This is part 1 of four part series to help executives and managers just like you see clearly that managing an enterprise or a supply chain requires that you clearly comprehend SupplyChainMgt CRT 1A.jpgthe dependencies and synchronization required between stochastic events. (Stochastic is just a fancy way to describe events or systems that are unpredictable due to the influence of one or more random variables.)

 

The accompanying figure is actually the topmost portion of a Thinking Process tool called a Current Reality Tree or CRT. We use the Thinking Processes to help organizations unlock tribal knowledge in order to understand how their enterprise or supply chain is working—or, more importantly, failing to work. The arrows in the CRT represent cause-and-effect connections. For example, we can easily read and understand: [17] IF our operating expenses are too high, THEN [23] our profits are too low. (The entities are numbered to make discussion and referencing simpler.)

 

The C-Suite Starts at the Top of CRT

 

Top-level and financial executives always see the top of the tree (CRT). They see growing expenses (sometimes misread as “costs”) and falling profits. However, they sometimes fall in to the trap of believing wrong things about the real causes—and possible solutions—for falling profits or rising expenses. By helping the whole management team build—and agree upon—a view of their current reality in a CRT, we can help wipe away illusions and chronic bad thinking.

 

In this example, we can see the following: IF [22] our sales and marketing expenses are increased in order to gain new customers and sales, THEN [17] our operating expenses are increased and are likely to be (or, become) too high quite easily.

 

“But, what is causing us to increase our spending in sales and marketing? Why are we having to increase our efforts in this area, and at such expense?” you might well ask.

 

In this case, the answer is found in entities 19 and 21: the company is losing both sales and customers.

 

Unfortunately, the loss of sales is a double whammy on the bottom-line of the enterprise! Not only is the loss of sales driving an increase in expenses for sales and marketing as efforts increase, it also means that Throughput (T) is decreased. (Here we use the Throughput accounting definition of “throughput” as revenues less only truly variable costs (or, TVCs).

 

An increase in operating expenses and a decrease in Throughput drives the bottom-line downward rapidly, and the C-suite is well aware of that—even if they remain unclear as to the real cause of the fall.

 

Conversations with the Sales and Marketing Team

 

Naturally, the executives and managers are gravely concerned about falling profits. And, of course, they wonder why the company is losing sale. Even some long-time faithful customers are slipping away to competitors, as well.

 

Executives, driven by concern, might well call in key players from sales and marketing to have a pow-wow. What do you think they will learn? Have you had similar occurrences in your company?

 

See entity #15:

“Hey! It’s not our fault,” says the sales manager defensively. “We’ve had quite a few customers complaining about lead times lately. Some of our competitors seem to be able to deliver faster than we have lately on some critical items we normally supply. And, when they’re not complaining about lead times, our customers—or, at least, some of them—are complaining about our poor on-time delivery performance. We make promises to our customers based on what we’re told by purchasing or production, and still we don’t get things to our customers when promised. What do you expect us to do? We can’t work miracles and, believe me, we’ve had plenty of shouting matches with managers in purchasing and production, but nothing seems to change much.”

 

HINT: As you can see in the figure, there are six different arrows leading into [15] “We have considerable contention with our customers over prices, lead times and delivery performance.” That means there are six (6!) potential causes for what’s happening in sales and marketing.

 

Check Part 2 in this series to see what we uncover.

--------------------------

 

This series is a based on real-life experiences—just like many of our clients have experienced to a greater or lesser degree over the last several years. There is no fiction here, and chances are, if you are involved in manufacturing and supply chain matters, many portions of these discussions will seem eerily familiar to you.

 

Watch for Part 2 coming soon.

 

Follow us on Twitter: @RKLeSolutions and @RDCushing
LIKE us on Facebook: RKL eSolutions and GeeWhiz2ROI