Again, you get what you measure and sales is measured by invoiced dollars (if you’re accrual-based accounting). Doesn’t matter if they leave the building or not. Doesn’t matter if/when you get paid. When you run the invoiced dollars report for the month, which is what posts to the G/L, it just has to come up to $1M.
Who said anything about sending the invoices?
The pressures on companies to please owners and/or stockholders are strong my friend. If you lead with the numbers, people will do the craziest things.
I’m just old. Here’s another good one. At one company I worked at, the bonus for the Inventory Control manager was based on reducing inventory value. On the the night before the annual physical inventory, they loaded up the company truck with expensive materials and drove it around the entire day.
It was practices like the two you describe that brought in all of the Sarbanes-Oxley regulations for public companies. Just Google “Sunbeam accounting scandal.”
Hahaha, I am afraid we will be put on an IRS watch list if this thread continues to produce ideas like “loading a truck up with inventory for a day…” That’s hilarious Mark!
@NateS You also have to factor in if you will have or can get the material in time to build for the month. Just be careful of deferred revenue recognition rules. In our case if the customer doesn’t agree to take it early it doesn’t matter if we shipped it. it is still not revenue.
@Mark_Wonsil You don’t have to drive it around just send it home with the sales guy for the weekend.
I love all this discussion! Thank you! I’m going to talk through some stuff here for my own sanity.
After more research on my end, I found out that the intent is to identify orders to pull in, not jobs as I previously assumed. In this case, the jobs haven’t even been engineered yet, and we want to look ahead a month at sales order/releases due in the next month to pull into this month. I was just building out some BAQs to understand how much open value is sitting in the next month. I am not sure if this revelation will make this easier or not. We definitely have customers that tell us exactly what we are allowed to ship and when. Often this is based on what we tell them is available to ship.
Certainly, we have to worry about material lead time, as well as machine and labor capacity. So my next goal is to estimate both of those to the best of our knowledge. I have a pretty good idea about our capacity. However, it can be hard to determine how long a job will take when it hasn’t been engineered.
Our sales order might build a part we have done before, which would at least give us some historical data to consider, as well as a base BOM/BOO. But, if our sales order calls for a part we haven’t made before, then I can’t estimate how long it will take until we properly engineer it. I am looking at using the start/due dates in the JobAsmbl, and JobOper tables as an estimate for how long a job will take. However, if the job hasn’t been created yet, then I have to match the part number from the sales order to a previous job that made that same part/rev. I know that sales orders/releases have due dates, but those are based on the day the customer needs the material, not at all informed by how long it will take us to make it.
How do you estimate how long a sales order will take to produce as a job? Unless we engineered at the quote stage (which we may have already done in many cases), then we really can’t determine the time it will take to make a part for a sales order. Right?
So what is the alternative to scheduling by sales target? If you were asked to pull together a list of orders that meet a sales target for a particular timeframe, and you want to avoid that approach, what would be a better approach?
@gpayne brings up the newer revenue recognition rules which is a big deal. Your terms may indicate when revenue can be recognized.
A less nefarious behavior that might occur with sales targets is that on months where you’ve already met your target, there’s a pressure to ship late to start the next month strong since the goal has already been meet. No benefit to exceed the sales target.
As you have already mentioned, shipping early may not be an option but again, the pull is strong to pull in one big order to meet the target and leave several smaller orders to go late.
Measuring customer satisfaction/on-time delivery instead of sales target. Some use two measurements, original promise date and latest promise date to the actual customer expectation. (One for sales, one for manufacturing) All things being equal, your sales and customer loyalty will improve if you match or exceed customer expectations. RMA would be measured as well.
