes a small chip or crack. Maybe it doesn’t even make a mark! But if it happens all the time, you will lose that entire windshield. So how often is too often?

Generally a business won’t improve until its customers demand it. Prices don’t fall unless sales are slipping. Quality doesn’t improve unless orders are lost. The wake-up call that faster delivery times are needed will generally come in the form of these rush orders, these expedites that shake the tree from bottom to top.

Managers must recognize that an expedite is the operating failure of the machinery they are responsible to keep running.

Sales reps must recognize that an expedite is never free.

Please follow and like us:
RSS
Follow by Email
Facebook
Facebook
LinkedIn796

Published by

Arlan

I like reasons.