Written by Andrew Goldman for Gaebler Ventures
Only the master scheduler should be able to make changes to the production schedule. Don't let informal promises to customers create problems for your production team. Have a system in place in order to avoid potential issues.
Sometimes when selling our product, we try and create a friendly relationship with our customers.
This is good business as our customers are our most important assets. Without loyal customers, you won't have repeat business and ultimately you won't have a company. While treating our customers well is of the utmost importance, it's important to remember that it's still a business relationship.
Don't make informal promises to your customers in an effort to be friendlier. These informal promises can lead to losses and headaches that your company may not be able to afford.
An informal promise can be any sales related decision that is made off-the cuff and without through analysis. I remember managing production for a company and finding out that the VP of Sales was out to lunch with a major customer and promised to deliver several pallets of product with a set due date. Not only was this extremely aggravating for the Operations department, but no financial calculations had been made regarding the profit margin of the product.
As it turned out, our schedule was full for the week and in order to meet the promise we had to manufacture the product on overtime. This resulted in some grumbles from the workforce, as they had to work extra on short notice and due to the overtime wages; we were producing the product at a loss.
As a general rule of Operations Management, only the Master Scheduler can make changes to the Master Production Schedule. Essentially, the VP of Sales had made a major change to the schedule when he promised the customer the product. While we could have avoided using overtime by de-expediting a less important product, this would have meant not meeting another customer's expected delivery time.
Keeping customers satisfied and not making informal promises can be a slippery slope. The more appropriate measure for the VP of Sales to have taken would have been to say "we will do whatever we can to meet your needs, but we have to check our manufacturing schedule first."
Honesty is indeed the best policy when dealing with customers and they should understand your situation. If they really need the product, it's possible that they will pay a premium to cover the overtime charges. Or, they may be willing to accept the product the following week, when capacity was available. In either case, it's important to explain the situation to the customer and their options. You won't lose the customer by being honest.
Before making any sale, you should know the costs and the availability of capacity within your plant. Make sure you check with appropriate parties before agreeing to a sales price.
Remember, keeping customers happy is of the utmost importance! But this does not mean you should take a loss just to meet their needs. Don't make informal promises and follow the rule of Operations Management. Only the Master Scheduler can change the production schedule!
Andrew Goldman is an Isenberg School of Management MBA student at the University of Massachusetts Amherst. He has extensive experience working with small businesses on a consulting basis.
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