Overview
Seeking ever-greater revenues, firms have been rapidly expanding their product catalogs. For instance, American grocery stores carry five times as many products as they did in 1975. Tesco, for instance, stocks 93 different toothpastes and 91 different shampoos at each of its stores. But, at what cost? While broadening variety increases revenues, it has the potential to significantly affect costs as well. Indeed, it impacts a wide range of supply chain processes ranging from material acquisition through product distribution and eventually obsolescence management. Thus, managers must carefully balance the revenue growth from expanding the product portfolio with the corresponding increase in supply chain cost. Without such consideration, expanding catalogs often bring diminishing returns, and may even reduce profitability!
Our experience in working with companies that are attempting to combat product proliferation has revealed that firms must take a systematic, model-based approach to rationalize their product portfolio effectively. Ad hoc rules such as “trimming the tail” that are common in practice can lead to adverse and undesirable results. Recognizing the importance of product line rationalization and the need for effective methods to address this decision problem, this module will:
- Identify important costs and considerations for managers considering rationalization,
- Develop insights on key drivers such as product substitution, and
- Explore opportunities to exploit substitution patterns to generate compact profit-maximizing product lines.
Exercise: Using Microsoft Excel-based tools in a case-based scenario, participants will examine product variety versus supply chain cost tradeoffs, and develop effective plans to optimize product lines.
Faculty
Professor Hari Natarajan is a faculty member in the management department at Miami Herbert Business School. He builds and applies analytical models to support planning, coordination, and execution in supply chains and service networks. He has collaborated with firms such as Intcomex, Corning, Armstrong, Dsquare, and Marketics.
