Your top sales manager has been pursuing the largest sale in history of your company. Do you want it?
The company needs the sales. Of course, you will take the business. What a crazy question, you say.
But do you know you have the capacity to make the order? There is nothing more damaging than to leave a customer without product. There will be no sales from them for a very long time, if at all. And think of the word-of-mouth-express.
Do you know your capacity? Do you know what you can make? It’s easy to figure out. Just multiply the production per hour by the number of hours of prodution for any given time period, a week, a month, etc.
It’s best to monitor the daily productivity in operations by product, machine, operator, shift, and other relevant factors. Then the scheduler has good numbers to use for production planning.
Don’t forget to factor in the time for preventive maintenance, as well as a realistic amount of time for breakdowns, interruptions, breaks, etc.
Being realistic is a watchword for production planning.
Of course, once the capacity of the business is clear, then it is possible to determine whether the firm can deliver on the order.
So, if the firm cannot take the order, do you turn it down?
Not yet. There is another consideration. Customers usually do not need all the product right away. It takes them some time to sell it. So, perhaps some product can be delivered by the initial date, with additional shipments at later specified dates. If the company takes this approach, don’t forget to factor in addition set up costs, if any, when trying to understand the profitability of the order.
There are other options, too, such as subcontracting some of the work to other suppliers, usually competitors, which can raise some complications. Or, the customer can split the job between a number of suppliers, though you may not want to let a competitor in.
If your firm has a competitive amount of capacity and is pursuing target business, it rarely comes down to turning an order down due to capacity. However, it is definitely a critical consideration for a large order as it moves through the selling cycle to a sale. Train the sales force on capacity issues, so they know about potential issues so they can ensure it is handled appropriately upfront. A well organized large order leads to much happier customers and repeat sales.
For more resources, see the Library topic Business Development.
Tove Rasmussen, of Partners Creating Wealth, offers business expertise worldwide to help organizations grow, and disadvantaged regions thrive.