Focusing too much on sales volume can actually decrease a company's value. Here's advice to help distributors avoid being blinded by sales infatuation.

by Gerhard M. Drechsler

Is your company sales-blinded?  Sales-blinded managers hurt their companies by neglecting other important elements of the business, and sales-blinded salespeople decrease value by creating problems.

Infatuation with sales volume commonly impedes management's ability to focus on improving value. One branch manager whose operation was falling apart around him constantly argued, "Why do we need improving?  We produce $40 million in annual sales."

Actually, being a $40 million-per-year branch doesn't necessarily mean you're good enough. This distributor might only capture 20 percent market share in a huge market, while a better, yet smaller branch might capture 75 percent market share in a much smaller market. Being good enough can only be determined by customers' willingness to buy from a business; a manager who constantly measures volume cannot determine it.

Sales growth, much like sales volume, can also blind companies. One branch manager told me, "I took this branch from $12 million to $20 million in annual sales. How could I have done that if we are in such bad shape?" Ah, but what if it took him twice as many salespeople compared with the competition to produce the same sales growth? He never mentioned what happened to costs and profits during that period.

Many problems in distribution operations can be traced to poor practices of salespeople. They take material from the receiving department before it has been properly checked.   They bring in non-stock material, only to put it into stock when the customer cancels the order. These things wreak havoc on the inventory system, and sales-blinded management normally does little to correct the problem. Often, management is not even aware these things are happening.

I worked with one distribution firm whose sales force played a shell game with inventory. Salespeople would enter orders to push up demand on an item so the purchasing department would buy it. Once they knew the material was purchased, they would cancel the phony order. This was their way of working around the system to make sure inventory was plentiful. These people were confusing the computer and costing the company a small fortune.
When a company is sales-blinded, management must pump all sorts of money and resources into the business to support higher
sales volume.

Salespeople need to be hired. More inventory needs to be brought in. Larger warehouses need to be purchased.  Advertising, marketing and "schmoozing" budgets increase.  These things cause both variable and fixed costs to rise.

To recapture the bottom-line dollars lost through inefficiency, sales-blinded management often resorts to downsizing. Let's say a warehouse person is let go. This leads to an increased need for
overtime. Next, service problems stemming from short staffing in the warehouse cause customer dissatisfaction to rise, which causes sales to slip. To combat the decline in sales, sales efforts need a boost, so another salesperson is hired.

Notice who was let go, an $18,000 warehouse employee, and who was hired, a $50,000 salesperson. Consider the ramifications of adding an extra $32,000 to your costs.

Next, take into account what may happen when this new salesperson starts calling on new accounts. Because of short staffing in the warehouse, their first few orders don't get handled very well. Hence, these new customers perceive low value. This causes them to hesitate when considering future orders.

The salesperson, sensing this hesitancy, reports to management that new customers are complaining about price. In response, management decides to lower it. Now, we have decreased operating efficiency, higher cost, increased customer dissatisfaction and lower margins. This ends up becoming a vicious cycle, and unless management takes competent action, it will become an endless cycle.

Not only can sales-blinded companies experience increased costs - thus creating higher break-even points - they can hinder their own abilities to produce higher return on investment. This is due to sloppiness and inefficiencies, which absorb potential profit dollars.

Why are some companies so sales-blinded? There are several reasons. First, sales dollars are easy to measure and understand. Second, a lot of people get paid according to sales dollars. Third, they've always focused on sales. Fourth, most companies promote people to executive positions from the sales ranks, perpetuating the mind-set. And fifth, it feels good to get a sale. 

What can sales-blinded companies do to correct the situation?  This short list shows the sequence of events needed to turn a sales-blinded company into a value-focused one.

   Understand the need to get good, then sell
   Take time to learn about value
   Understand value
   Implement value
   Live value
   Appreciate its potential
   Make it a priority
   Focus on it
   Result: Value-Focused Management

These simple steps can help create a business capable of producing future success without all the hassle and headaches many managers today must endure because of their sales-blindedness.

Dreschler can be contacted at gdrechsl@concentric.net. Complete information about this book and others published by NAW is available from www.nawpubs.org.

This article, excerpted from "Distribution Management in the New Economy: A Blueprint for Success," appeared in the November/December 2000 issue of Progressive Distributor. 

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