Do you review your product portfolio on a regular basis? Understanding the profitability or potential profit-loss, demand behaviors, life-cycle management, new product introduction, and different pricing strategies of your products is extremely important.
The cross-functional collaboration between departments that the S&OP process provides, creates the perfect forum for periodically reviewing your product line, whether quarterly or annually. Something I have noticed with regards to the S&OP process is that the topic of product review/ product management is not a very popular discussion.
I am not saying it is a completely ignored topic, but it seems fair to say its value in the S&OP process can easily get overlooked. One problem that many companies face is departments functioning in silos. With so much importance surrounding a business’s products, a collaborative effort reviewing these products is a must.
Bringing together historical sales (open orders included), current inventory levels (finished and raw materials), market information, MOQ, fixed and variable costs, R&D’s latest technology, and other key pieces of information that are all represented by their respected stakeholders creates the real value proposition in regard to product strategy.
A few examples of possible outputs are:
- Handling excess and obsolete inventory, decision on scraping or fire sales, while considering do you take a loss or try and break even, and more importantly making sure to avoid cannibalizing profitable demand.
- Managing phase in phase out with new product introduction.
- Monitoring new products closely to evaluate their performance.
- Managing marketing strategies and promotions.
- Decisions on discontinuing products, while also considering low volume, unprofitable strategic products that are necessary in order to ensure larger project business.
Here is an example of a strategic product: Sales of 2×4 tube lights were high volume, however tube lights that were 2×2 were very low (used at odd sized ends). Looking at strictly historical data, questions of continuing the product came up, however many times you had orders of 10,000+ units of the 2×4 lights in one installation project with maybe 30 units of the 2×2 lights. The 2×2 lights meant the difference of receiving the large installation project. Usually customers do not want to go to multiple manufacturers on an installation project. Since these projects were highly profitable, those 30 units meant the difference on closing the sale.
- How to plan for products, make to order or stock inventory.
- Creating variable prices based off volume.
- Expanding the product portfolio.
Product reviews are a basic necessity of the business and a core competency of strategic planning. Simply said, without products, what’s left of your business? In consideration to the S&OP Process, product reviews tend to occur in the S&OP process later on as the company moves toward a mature process.
The key identifiers of a mature S&OP Process are strategy and cross-functional collaboration, this tends to be the point when product reviews become fully integrated into the S&OP Process.
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