When the Last should be First

By: Henry F. Camp

 
Sometimes the lowest paid and least senior people in a company are the most important to its success.  How do we know when to treat them like kings and when to send them out to pick up our dry cleaning?  Actually, it is pretty easy.

We often think the relative importance of a person to our business is described by the organizational chart or their pay.  The higher up you are the more important you are.  On the other hand, being successful in business requires many things to happen regardless of relative importance.  Some tasks are absolutely necessary to keep money coming in, even if performed by a lowly paid, relatively easily replaced and underappreciated workers.  Perhaps, we should consider changing our yard stick for evaluating the value an employee delivers.

Every organization has a limitation – something which keeps its profits from growing without bounds.  Let’s think about companies that hold inventory.  They wouldn’t invest in inventory, if they didn’t have to.  A company does so in order to protect their organizational limitation.  While your inventory holds out, you can sell as much as your customers want.  On the other hand, when you are out of stock, you can’t sell customers who want product now and who are willing to use an alternative source.  So, the organizational limitation of a company that holds inventory is their customers who are willing to buy.

Sales for a period is constrained, unless the organizational limitation remains protected.  Although stock outs don’t guarantee sales will be lost, they certainly carry the risk of missed sales.  The more stock outs the greater the lost sales, the longer the duration of the shortage, the greater the damage.  Unfortunately, there is no way to measure the sales that are lost to insufficient inventory.

As an illustration, imagine customer service receives a call inquiring about the availability and stock levels of 10 different products.  Customer service promptly reports all items are available and the quantity on hand for each.  The customer thanks the representative for the information and hangs up without placing an order.  That doesn’t sound like a lost sale and won’t be reported as such.  Though the customer never said so, it could be that one or more of the stock levels were insufficient to meet the customer’s immediate need.  Fill rates could be 100%, even availability – the number of products in stock as a percentage of all products intended to be held – could be 100%.  Still, an order might have been lost.  Worse, this scenario could describe a customer who has decided to be disappointed by your company for the last time.  Because you don’t stock enough to meet their needs, they find another supplier permanently.

The only rational approach to cover your customers (your organization’s limitation), is to be in a position, at all times, to fill the largest order load you have seen in the past.  That way you won’t waste the opportunities that customers present and being ready for more than that seems overly optimistic.

Now, who is responsible for capturing all the potential sales?  It is the buyer, not the highly compensated salesman, not the Vice President of Marketing, the Manager of Information Services, not the CFO, COO, CEO or anyone else.  It is a person or group of people with no direct reports, at the bottom of the organizational structure and with low pay.  Across companies and industries, these buyers have one thing in common.  They don’t have enough time in their day.  One of my favorite questions for them is “How much of your day is spent fighting fires?”  They usually laugh and say “All of it!” or, at least, “Most of it.”  What I am testing for is do they work strategically on resolving root causes or are they reacting to immediate needs which are merely symptoms of endemic issues.  Furthermore, making their time pressures worse, they often the recipients of projects delegated by superiors who follow the logic of getting tasks done at the lowest cost to the company.

The unavoidable consequence, for companies that do not employ a surplus of buyers, is that inventory availability must suffer.  Poor availability creates the need for firefighting which uses up precious time, fueling the fire.  More and more sales are lost when the organizational limitation becomes unprotected.  Since the damage can’t be quantified, as previously mentioned, most top managers choose to ignore it or accept it as “normal” and the exposure is not rectified.

The take away is that when a buyer is protecting the limitation of the entire company, they are the most important people in the company.  As such, when they are protecting availability, they should be supported by their superiors with more powerful systems and augmented by well trained backups.  Heaven forbid that they be expected to make progress on delegated tasks until after all actions have been taken to fully protect customers with inventory.  Protecting customers is job one.  Every company policy, whether written or informal, should have a disclaimer that subordinates it to the need to protect the buyer who is protecting customers.  I recommend a visual indication be employed so that it is obvious when they are about the business of exploiting the company’s constraint.  For example, my brother’s company hangs a rubber chicken on the door knob or cubical entrance of employees while they are the critical resource.