A key component of product portfolio management, as outlined in the S&OP: A 7-Step Business Process article, is periodically reviewing each of the products in your portfolio to ensure you are generating an optimized revenue stream for your company.
Like a small business, each new product should be self-sustaining. To promote the product, there needs to be sufficient product demand & production capacity, available raw materials. But also adequate funding and a marketing plan.
Strategically in product portfolio management, you need to consider whether the new product represents an extension of an existing product line; or if it’s an entire new brand launch within your company. You also need to consider how the new product supports the overall strategic goals of your organization.
Each product is part of a greater whole. The product line, and each product should ideally be complementary to its counterparts within the product line.
Also, for each new or inherited product; you need to consider whether the product is cannibalizing demand from other products within your portfolio. You want each product within your portfolio to not be competitive within the product line.
Also, keep an eye on products that you might have inherited either via an acquisition or a merger. Indeed, someone may have set up these products under different strategic or performance criteria and may not support your current strategies.
ABC & XYZ Analysis
ABC & XYZ analysis is a tool that allows you to assess a product’s volume relative to a product’s risk. Generally speaking, the most attractive products fall in the category of being high volume and low risk. Whether to maintain products that fall in other categories, like low volume and high risk, is a strategic decision . And your team must work through together.
Decommissioning your Product portfolio
Establish a thoughtful and holistic process within your organization. In order to use objective criteria to assess the viability of each individual product. For example, looking just at sales volume might give a false picture of a product’s profitability. A high sales volume for a product that cannot command a price high enough to yield a profit might provide an opportunity for eliminating a product from your portfolio.
SKU rationalization, or taking a critical look at the performance of your product line, should occur on a fairly regular basis so that your organization can be nimble in responding to changes in the marketplace. For example, when the pandemic hit, companies that were able to switch production to PPE, in replacement of other products they had been producing, were able to take advantage of an exponential growth in demand. Knowing which products were performing poorly enabled management to quickly stop production of weak performers and pivot to producing profitable PPE with growing demand and strong profits.