A sacred cow: the product portfolio

When trying to uncover inventory potential, we repeatedly come across the topic of streamlining the product portfolio. This involves the approach of reducing the number of SKUs (stock keeping units) and thus reducing inventory, expenditure and process costs. It is not uncommon to find a diffuse and overloaded product portfolio that contains many similar products in numerous variants. Characteristics ABC and XYZ make it very easy to see which variants work well and which are more of an exotic species. The further evaluations show that there is also stock in most positions, but with significantly different ranges. If you want to find out more, carry out a contribution margin analysis of the items. The result reveals that not all variants earn money. On the contrary, losses on exotic products are eating up some of the margins on the products that are doing well! The original goal of increasing the result with further variants is not achieved. Sales often remain the same, but are now spread across more positions.

This begs the question of whether some of the variants could simply be dispensed with? This would reduce costs and inventories and ultimately improve the company’s results. But that is probably too simplistic. Sales and product management very quickly come up with arguments for keeping the discontinued products in the range, e.g: “We are a full-range supplier, if we don’t offer this, the customer won’t buy the other products from us either!” It is difficult or impossible to counter this. Who wants to risk losing good customers! But is that really the case? I am not convinced. Perhaps the product managers and salespeople should have a chat with their own purchasing department and ask themselves whether they are actually giving up sourcing tried-and-tested items and services from a long-standing, reliable supplier simply because the supplier has streamlined its range and I now have to source the exotic items elsewhere. It is more likely that a reliable supplier will remain a welcome partner in the future as long as the services and prices are right!

I hope that we at A&K will continue to be of interest to you, even if we remain focused on supply chain topics in the future.

Best regards from the office

Bernd Reineke