Traditionally, organizations have seen great divides between production teams and commercial teams. The production teams are focused on the optimization of through puts or simply put, more material in less amount of time. On the other side, the commercial team wants a higher contribution for the volume they are selling. This results in one side pushing for more production per unit-of-time, and the other pushing for more contributions per unit-of-volume. There is a dichotomy here and these siloed performance indicators are often in conflict with one another. Transitioning both groups toward optimizing contributions per unit-of-time should be the goal. How to get there is the challenge!
Imagine the scenario –the company’s order book is booked solid for this quarter and the foreseeable future. The production leaders are urging their teams to stretch their capabilities to produce all that they can, as fast as they can. The production team is working hard to keep manufacturing humming out of every available hour while lowering their conversion cost. To accomplish this, they cultivate their momentum around the production rallying cry; produce more in less time. In manufacturing, this is typically in units-ofmeasure (UOM) such as pounds per hour, tons per hour, or count per day. Regardless, this UOM typically has volume in the numerator and time in the denominator. This is of the highest importance, because if they make one more per unitof-time, at the same cost, their conversation cost will lower. A win for the production team and typically serves as the bias favorite of their performance indicators.
Under the same set of circumstances, the commercial team is pushing for the most profitable order,while being laser focused on the selling side of the business. The team is taking on the “best orders” while leveraging their business relationships. From their line-of-sight, they are focused on a numerator that is dollar-based while their denominator is volume. Examples consist of dollars per ton, dollars per piece, or dollars per bundle. They are meticulously working their way through contracts and spot business,typically focused on the highest number of contributions per volume. Choosing to take the order at a highest contributions per ton versus the lowest contribution per ton is an easy decision from their perspective
Individually, these two key performance indicators make sense, yet have the tendency to conflict. Most likely, the production team is screaming that certain product mix slows down the production units.