The Lean Sigma for Sales Challenge
“I can’t believe it, another lost sale! That’s the third one this month! This never used to happen,” whined Bill, the sales manager at Rapid Products.
“Never?” replied Sam, the purchasing manager at Rapid Products.
“Well, almost never,” said Bill.
“Do you even know what your proposal success rate is?” injected Sam.
“Well, not really; we never really tracked it,” replied Bill.
“Now that ‘never’ I can believe,” said Sam.
“We never had to; we used to get almost ever proposal we provided, and now we seem to be losing more than we win,” explained Bill.
“Never and almost; it sounds like you don’t have a clue what you win or lose and why. It’s a wonder that we even stay in business. What’s your process for closing a deal?” asked Sam.
“Process?” inquired Bill.
“Yeah, process—what are the steps your sales people use to close a deal?” asked Sam.
“We don’t use a process. Processes are for our manufacturing group, with their work instructions and procedures and such. Sales is different; there is no standard sales process for sales. We have to build relationships with potential customers and do our magic to close the deal,” explained Bill.
“Magic? Now I understand the problem, let’s grab lunch and talk a bit,” said Sam. Bill shook his head in submission and agreed to lunch.
Rapid Products is a manufacturer of blenders and other small kitchen appliances for Lean Chef, a global firm specializing in small kitchen and cooking appliances. Rapid Products is vertically integrated in that they not only assemble the products—such as blenders, choppers, and knife sharpeners—but they also produce most of the metal and plastic components that make up the units. Rapid Products operates metal stamping and plastic molding presses and associated cleaning and processing equipment for parts produced on these machines.
Rapid Products produces three models of blenders in various colors for each model of blender. A summary of the models and colors is shown subsequently.
The following blender models are produced:
• Master Lean: This is a high-end blender designed for commercial applications that comes with a black, silver, or white base.
• Lean Chef: This is the signature mid-level line designed for serious at-home cooks; it has fewer features and a slightly less powerful motor than the Master Chef model. This model comes with a white, red, or tan color base.
• Gemba Chef: The Gemba Chef model is an entry-level blender designed for a low consumer price point. It has only basic features and a smaller motor than other models, and comes with a black or white base.
Blender assemblies include metal components, plastic molded components, electrical subassemblies, and purchased motor, packaging materials, and various fasteners and lubricants.
The Rapid Products plant is a large sprawling plant with more than 500 square feet under one roof. They are traditionally organized by department or function. The plastic molding machines and tool storage is in a contained area at the north end of the building. The metal stamping and finishing is near the south end of the facility, with certain specialty areas, such as cleaning and subprocessing, located in isolated areas throughout the plant. As Rapid Products grew, they were forced to put equipment where they had space. They have work-in-process (WIP) inventory scattered near work centers throughout the plant as well. Assembly and subassembly lines are centrally located, not too far from the 12 shipping and receiving docks. Their finished goods (FG) inventory is located in a random rack storage area near the docks, and their shipping personnel pick and ship to the daily schedule and hot list every day.
From a scheduling aspect, Rapid Products receives weekly pulls from their large retail customers, as well as small orders from other retailers and distribution centers. Rapid Products must ensure orders are shipped by the end of the following week.
Rapid Products’s primary sales markets are major and minor retailers and distributors. They have also recently established an online product line intended to fill a direct sale market void. The sales team regularly provides quotations and proposals for new and existing products to new and existing customers. The proposals and quotations provided by the Rapid Products sales teams vary in that they may or may not include provisions for inventory commitments, volume incentives, deliver commitments, multiple or single lines, special packaging and private labeling, as well as other options dreamed up by creative purchasing managers.
Recently, Rapid Products has been losing sales, and the conversation between Sam and Bill begins to shed some light onto the mystery.
At lunch Bill and Sam continued to discuss the declining sales issue and the need for a sales process.
“So why do I need a sale process?” asked Bill. “We used to do just fine with our relationship approach.”
“Well the relationship approach still is important, but today consumers and buyers are much better informed and have so much more information at their fingertips that sales people must provide even better information, faster and with reliable consistency so that informed potential customers can expect and plan on the outcomes of the proposal. In other words, there needs to be a consistent sales process that buyers can count on every time, with no mistakes, no hidden costs, and no surprises. For example, in the old days when we were planning a new contract for electrical motors we used to request a quote from four or five potential suppliers. They’d take us to lunch and wine and dine the buyer to try to get key information on buying preferences and price points. After that process, we’d typically buy the motors from the supplier with the lowest quoted price. The sales person with the better relationship may or may not get better information from the buyer. Now we consider only the top two or three prequalified suppliers, and we establish the price targets for them. The potential suppliers either accept the price targets or not, and then must demonstrate the features, advantages, and benefits of working with them versus their competition. Their profit comes from their ability to lower their internal costs, not in how well they negotiate prices or how great their relationship is with the buyer. In fact, the last electrical motor contract we committed to, we worked together with the supplier to lower our overall total costs, and agreed to share the cost savings equally. The total cost includes the delivery, errors, rework, rejections, inspection and testing costs, and many more hidden costs that did not show up on the unit price. We worked with the supplier on streamlining the supply chain and inspection plans, and actually paid a higher unit price in exchange for other savings. In the final analysis, the actual landed cost of the motors was way below the per unit price. We were able to get to this point not by relationship, but by sales process,” lectured Bill.
“Yeah, yeah, yeah—I get it, we do some of that too, but I’m still not sure why we are losing sales lately,” interrupted Sam.
“Well what does your lost sales data say is the issue?” asked Sam.
“My what?” replied Bill.
“Your lost sales data. Lost sales data is the assignable cause for losing the sale. Do you even know why your potential customers are going with another supplier?” asked Sam.
“Not really, after we lose a sale, we just get busy trying to get the next one,” replied Bill.
“I’ll tell you what, we are having a Supplier Day next week and I’d like you to attend. We will be covering Lean and Six Sigma expectations for our key suppliers, as well as our expectations regarding our supplier’s sales process outcomes. I think you could learn a lot from the sessions,” offered Sam.
“I can make it any day except Thursday. I’m golfing with our largest customer on Thursday,” said Bill with a smile.
“I hope he doesn’t tell you he’s pulling the business!” joked Sam. “You pick up the lunch tab, and I’ll plan to see you next week.”
“Deal,” replied Bill.
Discussion Questions
1. Why did Bill, the sales manager of Rapid Products, agree to have lunch with Sam, the purchasing manager? Do you think Sam could help Bill to better understand the sales process?
2. Do you agree with Bill’s statement, “We used to do fine with our relationship approach.” Isn’t sales about relationship building? How would you convince Bill or other salespeople in your organization about the need for streamlining the sales process?
3. What do you think about Sam’s explanation to Bill regarding the need for the sales process in addition to relationship building?
4. Does your organization keep track of lost sales? Do you think it is important to do so? Why or why not?