"Sell what you make, stupid!"

By William C Copacino -- Logistics Management, 1/1/1999

In 1992, then-Governor Clinton ran for president on the theme, "It's the economy, stupid!" With that slogan, he kept his campaign message focused on the key issue on voters' minds. Today, I suggest companies adopt a similar idea: "Sell what you make, stupid!" Here's why:

Traditionally, companies have had two fundamental choices in operations strategy--either "make-to-order" or "make-to-stock." If a company's material ordering and production cycle time is shorter than the customer's order leadtime, it can make to order. This approach minimizes inventory and allows for production economies. In an effort to move close to a make-to-order environment, many companies have worked diligently to reduce vendor leadtimes and production cycle times through JIT manufacturing programs, which include setup reduction and vendor JIT delivery.

Alternatively, if a company's material ordering and production cycle time exceeds the customer's order leadtime, then it must pursue a make-to-stock approach. This approach requires a demand forecast to trigger production orders. An entire management process has evolved to address this demand-planning issue.

It's worth noting that companies also can follow a hybrid approach--an "assemble-to-order" strategy. This applies when the production leadtime is less than the customer's order leadtime, but the material ordering leadtime requires the stocking of component parts and raw materials--which, in turn, must be managed through a demand-planning process.

Most companies are forced to use the make-to-stock or the assemble-to-stock approach, both of which require effective demand planning. For even the best-managed companies, however, demand-planning processes are imperfect, so all companies end up with excess inventory of some items and stockouts of others.

A small number of innovative companies--Dell Computer being most notable among them--have addressed the imperfect demand-planning process with a new approach that I call "sell what you make."

The "sell what you make" approach begins with a strong forecasting and demand-planning process. The intent is to "make what you want to sell"--i.e., what you expect your customers to buy. But there is an explicit recognition that forecasting and demand/inventory planning will be imperfect. Companies like Dell, therefore, use their customer interface, ordering process, and pricing strategies to encourage the "selling of what they make." This tactic, which requires close collaboration among sales, marketing, and operations, allows them to achieve an additional edge in customer service and inventory performance.

It amazes me that so few companies use this approach. They may be too busy pointing fingers at one another over unfilled orders or excess inventory. Companies must realize that to optimize performance, they need close operational and strategic collaboration among sales, marketing, and operations. Rather than optimize sales at any cost, they should optimize profitable sales. To do so, they need a strong demand-planning and operations capability to make what they anticipate they will sell. But they also need aligned customer ordering, pricing, and customer-management policies to "sell what you make!"

William C. Copacino is managing partner of Andersen Consulting's Strategic Services Practice for the Americas. A frequent speaker before business and professional groups, Mr. Copacino has a number of publications to his credit, including the book Supply Chain Management: The Basics and Beyond (The St. Lucie Press, 1997). He is based in Andersen Consulting's Boston office, 100 William St., Wellesley, MA 02181. Phone (617) 454-4480.