I came across this article explaining why roses cost so much more on Valentine's Day than any other time of the year. The answers … "Each phase of production costs more because of the massive volume, says Christine Boldt, executive vice president of the Association of Floral Importers Florida in Miami."
Additional labor to supplement the regular workforce is needed to handle the spike in demand, and additional transportation costs are needed to haul the surge in roses.
What's news about that, you ask? Isn't the answer obvious? Apparently not – at least not obvious to those who dreamed up and still think 'cash for clunkers' was a good idea.
Doesn't the spike in the total auto sales chart to the right look a whole lot like that you would expect from a similar chart of monthly rose volumes?
Shouldn't the same cost surge apply? Of course it does, and of course the explanation for why roses cost so much are obvious. Any time a process is expected to meet a surge in demand that outstrips its capacity, costs are gonna go up in a big hurry. It is not good for any production process – be it roses or Chevrolets – to have to meet wildly erratic demand rates. That's why cash for clunkers was a particularly dumb idea – one that no production person would have recommended.
But more to the point, isn't the common mentality that all sales are good – any increase is good – the more the better – exactly the same thinking that flies right in the face of the reasons why roses are more expensive on Valentines Day?
So isn't paying sales people a commission – actually rewarding them for creating wild fluctuations through factories – a really bad idea? Of course it is. That is why the best performing companies are beginning to reward their sales people for hitting the plan – not patting them on the back for exceeding the plan and wreaking havoc on plant capacity - but for driving the level of demand through the factory that optimizes available capacity. It puts the business is the best total cost structure relative to sales volume, and therefore makes the company optimally profitable.