Product and Service Portfolio Rationalisation

An issue that is prevalent across all industry sectors is that of a growing portfolio of products and services, that gets expanded over time as new products and variations of existing products get introduced, to enable the achievement of the strategic growth goals of the company. These new products and services are vital to enable companies to open up new markets and attract new customers, by differentiating themselves from their competitors.

But, while all of this new product and service activity is key to the future growth, the complexity and cost to the business of a growing offering to the market, also needs close attention. Apart from the risk of confusing the market with too broad an offering, the challenge within the company to manage a broad range of SKUs (Stock Keeping Units) can be significant and more importantly the cost to the business can also be far more than the companies often realise. In fact, research has shown that when companies categorise their portfolio into A/B/C classifications, then when the true cost of ownership is analysed, the C-class items will show that they are in fact extracting value from the company, value that has been created by the A-class SKUs.

From a management time perspective, invariably more time gets spent trying to manage the C-class items. If however, these can be managed out of the portfolio, then more of the valuable management time can be spent on growing the business. Of course, being able to understand and appreciate this picture for a given company, takes time and effort and for many will always be seen as a lower priority to allocating resources to the new products and what are perceived as growth strategies.

However, even when leaders within an organisation propose SKUs for rationalisation, they are often quite easily shot down by people offering resistance, through anecdotal comments or stories. In particular, in the commercial side of the business, marketing and sales people can tend to have their “pet products” and whether it be because they are comfortable to sell them or they have a key customer who particularly likes the product, it can be difficult to get them to appreciate the cost of maintaining these SKUs from an overall company perspective.

Therefore, a structured and methodical approach, that focuses on achieving the buy in of the key players, is critical to be successful in proactively discontinuing products and services from the portfolio. Without this, an organisation runs the risk that even when products have been discontinued, in practice sales often will continue to sell, driving exceptional costs to supply chain to produce, when the capability may no longer be in place.