We should not use past customer performance to gauge future sales. Yet all too often, conventional business planning drives us to do just that. In Islands of Profit in a Sea of Red Ink, Jonathan Byrnes’ proposes “Potential Based Sales Forecasting” as a level-headed approach. “Companies...have forecast processes that are designed for financial projections,” not for improving their business, says Byrnes.

Rather than looking back at past sales, we should be looking first at our own companies’ best practices — those activities and customers that bring in the most profit, not volume — and build these improved practices into the sales forecast. As Byrnes puts it, “a well-designed sales forecasting process should accelerate positive change; a typical backward-looking process actually retards it.”

In other words, look at your best, most profitable customers. Identify the process that brings this customer to your door. Then, when forecasting sales, look at the potential of other customers that could use this same profitable process. Those are the customers you should target as your growth market for the year.
Byrnes goes on to identify two steps to the forecast:

• Forecast account potential, not actual sales, for all significant accounts. Remember that you are looking at account potential based on your most profitable process, not just overall sales potential.
• Then estimate the difference between the account potential, and the actual sales. This number will become your unrealized potential sales to use in forecasting. It will also give your sales team or company a realistic goal to aim at.

Mutual Action Planning
After changing the sales pattern by emphasizing forecasting, focus on customers that have more potential and prospects that create high profits, then take the next step by creating a Mutual Action Plan with your key target customers. Working with customers to build a MAP creates a level of trust, and a type of access that builds future business, not just orders.

Mutual Action Planning works by focusing the customer, and the plant, on eliminating roadblocks. (Hence the word “Mutual.”) A good Mutual Action Plan only works with those customers that have an open agenda and a motivation to increase product flow and reduce costs. Mutual Action Plans that are created by both the customer and supplier smooth out product flow and orders. This can eliminate the current excess stock of inventory and parts kept to handle unexpected customer orders.

What’s in it for Production
When true sales forecasting is done with the customer’s input, it creates “Action” demands on your production people. These Actions are determined by the forecast and often change as the customer’s needs change.

As change is not always easy, the carrot for the production department is that true sales forecasting eliminates much of the “Crystal Ball” planning that happens with other forecasting methods. When working with a good Mutual Action Plan, turnaround can be quicker, inventory is smaller and product volumes fluctuate less. Production departments like that.

Small Shop Growth Strategies
Small shops have the same issues as large production enterprises. Imbalances in operations driven by a customer can be even more obvious. One rush or unreasonable client can cause delays in everyone else’s orders. The slow market has down-sized many of us to the bare essential machines and staff. We have had to lay off many of the skilled and trusted workers during the recent low tide.

As the market starts to pick up, small shops cannot pick up as quickly as highly automated factories. There are two strategies to handling the expected surge of business.

The first is to start approving vendors now, before the crunch. A recent example was a local shop that has decided to start outsourcing cabinet doors and drawers for his next job. Previously this owner believed he should do everything in his own shop. He liked the control it gave him on timing his orders.

Now, things are different. Having hired a new salesperson, one who is already bringing in quotes, this shop owner is using the first strategy of expected growth: verify vendors now and outsource difficult jobs. While he can always hire someone part-time to come in and sand, he won’t find cabinetmakers as easily. This small shop owner will focus his time installing completed jobs and getting paid, not training people or making products that are easily outsourced.
The second strategy small shops should consider is collaboration. When markets are recovering and increasing, the pace isn’t always even. Some shops, or parts of shops, will get busier sooner than others. The flow of orders never hits everyone at the same time or with the same requirements.

During these periods, small shops should consider partnering and sharing each others’ under-utilized resources, such as idle installation personnel or an under-utilized finishing spray room.

Collaboration only works if both companies benefit. And potential problems should never outweigh potential profit.
Think about your shop: Would you benefit from a CNC? There may be a nearby shop with extra CNC time. The same goes for finishing, drawer assembly, face frame, doors, drawers, edgebanding and line boring. If you need names of local shops that can help you, they are easily found at your local chapters of the various industry associations. (See page 130). Or call your local machinery salespeople. They know where every moulder, edgebander and CNC is hiding.

The increase is coming. Start getting ready by interviewing customers, creating Mutual Action Plans, finding products and verifying vendors for outsourcing — and contacting local associations for help. You’re going to need it.

Rick Hill is a consultant specializing in woodworking companies that need to find new markets and more sales. He is also an independent sales rep and founder of WoodReps.Com, a national association of independent reps in the woodworking industry. He can be reached through his website OnPointSales.com.

 

Have something to say? Share your thoughts with us in the comments below.