Product Development Strategy
Our in depth expertise at modelling customer and product data means you can get a clear picture, so you can securely take big decisions that have a big impact on profit.
Sales do not come easy, generally. Increasingly they are hard won, and even successful growth comes from humble beginnings – a new product is trialled in low volume before scaling up if it sells.
Not every product follows this pattern. Some die a death, some never scale up but achieve a stable if low volume, and some become seasonal, and so on. The result for most companies is a mixed portfolio of products, and customers. It isn’t always clear which products, or which customers are worth retaining. Meanwhile finance, commercial and operations have been working the numbers on various assumptions. These assumptions have been over volumes, costs and resulting margins, both planned and actual.
The inevitable difficulty with managing this mixed portfolio leads to conflict and confrontation between functions. Operations under pressure to make the planned margins, try to implement lean manufacturing to achieve the low cost, low waste, profile wishes to avoid short runs, promotions and incorrect forecasts, whilst commercial demands flexibility, short lead time and more complexity.
Poor margin performance and interdepartmental conflict causes the finance function or the CEO to analyse the portfolio, and attempt to simplify, but it isn’t that simple a job. A 5 year old can do a margin pareto, but how do you know if it reflects good or bad performance? What about modelling different customer profiles, or different ranges? This is where Applied Acumen can help.
Where have you done this before?
We work a lot in the food industry, and it is here that we have enjoyed great success.
For one farm to fork client (£300m+ turnover) we examined both the input product supply, and the outbound finished goods products, covering input and output pricing, trends, forecasts and market intelligence.
In addition to this, we examined intermediate processing outputs, and also performance criteria for all operational processes, along with potential alternative footprint scenarios.
Add to this the examination of customer data, both sales and pricing behaviour, and again looking at trends, forecasts and market intelligence.
Our analysis provided some 11 main customer portfolio scenarios, with associated risk profiles and profit models, to reveal some very clear information upon which the client could act, which is exactly what this client did. The result was a £6.5million jump in bottom line improvement, representing a 100 – 1 return on our work.
To find out more, contact us today
Surely it is right to simplify, and lose low margin products?
Often, consultants will examine the product portfolio and undertake a pareto analysis, subsequently glibly recommending a hacking off of the ‘tail enders’. This is unhelpful.
It is not only important to understand the cost construct of products, it is even more important to do so not in the context of how you are currently performing, but in how you could be performing.
To illustrate, a factory GM declined to renew a contract with a customer since the product on offer did not meet the targeted margin criteria. However, not only was this rather easy to produce item providing sufficient contribution to keep the lights on even at current performance levels, if it were run at improved levels of performance – levels which could be demonstrably achieved – the target margin could all but be achieved anyway. After losing the business, the factory was subsequently hauled out of administration after being forced to close.
A further market dynamic being fought by business is the increase in consumer choice and general complexity. This is simple fact, but rather than get better at complexity, businesses are fighting it. This is dumb, and businesses like BooHoo (fashion), Google (search), Hello Fresh (food), AirBnB (leisure), Netflix (entertainment) and others are wiping the floor with their competition by embracing complexity and making it work for them.
Whether it is cost of manufacture, or cost to deliver, or both, it pays to have expert analysis.