The Decision Making Process
By John Egger and John McCloskey
Decision Making Process
Dennis 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 …
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What We Do?
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
Our Goal
To Help You to Do Everything You Do
More
With Less
Better and
Faster
Decision Making Process
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Identify the Decision To Be Made
Gather Information
Identify Alternatives
Examine the Evidence
Select Best Alternative
Guard Against Personal Bias
Guard Against Unintended Consequences
Put Into Action
Review and Modify Final Decision as Needed
1 - Identify the Decision To Be Made
Do 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 Information
The 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 Alternatives
During 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 Evidence
Draw 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 Alternative
Once 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 Bias
You 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 Law
For 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 Action
You 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 Made
Should 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 Information
What are our actual costs of making a delivery
What is our competition in the area doing
How will our staff feel about charging
How will our customers feel about charging
Will it hurt our sales
Will it be hard to implement
What will we charge for delivery
3 - Identify Alternatives
Charge or not
Charge by stop
Charge by order
Charge by piece
Charge by merchandise value
Exempt certain items like bedding
4 - Examine the Evidence
Review all the possible solutions
Rank your solutions
Review your ranking with others
5 - Select Best Alternative
In 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 Bias
The 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 Bias
Different client in New York
Trained as an accountant
Wife was a designer and wanted a store
Neither ever worked in a furniture store before
Came up with a charge per piece plan
Logical 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 Action
Delivery 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 Made
Problem: Low margins.
How can we increase our overall margin?
2 - Gather Information
Compare 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 Evidence
Review all the possible solutions
Rank your solutions
Review your ranking with others
5 - Select Best Alternative
In this case, they decided to change the way in
which sales commissions were calculated.
Salespeople could increase margins by:
Not discounting so much
Increasing their protection sales
Not waiving delivery charges
Avoiding expensive financing programs
6 - Guard Against Personal Bias
Changing 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 Bias
Salespeople 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 Action
Commission program changed from flat 5% to a
sliding scale based on OVERALL margin.
Costs included in the calculation:
Cost of Goods
Cost of Delivery
Cost of Method of Payment
0 Cash/Check , 1 debit, 2 V/MC/D, 3 AMX, % Finance
Top commission changed to 7%
8 – Put Into Action
Salespeople 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 Made
Poor cash flow.
Constantly dipping into line of credit.
Occasionally on credit hold.
2 - Gather Information
Sales 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 Alternatives
Find 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 Evidence
Biggest problem areas were
Low down payments
Customers delaying delivery
5 - Select Best Alternative
Increase down payment.
Establish “Storage” policy.
6 - Guard Against Personal Bias
This 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 Action
Increase 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 [email protected]
John McCloskey (336) 255-5300 [email protected]
www.profitabilityconsulting.com