It is well known that successful companies have a wide range of products and services to offer to different customer segments. In a competitive business environment, it is unthinkable to imagine that consumers with clearly differing needs will adapt to standardized consumption offerings. Given this scenario, what we see in various industries are companies offering an extensive range of brands, packaging, flavors, and sizes to their target audience, but to what extent is this healthy for the business?
The fact is that the company's operations are significantly impacted by these strategic decisions, and this is not always remembered. A good example is the impact on production, such as the rampant need for setups to clean and prepare lines for a new flavor, fragrance, or packaging. Furthermore, warehousing, order picking, and delivery also suffer from the high number of boxes with different specifications, dimensions, and weights.
There are also a number of indirect impacts resulting from this high mix of products offered. Demand planning, for example, becomes considerably complex and inaccurate when considering all product and geographical variations, generating both stockouts and excess inventory in different categories. Furthermore, the corporate and sales teams are also under pressure to manage all stages of the order cycle for a large portfolio.
Given these complexities, what we have seen recently is companies from various industries moving to try to optimize their portfolio in order to capture benefits both in the market and in their operations. Using criteria such as financial performance, consumer migration trends, and brand growth strategies, large companies are structuring themselves to periodically review their portfolio offerings so as not to severely impact their operations and harm their profitability.
The fact is that offering too wide a range of products can leave you in a less competitive position in the market, just as ignoring the different consumption needs of your clientele can. Does your company have a clear portfolio optimization process?
Benefits of portfolio optimization. Image source: Jack Lee – Unsplash
