We had almost 9 months worth of finished inventory and no customers to buy it at a price that made profit and our factory was busy making even more product that no one wanted.
The old story – business in silos and targets that either made each silo look good or, even worse, didn’t measure what was important.
The factory was measured on cost per unit, so it was incentivised to make more product to spread the fixed costs over more products and a wholesale model meant that the factory got paid even if there were no retail customers.
The sales organisation was finally measured on profits made rather than units sold and measured the value of it sales forecast rather than the accuracy of the forecast. In addition Sales took sole accountability for excess inventory.
The combination of the factors resulted in stock that no-one wanted and no matter how many times Sales said “stop” the factory wouldn’t because it would drive up cost per unit.
Make both Sales & the factory jointly accountable for unsold inventory. I know this fly’s in the face of “individual accountability” but what it drove was a collaboration between the two organisations. It created a healthy tension – the factory expected an accurate forecast from Sales because that meant they would be able to cost properly and not make product that wouldn’t have a customer and Sales expected the factory to produce at the lowest cost to ensure the product, from a price perspective, was attractive to customers.