Hockey Stick Syndrome in sales

In some distribution companies, the sales are very high in the last week as compared to the other weeks of the month and usually comprise 40–50% of the total month’s sales. The usual sales pattern for such companies is 10:20:30:40 over the four weeks of the month. This sales pattern is popularly described as the “Hockey Stick” sales syndrome, wherein the sales are not distributed proportionally among the weeks and are lopsided towards the last week of the month. On the other hand, if one observes the real sales i.e when an end customer buys, then one would never find such a pattern. It would be more or less equally spread out across the weeks of the month.

Even with such a stark difference between supply and demand patterns, this is accepted as a normal industry practice in the industry. So innate this practice has become in the industry, that the internal processes, KPIs and measurement in operations, distribution and sales, are aligned to accommodate, reinforce and at times accentuate the phenomenon.

Management of such distribution companies, only associate carrying high inventory as the cost of this practice. However, there are many more issues associated with this skewed sales — lost sales and limiting the faster growth of the company. This is based upon the following series of events which happens when a company is stuck with hockey stick syndrome.

Increase in Production batches & reducing flexibility: Usually such companies have a monthly sales plan and an aligned production plan. Because about 40% of the sales happen in the last week, the production has to ensure that such a huge quantity is available in the regional warehouses/ Depots / CFAs before the start of last week. This results in production happening in large batches. As the production batches increase, the lead time to produce any additional quantity also increases. So if the sales are more than forecasted for a distributor or regional warehouse it is next to impossible to supply the additional quantity to him within the required time as the plant is busy with its fixed production schedule and long lead times, resulting in lost sales. Unavailability leads to huge lost sales (not only that piece but could also lead to loss of customer as he buys another brand).
The pressure of Target & credit issue of distributor: When the regional warehouse has unavailability, to meet his sales target, the salesperson pushes whatever is available, increasing inventory of some items (of the distributor) well above the quantity planned. This results in blocking of the capital of distributor for a period more than the month. Resultantly the capital available for buying fresh stock in the next month decreases, so he buys less (due to company credit limits) resulting in further lost sales. Alternatively, the company relaxes the credit limit, which is a loss to the company, and there is a limit to which this can be done.
Limiting Reach & loss in market share: As the capital gets blocked, the capital available for providing credit to the market decreases, and the distributor starts to restrict his supplies to only those retailers who are regular in payment. This results in unavailability at some shops (who distributor think are a payment risk). This might result in customers switching to a competitor’s brands. With usage and satisfaction spreads the word of how the competition brand is good / better. Thus the company could lose market share in a geographic area rapidly. (Unfortunately, the distributor is blamed for this loss of market share and not the company policies).