Overproduction

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Overproduction

Headline: Don’t make what you don’t need.

Don’t make things before they are needed, or if they aren’t needed. Seems obvious, right? In the contract negotiation world, “manufacture” is sales-led and the negotiation process with direct client — you can’t negotiate without one, so there is buyer for every product, right? — so overproduction seems irrelevant. But is it?

• The one that craters: Many contracts get negotiated, but never executed: the client may not be serious, it may change its mind, or it may not accept your fundamental terms. Some times this is foreseeable, but it should be Sales’ job to identify and weed out clients who are highly likely never to executed a contract. Finding out you have a deal-breaker after a nine-month negotiation is a huge waste of time and resources.
• The dud: Even where the contract is executed, the revenue that accrues is not a function of executing the contract, but trading under it. A contract that is concluded but rarely or never traded under is an example of overproduction. Again, Sales should be responsible for identifying good quality potential revenue, and should be incentivised — that is to say, penalised for the costs of overproduction, the same way they are rewarded for revenues that accrue on sensible contracts — not to introduce poor prospects into the onboarding funnel. No financial services firm does this, of course.

Summary: Overproduction is generally a sales problem. It is not easy to fix as it involves predicting the future, but the costs can at least be allocated to sales (in the same way that revenue is!)