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Application of TOC in Sales

Submitted By:

Submitted to:

Manish
Bhupender Singh

R Raghavendra Ravi

TOC
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.

Approach
The 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 & Sales


The Theory of Constraints can also be applied to sales and
marketing. The typical lead generation and conversion scenario is
a series of interdependent processes that goes something like this:

Generate a lead
Convert the lead into a firm enquiry
Produce a proposal or Action Plan
Follow up
Close the sale
Fulfill the work or order
Re-evaluate and repeat

Challenges in sales
As customers become more demanding and markets become
more
accessible to new entrants, additional challenges are presented to
an organizations sales team. These challenges include:

More fierce competition


Pressure to reduce price
Perception of outdated product range
New 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.

Effects
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.
These undesirable effects are usually:

Declining (or static) sales


Reduced margin
Fewer opportunities

The TOC approach tackles these challenges with a different set of


tactics. This, in itself, provides the organizations sales team with a
differentiator which ultimately can be used to increase sales whilst
increasing margins.

TOC Tactics for Sales


Sales focus
By using the basis of Throughput Accounting, current sales and future opportunities
can quickly be prioritized against true bottom line impact. While this sounds as if it
should be common practice, frequently sales teams are focused on opportunities
which ultimately contribute less Throughput than desired.
With this new focus on Throughput contribution sales teams can truly prioritize the
opportunities with the highest return in the projected horizon. This may include
freezing or even closing opportunities which do not offer the required level of
Contribution within this horizon.
Furthermore, assuming an internal constraint exists, this approach empowers the
sales team to focus on selling products which provide the highest contribution to the
company whilst ensuring that the available capacity is not overloaded.

Sales Focus
Managing 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 time
Less sensitivity to minor changes in
competition
Higher conversion rate
Less pressure to reduce prices
Higher sales with increased margin

TOC Tactics for Sales


Execution
The execution can be divided in to Sales operations and

Customer facing sales.


Sales operations
The 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.

Execution
Customer 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.

Execution
Customer 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.

Benefits
Typically, 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

References
http://www.tocico.org/
http://www.goldratt.co.uk/
http://www.wikipedia.com/

Thank You