Scalability – What is it?

Posted by Tom LarsenJul 22, 2015 Operations, Organization, Planning 0 Comment

As a core tenet of our business rationale, scalability, I discuss scaling a business often. I have learned through the experience that scalability does not have the same meaning to all business owners. There are also multiple types of scalability in a business. Knowing which scaling issues are possible for your business and how to address them before they start happening is a top priority for any business owner or manager.

Most people think of scaling as simply getting more orders or higher volumes, but, that is a simplistic view. What makes scaling a challenge is knowing what other workloads those increases in sales bring with it. In consumer products it can be many things.

Some scaling, like that of a website getting more visitors, takes no infrastructure at all and therefore requires only the awareness that the website must have increased volume capacity to be scaled. Higher volumes of sales of a tangible item are not the same though since each added item creates potentially multiple levels of human labor to complete. Products do not pick themselves off the shelf to be shipped yet.

Here is how wholesale scaling works in real life today.

Higher volumes of sales of the same thing to the same customer is pretty straightforward. One order a week for 100 pieces becomes one order a week for 200 pieces. Double the business, and the only additional work being more pieces in a box done by a contracted fulfillment company. One shipment a week. One invoice a week. One eventual payment a week.

More often the scenario in wholesale is orders of the same product to multiple customers. Now there are 10 orders a week for 100 pieces. Ten times the business. Now there are 10 shipments a week, 10 invoices a week and eventually 10 payments a week. Ten times the work load to take in 10 times the money.

Then we have the multi-product scenario where each order has a unique assortment of items in it. Now 10 orders are each unique so the order processing is not copying the previous but in fact converting a PO of assorted items into the necessary documents to get that unique assortment of goods out of the warehouse. The shipment for each is unique. The invoices are unique. The payments though are still 10 payments. However, now the inventory demand is irregular and replenishment of the better sellers will be sooner than replenishment for the slower sellers creating future added activity. This common scenario is more than 10 times the workload.

You can’t economize, human labor, be it picking products from a shelf, taking telephone calls, the preparation of orders, communication with warehouses, vendors or Customers along with receiving payments and depositing them to a bank is all difficult to scale and they do not scale at the same rate.

Managing for the scale of a business tomorrow so that people will be in place and trained to provide the work as it comes along and as it grows, is a critical management challenge for the business owner/manager. Failing to do a good job makes the work seem overwhelming for the staff and can create quality problems as overtaxed people take on tasks with which they have limited experience. Being prepared not for today or tomorrow, but, for 3 weeks from now is the difference between playing for the long term or playing to keep incrementally ahead of the workload. It’s not easy, but, what is easy can be done by anyone.

Or the better plan, as I counsel, hire TD Back Office and we will take on all of the scaling issues with experience and expertise paid for through sales, not fees.

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