Application of TOC in Sales

Application of TOC in SalesSubmitted By: Submitted to:Manish R Raghavendra RaviBhupender SinghTOC Theory of Constraints is based on the premise that the rate of revenue generation is limited by at least one constraining process (i.e. a bottleneck). Only by increasing throughput (production rate) at the bottleneck process can overall throughput be increased.

ApproachThe key steps in implementing an effective TOC approach are:

Identify the constraint (bottlenecks are identified by inventory pooling before the process)

Exploit the constraint (increase its utilization and efficiency)

Subordinate all other processes to the constraint process (other processes serve the bottleneck)

Elevate the constraint (if required, permanently increase bottleneck capacity)

Re-evaluate and repeat (after taking action, the bottleneck may have shifted or require further attention)

TOC & SalesThe Theory of Constraints can also be applied to sales andmarketing. The typical lead generation and conversion scenario isa series of interdependent processes that goes something like this:Generate a leadConvert the lead into a firm enquiryProduce a proposal or Action PlanFollow upClose the saleFulfill the work or orderRe-evaluate and repeat

Challenges in salesAs customers become more demanding and markets become moreaccessible to new entrants, additional challenges are presented toan organizations sales team. These challenges include:

More fierce competitionPressure to reduce pricePerception of outdated product rangeNew market entrants with (slightly) different products (i.e. poor differentiation)Long sales cycles

If these challenges are tackled in similar ways to the competition(usually at the expense of margin) then it is likely that a few(common) undesirable effects manifest.

EffectsIf these challenges are tackled in similar ways to the competition(usually at the expense of margin) then it is likely that a few(common) undesirable effects manifest.

These undesirable effects are usually:

Declining (or static) salesReduced marginFewer opportunities

The TOC approach tackles these challenges with a different set of tactics. This, in itself, provides the organizations sales team with adifferentiator which ultimately can be used to increase sales whilstincreasing margins.

TOC Tactics for SalesSales focus

By using the basis ofThroughput Accounting, current sales and future opportunitiescan quickly be prioritized against true bottom line impact.While this sounds as if itshould be common practice, frequently sales teams are focused on opportunitieswhich ultimately contribute less Throughput than desired.

With this new focus on Throughput contribution sales teams can truly prioritize theopportunities with the highest return in the projected horizon. This may includefreezing or even closing opportunities which do not offer the required level ofContribution within this horizon.

Furthermore, assuming an internal constraint exists, this approach empowers thesales team to focus on selling products which provide the highest contribution to thecompany whilst ensuring that the available capacity is not overloaded.

Sales FocusManaging opportunities as projects:

Again, using the principles of the TOC approach (this time to projects), sales opportunities should be managed as projects by implementing a clearly defined and managed sales pipeline process with frequent reviews.To reduce multi tasking the number of open opportunities for each sales person is limited to a predefined level and new opportunities are only released when existing ones are won or closed.As is the case with TOC project management each project (opportunity) will have its own buffer and buffer status. The buffer status is displayed usually as a colour which reflects the health of the buffer. The health of the buffer is determined by its rate of consumption relative to the rate of progress of the project. As part of buffer management, those projects (opportunities) with a red buffer status are focused on as a matter of priority to remove any blockage and recover the progress.This enables the sales team to ensure that no opportunities are wasted or lost to the competition due to a lack of proper attention and empowers the organizations management team to identify and focus upon the slow moving prospects only and prevent unnecessary multi tasking.Creating a sales team and environment where these principles of choke release, buffer management and prevention of unnecessary multi tasking are embraced has a dramatic impact on the sales cycle and conversion rate.

Benefits

Typically, the implementation of the TOC solution for sales will deliver the following benefits:Reduced sales cycle timeLess sensitivity to minor changes in competitionHigher conversion rateLess pressure to reduce pricesHigher sales with increased margin

TOC Tactics for SalesExecutionThe execution can be divided in to Sales operations and Customer facing sales.Sales operationsThe sales operations, defined as the process of dealing with customer enquires and request for quotes should be managed in a similar way to production operations.This involves creation of a process flow for each enquiry (e.g., acknowledgement, estimating, quotation, chase). The constraint within the system should be identified and further work released into the system in relation to the speed at which the work is processed by the constraint.

Each enquiry is buffer managed (again similar to operations) to enable appropriate action to be taken on slow moving or blocked enquiries.

It is important that all necessary improvement activity is undertaken to move the constraint externally to ensure that the response time to the customer is a short as possible.

ExecutionCustomer facing

Adopting a process orientated approach to sales will ensure that the sales execution is as repeatable as possible with little variation (including variation in conversion rate).This approach requires the shift from product based selling (where product features, technological advantages and price are key) to value based selling which relies on a very different skill set.

Incorporation of the TOC solution (which draws upon the proven Thinking Process) in combination with well documented techniques enables sales teams to quickly identify the significant needs of customers, highlight the value behind satisfying that need (or indeed the implications of not, or only partially satisfying that need) and close a win-win sale more frequently and more quickly than the competition.

ExecutionCustomer facing

Continued use of the process orientated approach from lead to closure enables more accurate analysis of the performance and any weak points identified and addressed to further improve the conversion rate.

Finally, to mitigate as much risk as feasible from the redirection of the sales team from product based selling to value based selling, extensive roles plays are conducted to identify any potential clarity concerns before developing the fine points of the offer with friendly customers in advance of any market launch.

Identification of key leverage points and use of these as in an effective and well planned sales meeting forms the underlying principle.

BenefitsTypically, the implementation of the TOC solution for sales will deliver the following benefits:

Reduced sales cycle time

Less sensitivity to minor changes in competition

Higher conversion rate

Less pressure to reduce prices

Higher sales with increased margin

Referenceshttp://www.tocico.org/

http://www.goldratt.co.uk/

http://www.wikipedia.com/

Thank You