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    Why Putting Ten Pounds of Potatoes in a Five Pound Bag still Happens

    If you have been involved in operations for any length of time, you undoubtedly have heard the old story that trying to fill a 5-pound bag of potatoes with 10 pounds of potatoes always results in mashed potatoes!

    For over 40 years, APICS and other Operations Management educators have covered this old chestnut for years, with the full explanation of the obvious cause and effect.

    The underlying mechanics at play are well known. Little’s Law says it best: “In a stable operation, the average lead-time of the operation is equal to the amount of work in process divided by the average capacity of the operation”. Simple, eloquent and true!

    Yet, even today, I keep encountering clients that behave as if they never heard of this truism before or go into complete denial when a super opportunity is at hand.

    Many years ago, I would have attributed this behavior as lack of operational knowledge, easily corrected by an educational workshop or the reading of a particular textbook. I now realize that I was the naïve one. As I study this phenomenon in more detail, it is evident that in the day-to-day world of selling and producing items, the communication process gets convoluted. The right hand of the company (sales) and the left hand of the company (operations) are not as well coordinated as needed. What starts out as a good intention too often ends up as a huge mess, with both sales and operations pointing fingers.

    The bad news is that this viscous cycle is still too commonplace-causing unintended damage to the organization and just more important, to their customer base, as some customers end up having their orders either being delivered late or incomplete.

    The good news is that there are ways to eliminate, once and for all, this viscous cycle. There is a bit of a catch, however. The complete solution involves much more than a simple workshop, or a having a facilitated kumbaya session with sales and operations. This may open up diplomatic relations between sales and operations, but is not sufficient to move to the sustainable solution.

    Over the last 25 years traditional Sales & Operations Planning  (S&OP) has been a common prescription to this malady. While this is a good first step, typically the S&OP process has some limitations when dealing with environments where traditional quantitative forecasting techniques are not applicable. Companies that provide custom solutions or offer many options will need to be tied much closer to the sales process.

    It is a fact of life that the vast majority of companies are sales constrained i.e. they can make more product than what they actually sell. This can result in pressure to close the sales gap, driving the sales team to do whatever it takes to get a sale, including heavy discounting, promoting a product that is not financially desirable or committing to ship on dates that are not realistic back in the factory.

    What is required is to create a comprehensive framework where operations will always be in a position of supporting the needs of sales within some agreed parameters. To accomplish this requires some adjustment on both traditional operational practices but just as import is a re-thinking to product accounting practices to isolate true ‘out of pocket’ costs from fully absorbed costs.  More specifically, in those companies that are involved in complex products (vs. sales of standard items) the sale and operations process requires much more than a traditional sales forecast. The process must start much further into the sales funnel, with a great emphasis on knowledge of the customer’s sale process.

    As with any approach, the devil is in the details, but before we delve into the minutia, the overall framework must be understood. First, traditional Sales and Operations Planning (S&OP) may be sufficient for companies that sell standard products, (e.g. items that can be described in a sales catalog or as SKU’s at a distributer).

    Complex organizations require significantly more synchronization of the requisite complex sales strategy. Anything less will inadvertently lead to putting 10 pounds into a 5-pound bag. It’s your choice!

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