There was once a man from manufacturing
Who had a beef with sales and marketing,
“My customer needs this”
“My customer needs that”
And now they have 1 of every offering.
Operations vs. Product Management. It’s an age-old dilemma for manufacturing companies. You have probably heard operations executives say something along the lines of the following: “If only the product management teams understood the costs and complexity caused by the numberless configurations, accessories, one-off products, etc, then they would think twice before even introducing them or launching them as new products.”
Similarly, you may have heard product management executives say…. “if only the operations team could make a few little tweaks to the product to meet my customer’s need and get the product to my customer in a more timely manner, then I would be able to reach my quota.”
Sound familiar? Does this happen at your company? Odds are that it does and that catering to the customer, partner, competitive-pressure, etc has contributed to a proliferation of your product portfolio. Now, instead of a product line with 3 SKUs (maybe a low-end, mid-range and high-end offering), the portfolio includes 40, 50+ iterations in the same product line.
What is the cost of these additional iterations? More than you may think.
Having worked more than a decade in the product management side of “the house,” I can sympathize with these executives and their perspective. They are working hard to create and sell the products that we manufacture and distribute. All they want us to do is to optimize costs and the distribution network and fulfill orders. Easy, right?
Obviously, there is a need to work together harmoniously. But how can the two “sides of the house” see eye to eye? Here are a few tips for your consideration:
- Use data to take the emotion out of potentially contentious conversations about the portfolio and which products should stay and which should be eliminated.
- Perform an evaluation of the portfolio. Be sure you have included the following in your evaluation:
- total landed cost by SKU (including manufacturing set-up costs)
- demand variability of each SKU
- lead time of each SKU
Adjust the price list of the products based upon the findings and begin to eliminate the products making a negative or nominal contribution.
- Consider implementing a “Complexity Calculator” and creating an New Product Introduction evaluation process that includes these variable and fixed costs in the evaluation of new products and accessories.
- Ensure the product management teams feel ownership of the supply chain complexity calculator.
- Enjoy the harmony!
A data-driven approach will take the emotion out of the situation. And if you include members of the product management team in the process, they will see the value in the evaluation mentioned above and embrace the revised NPI process and Complexity Calculator.
To read more about managing supply chain complexity, check out my white paper.