The Decision Making ProcessBy John Egger and John McCloskey

Decision Making ProcessDennis Hoy suggested this topic.At first, we thought this was more of a “touchy feely” subject matter, but once our team got together and discussed it, we realized how many great examples of decision making we have all witnessed and been involved in over our 100+ years of combined consulting experience.

So thank you Dennis for the great idea!

Who Are We?• Group of Consultants who exclusively service the Furniture

Industry.

• John Egger, John McCloskey, Steve Smith, Ron Wolinski, Renee Gingrich, Taylor Ganz and Peter Schlosser are members of our firm.

• Programs from front end to back end …

• Sales and Sales Management Training• Organizational Development• Warehouse Design and Procedures• Implementation of New Computer Systems• Custom Programming of Existing Systems• In Home Selling, Design and Interior Display• Merchandising and Advertising• The Science of Sleep• Recruiting, Interviewing and Hiring• Customer Service

What We Do?

Our Goal

To Help You to Do Everything You Do

MoreWith LessBetter and

Faster

Decision Making Process1. Identify the Decision To Be Made2. Gather Information3. Identify Alternatives4. Examine the Evidence5. Select Best Alternative6. Guard Against Personal Bias7. Guard Against Unintended Consequences8. Put Into Action9. Review and Modify Final Decision as Needed

1 - Identify the Decision To Be MadeDo you have a clear understanding of the problem

or issue in which a decision is to be made.You then go through an internal process of trying to

define clearly the nature of the decision you must make. This first step is a very important one.

2 - Gather InformationThe real trick in this step is to know what

information is needed.Some information must be sought from within

yourself through a process of self-assessment; other information must be sought from the outside via research or subject matter experts.

3 - Identify AlternativesDuring the process of collecting information you will

probably identify several possible paths of action, or alternatives.

Use your imagination and gathered information to construct new alternatives.

In this step of the decision-making process, you will list all possible and desirable alternatives.

4 - Examine the EvidenceDraw on your information and experience to

imagine what it would be like if you carried out each of the alternatives to the end.

Make sure that the right people are feeding you the information. Don’t be afraid of bringing in outside help with a different perspective.

Eventually you are able to place the alternatives in priority order.

5 - Select Best AlternativeOnce you have weighed all the evidence, you are

ready to select the alternative which seems to be best suited to you.

You may even choose a combination of alternatives.Your choice in Step 5 may very likely be the same or

similar to the alternative you placed at the top of your list at the end of Step 4.

6 - Guard Against Personal BiasYou probably already have a bias toward either the

problem to be solved or the potential solutions.As difficult as it can be, you need to try to look at it

from alternative perspectives.Take “yourself” out of the process.

7 – Guard Against Unintended Consequences

Newton’s Third LawFor every action, there is an equal and opposite

reaction.Often, decisions that appear to solve one problem,

can cause bad things to happen in other areas.Often, these are hard to identify up front.

8 – Put Into ActionYou now take some positive action which begins to

implement the alternative you chose in Step 5.Clearly communicate the decision and its impact to

all parties who will be affected.

9 - Review and Modify Final Decision as Needed

In the last step you experience the results of your decision and evaluate whether or not it has “solved” the need you identified in Step 1.

If it has, you may stay with this decision. If the decision has not resolved the identified need, you

may repeat certain steps of the process in order to make a new decision.

You may need to gather more detailed or somewhat different information or discover additional alternatives on which to base your decision.

Specific Examples

Here are a few real world examples from furniture retailers throughout the country.

1 - Identify the Decision To Be MadeShould we charge for delivery?Our internal process in this case is most likely the

need to offset the high cost of running our delivery operations.

2 - Gather InformationWhat are our actual costs of making a deliveryWhat is our competition in the area doingHow will our staff feel about chargingHow will our customers feel about chargingWill it hurt our salesWill it be hard to implementWhat will we charge for delivery

3 - Identify AlternativesCharge or notCharge by stopCharge by orderCharge by pieceCharge by merchandise valueExempt certain items like bedding

4 - Examine the EvidenceReview all the possible solutionsRank your solutionsReview your ranking with others

5 - Select Best AlternativeIn this case, they decided to charge for delivery

based on a geographic area which gets more expensive as the trucks go further away.

Also, the decision to deliver bedding only sales at no charge was made since there were several bedding chains in the area who advertised free delivery all the time.

6 - Guard Against Personal BiasThe owner was the 3rd generation. His father and

grandfather did not believe in charging for delivery. This was engrained in his mind since he first started working in the business while still in high school.

This was a hard bias to get over.What would grandpa think?

6 - Guard Against Personal BiasDifferent client in New YorkTrained as an accountantWife was a designer and wanted a storeNeither ever worked in a furniture store beforeCame up with a charge per piece planLogical to him since the more items on the truck,

the more it should cost.Result: Customers paying $200 to $400!

7 – Guard Against Unintended Consequences Would we lose sales?

Added free delivery to the price match guarantee which was already in place.

Would salespeople strongly resist?Distributed 5 free delivery coupons to salespeople at the

beginning of each month.Charged them $20 each if they needed more.BOUGHT THEM BACK for $20 the next month.By the 3rd month, owner needed to bring lots of $20’s to the

meetings!

8 – Put Into ActionDelivery map created with prices.Delivery added to the price match program.Coupons printed for sales people.Computer system told to require delivery charge

and remove with manager override only.Delivery policy added to employee manual.

9 - Review and Modify Final Decision as Needed Salespeople started discounting the items to make up for

the delivery fee. Sales report was created in the computer to detect these so that

management could easily identify violators. Lowest delivery charge was high for single item sales,

Single item delivery charge was created for these sales. Customers who bought bedding wanted other items

delivered for free. Wording on the free bedding delivery was modified to clearly state

that only the bedding was delivered free, any other merchandise would be subject to a charge.

1 - Identify the Decision To Be MadeProblem: Low margins.How can we increase our overall margin?

2 - Gather InformationCompare margin from month to month over the last

year.Break down by category to see if a change in category

sales caused the problem.Break down by vendor to see if certain vendors are

yielding less margin.Break down by salesperson to see if there is a large

gap between them regarding margin.Review what percentage of sales are financed.

3 - Identify Alternatives Increase the pricing on the floor tags.Drop or reduce the amount of product from vendors

with historically low margins. Increase the floor space allocated to product

categories that tend to yield higher margins.Consider changing the way in which sales commissions

are calculated.Try to finance sales only when necessary.

4 - Examine the EvidenceReview all the possible solutionsRank your solutionsReview your ranking with others

5 - Select Best AlternativeIn this case, they decided to change the way in

which sales commissions were calculated.Salespeople could increase margins by:

Not discounting so muchIncreasing their protection salesNot waiving delivery chargesAvoiding expensive financing programs

6 - Guard Against Personal BiasChanging the way people get paid scares them

This is true, so what do we do about it?Use historical data to show salespeople how much MORE they

would have made if they were to alter their behavior and do the things mentioned in the previous slide.

6 - Guard Against Personal BiasSalespeople will just think that owner is greedy.

For many of your employees, you are the wealthiest person they know.Again, show them how these changes will benefit their

lifestyles.100 dollar bills

A nice visual demonstration of just how much you make as the owner of the store. Bring 100 bills to the sales meeting and move them from the SALES pile to the COSTS pile. They will often be very surprised on just how few are left!

7 – Guard Against Unintended Consequences

Would we lose sales?Would salespeople strongly resist?

8 – Put Into ActionCommission program changed from flat 5% to a

sliding scale based on OVERALL margin.Costs included in the calculation:

Cost of GoodsCost of DeliveryCost of Method of Payment

0 Cash/Check , 1 debit, 2 V/MC/D, 3 AMX, % Finance

Top commission changed to 7%

8 – Put Into ActionSalespeople who continued to discount, give away

delivery, not sell protection and offer long term financing plans made very little commission on the sale.

Those who “Saw the Light” not only made 6% and 7% commission, but made that larger percentage on a higher ticket with additional spiff money coming from higher protection sales!

9 - Review and Modify Final Decision as Needed

For one month, they paid on the old method, but showed the staff what they would have been paid on the new system.

Once fully initiated, the majority of the sales team started making more money each month.

Overall store margin went from 39 to 51, so owners were happy to pay the extra commission.

1 - Identify the Decision To Be MadePoor cash flow.Constantly dipping into line of credit.Occasionally on credit hold.

2 - Gather InformationSales and margins were good, yet cash always tight.Special order lead time was over 10 weeks.Many customers were not ready for merchandise

when it finally arrived.

3 - Identify AlternativesFind vendors with shorter lead time.Negotiate better rates on line of credit.Establish better policy for customers who were

delaying their delivery.Get more money down.

4 - Examine the EvidenceBiggest problem areas were

Low down paymentsCustomers delaying delivery

5 - Select Best AlternativeIncrease down payment.Establish “Storage” policy.

6 - Guard Against Personal BiasThis turned out to be the biggest problem.The owner convinced himself that no one would pay

in full or make large deposits on merchandise that would take 10 to 14 weeks to be delivered.

He just could believe that anyone would pay for something before they got it.

7 – Guard Against Unintended Consequences

Other than a few customers complaining about the storage fee, there were none.

8 – Put Into ActionIncrease down payment.

Instead of asking for a 20% deposit,Sales people asked the customer,“How would you like to pay for that”?And then SHUT UP

Establish “Storage” policy.Store stored the merchandise for 30 days for free as long

as the merchandise was Paid in Full.1% per month after that on the value of the goods.

9 - Review and Modify Final Decision as Needed

Line of credit was paid in full in 4 months. Additional fees collected for customers who were not ready

for their furniture. Slight adjustment, they went from 30 to 60 days before

charging the 1% fee. NOTE: Much of the same philosophy can be applied to

stores that still collect a COD. If you are, get rid of it and get your money up front. Collect all up front, or at least BEFORE the delivery.

• We wanted to share some stories of where not following this process caused problems for our clients.

• So instead of going through all 9 steps, we will only cover the steps that caused problems.

• Store hired John McCloskey to create a racking design for the additional warehouse they just leased.

• Large current warehouse was packed.• John looked around current space and noticed many

boxes with a lot of dust on them.• John downloaded the inventory to his laptop and

verified that there were thousands of items both very old and/or not represented on any of the selling locations.

• How did this happen?• Decision to lease new space was based on poor

analysis of the problem.• The lack of space was the symptom.• Detailed analysis of the inventory would have revealed

the need to dispose or liquidate old merchandise, not lease a new building.

• What caused so much merchandise to be old and not on the floors?

• Unintended consequence!• Buyers bonuses were based on how well they utilized

the showroom floor space their categories occupied.• If an item was a dud, they sent the floor models to the

warehouse and replaced them with a better selling Item!

• New plan now takes into account their utilization of their percentage of the warehouse.

• Bonus plans can often lead to unintended consequences.

• Store management often earns a bonus based on sales per month.

• This is almost always calculated on delivered sales, even though the sales manager has much more control over written than delivered.

• Warehouse management often earns a bonus based on cost control and reduced overtime.

• The unintended consequence is a battle between managers.

• The sales manager will often push for additional delivery capacity at the end of the month.

• If the warehouse manager has to rent trucks and pay overtime to accommodate the added volume, then his bonus is in jeopardy.

• Basing sales performance on written sales solves this problem.

• The same additional costs and overtime is often caused by the commission period.

• If it is once a month on delivered sales, then salespeople tend to procrastinate and wait till the end of the month to start making calls.

• This can be avoided by paying commission twice a month instead of a draw and once a month.

• Another great way to level out your delivery days and weeks is to do tactical delivery planning.

Tactical Delivery Planning• Look several days in advance• Create a map of where your trucks are ALREADY going (blue

line)• Import POTENTIAL stops.• Fill the balance of the truck with customers close to the

blue line.• HUGE potential of savings.• Deliver more stops in less time.• Large Texas retailer went from 28 to 24 trucks utilizing this

plan with the same volume delivered!

Existing Promised Stops

Possible Stops to Add

• Another unintended consequence of a poorly designed bonus system.

• 100M store that had loaders load the trucks because large trucks with 30 stops took so much time for the drivers to load that they quickly ran out of DOT maximum hours.

• Loader was given a “clean load” bonus if nothing came back.• Problem: If early in the load he heard something break and he did

not want to pull things out to see what happened, he knew he already lost that bonus and loaded the rest of the truck without the normal care, thus causing multiple service issues.

Add Step 10 to the Entire Process• An additional step 10 is available for everyone who

is a member of FMG.

• Step 10 is also FREE!

• Call us and we will be happy to review any decision that you are making that you are worried about.

Helping the Home Furnishings Industry Grow and Profit

John Egger (404) 432-2137 johne@profitabilityconsulting.com

John McCloskey (336) 255-5300 jmc@profitabilityconsulting.com

www.profitabilityconsulting.com