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The Sales Department Bottleneck
The Traditional Bottleneck Location
The basic concept of throughput management is to locate the bottleneck in an operation and implement a variety of techniques to eliminate or at least reduce the impact of that bottleneck, such as by having an adequate inventory buffer in front of it, supplementing it with similar work centers (even if less efficient), outsourcing work, or by shifting quality inspectors to a spot in front of the work center (which prevents flawed work-in-process from entering the bottleneck operation). Throughput concepts have primarily been presented as a solution for just the production area. What if the bottleneck is actually in the sales department instead?
The Sales Department Bottleneck
Let’s take a typical sales process as a example: the sales staff locates prospects, meets with them, issues a quote, conducts a product demonstration, negotiates the contract, and then passes the order to the rest of the company for delivery. If a company wants to increase sales, the usual response is to add more sales staff to drum up business – but what if they are drumming up plenty of initial leads, and yet sales are still not increasing? If so, compare the capacity of each step in the sales process just noted to the amount of actual sales activity for the same step. For example, there may be only a small group assigned the task of creating quotes, and they cannot keep up with the inquires brought to them by the sales staff. This leads to prospects becoming frustrated and taking their business elsewhere.
The accounting manager’s role in discovering these problems is to measure the capacity of each activity in the sales process and match it to the amount of actual activity. Every time the capacity and actual activity measures match, there is a bottleneck. It is also easy to spot bottlenecks by measuring the backlog in front of each process step – large backlogs indicate the presence of a bottleneck. Locating these problems is the crucial first step to increasing a company’s sales.
Podcast
A discussion of throughput concepts is available on Episodes 43 through 47 of the Accounting Best Practices podcast.
Related Topics
The constraint location
Policy constraints
Theory of constraints
Types of capacity
Types of constraints