Like my overflowing closets at home, every product range needs a good clear out periodically. Ranges expand over time and what fit the portfolio in the past, may not suit any longer.
And like the Marie-Kondo method, the key is sort by category, rather than line by line.
So start by classifying every single product you own into one of the following categories:
- Standard products
- Zombie products
- Downscale products
- New products
- Competitor Standards
- Special products
Next, review the products in each category separately. It is important to complete the actions for one category before attacking the next. Depending on the size of your range, I advise reserving at least half a day per category and spreading the work out over a couple of weeks.
1. Standard Products
These products are typically 80% of your volume and 20% of the products. Check that every product is clearly targeted for a unique market segment and application. Good-better-best products options can be useful for customers who prefer premium features or economy solutions, but if more than one product meets the same needs they will compete with each other for volume.
- If you have overlapping products, decide which one to keep and prepare to downscale the others.
- Identify any gaps in the range and add them into your product development roadmap.
- For the products you are keeping, make sure the value propositions are clear and distinct from one another. Update your marketing content as needed.
2. Zombie Products
You know the ones I mean – the products that were killed ages ago, then suddenly rise from the dead without warning because they were never properly deactivated in the systems. Somehow an order sneaks in without anyone noticing and the next thing you know, John Snow, your production manager is standing over your desk screaming at you for leaving the gate open. Block them now.
3. Downscale Products
Even after an official product withdrawal, a few customers can get left behind for one reason or another.
- Resend the product withdrawal documents to the remaining customers, announce a final order date and then kill the product.
- When there is a good reason not to kill off this remaining business, you need to reclassify the product as a special and adjust the price accordingly.
4. Nursery Products
New products often need a little time to get established. Make sure you have sufficient marketing support for them and check their progress regularly.
If sales don’t pick up, you need to analyse why. If the product doesn’t meet the market need, add the key missing criteria for the next generation product into your development roadmap. Decide if you will support the current sales until the new version is ready.
If there market demand is simply less than you thought, be prepared to kill the product if it is unprofitable.
5. Competitor Standards
It is often easier to gain a customer by matching a competitor’s product exactly, than convincing them that your standard product is better. The problem is that you now have all the costs associated with small volume production assigned to a product with a bulk volume price. In my experience this rarely ends well.
- Check if the product is actually filling a gap in your range. If it meets a clear need, you can offer the product to a wider range of customers and increase your sales overall.
- Asses the real profitability of the product and the customer. Make sure the full costs of producing a low volume product are included. Be prepared to kill the business if it doesn’t make sense.
- Prevent it happening again. Make sure your sales team really understands, and believes in, the features and benefits of your products. Your product performance vs the competitive alternatives need to be understood and backed up by evidence. Regular refresher training is important, even for experienced sales staff.
6. Special Products
These are basically every other product in the range. To sort this category, first you need to understand the true profit of each product. Despite the wealth of data in our businesses, very few can accurately calculate the profit on each order. If your business doesn’t have activity based costing, there are still ways to get a more accurate impression of the real production cost:
- Establish the set-up costs. Machine changeovers usually take time and result in waste materials, these are usually the main profit killer on small volume products. Production staff can normally give an idea of the typical time and scrap required for setup and you can estimate the cost based on normal hourly machine rates and material costs.
- Allow for additional administration overheads. Whether that is time taken to create the system information and product documentation, or the time to calculate the price for a non-standard product, this should not be underestimated. Special products need to be more profitable than standard products for this reason alone.
Next, address any unprofitable products:
- Increase prices where possible.
- Reduce costs with larger minimum order sizes – setup cost is diluted over a larger volume.
- Increase leadtimes so similar product orders can be grouped together, reducing set up costs.
Prepare ground rules for the future. Use your findings to put in place a clear pricing strategy and agree order handling rules with the organisation for future special product requests. This transparency will enable faster decisions regarding special product requests and ensure that future business is always profitable.
I have over 15 years experience driving profit in complex portfolios, ranging from a few hundred products up to tens of thousands of SKUs. If you would like specific advice on how to manage your portfolio or more support on driving range profitability, please get in touch.