• Login
    • Join
  • FOLLOW:
  • Subscribe Free
    • Magazine
    • eNewsletter
    Checkout
    • Magazine
    • News
    • Opinions
    • Top 30
    • Research
    • Supply Chain
    • Device Sectors
    • Directory
    • Events
    • Resources
    • Microsites
    • More
  • Magazine
  • News
  • Opinions
  • Top 30
  • Research
  • Supply Chain
  • Device Sectors
  • Directory
  • Events
  • Resources
  • Microsites
  • Current / Back Issues
    Features
    Editorial
    Digital Edition
    eNewsletter Archive
    Our Team
    Editorial Guidelines
    Reprints
    Subscribe Now
    Advertise Now
    Top Features
    OEMs Seek Molders Offering Timely Techniques

    Robotic Surgery: Cutting Through to the Latest

    Packaging, Sterilization Considerations Go Part and Parcel with Product Development

    Cybersecurity Challenges Leave Medical Device Makers Insecure

    OEMs Are Demanding Designs that Challenge Suppliers
    OEM News
    Supplier News
    Service / Press Releases
    Online Exclusives
    Press Releases
    People in the News
    Product & Service Releases
    Supplier News
    Medtech Makers
    Technical Features
    International News
    Videos
    Product & Service Releases
    Live From Shows
    Regulatory
    Financial/Business
    Top News
    MPO's Most-Read Stories This Week—July 2

    OmniGuide Awarded FDA Clearance for RevoLix Hybrid Thulium Laser

    Pancryos Forges License Agreement for Microencapsulation Device

    FDA Awards IDE Approval to SELUTION SLR Drug-Eluting Balloon

    Matt Rainville Joins Bigfoot Biomedical as Chief Commercial Officer
    From the Editor
    Blogs
    Guest Opinions
    Top Opinions
    OEMs Seek Molders Offering Timely Techniques

    Robotic Surgery: Cutting Through to the Latest

    Packaging, Sterilization Considerations Go Part and Parcel with Product Development

    Cybersecurity Challenges Leave Medical Device Makers Insecure

    OEMs Are Demanding Designs that Challenge Suppliers
    Top 30 Medical Device Companies
    Market Data
    White Papers
    Top Research
    Theranos Fraud Trial, Part II: The Blame Game Continues

    An Update on Surgical Robotics

    Letting the Light In: How Failure Analysis is the Cornerstone of Success

    Three Talent Strategies to Attract High-Demand Skills

    The Advantages of Bioburden Screening for Sterilization Validation
    3D/Additive Manufacturing
    Contract Manufacturing
    Electronics
    Machining & Laser Processing
    Materials
    Molding
    Packaging & Sterilization
    R&D & Design
    Software & IT
    Testing
    Tubing & Extrusion
    Cardiovascular
    Diagnostics
    Digital Health
    Neurological
    Patient Monitoring
    Surgical
    Orthopedics
    All Companies
    Categories
    Company Capabilities
    Add New Company
    Outsourcing Directory
    Concise Engineering

    BMP Medical

    JBC Technologies

    Xact Wire EDM Corp.

    Cirtec Medical
    MPO Summit
    Industry Events
    Webinars
    Live From Show Event
    Industry Associations
    Videos
    Career Central
    eBook
    Slideshows
    Top Resources
    ‘Right to Repair’: Separating Fact from Fiction

    Taking a Holistic Approach to Decentralized Clinical Trials (DCTs)

    Investment in Health Startups Drops

    The Power of Leveraging Customer Relationships

    Cost Effective & Efficient Wire EDM Techniques
    Companies
    News Releases
    Product Releases
    Press Releases
    Product Spec Sheets
    Service Releases
    Case Studies
    White Papers
    Brochures
    Videos
    Outsourcing Directory
    Concise Engineering

    BMP Medical

    JBC Technologies

    Xact Wire EDM Corp.

    Cirtec Medical
    • Magazine
      • Current/Back Issues
      • Features
      • Editorial
      • Columns
      • Digital Editions
      • Subscribe Now
      • Advertise Now
    • News
    • Directory
      • All Companies
      • ALL CATEGORIES
      • Industry Associations
      • Company Capabilities
      • Add Your Company
    • Supply Chain
      • 3D/Additive Manufacturing
      • Contract Manufacturing
      • Electronics
      • Machining & Laser Processing
      • Materials
      • Molding
      • Packaging & Sterilization
      • R&D & Design
      • Software & IT
      • Testing
      • Tubing & Extrusion
    • Device Sectors
      • Cardiovascular
      • Diagnostics
      • Digital Health
      • Neurological
      • Patient Monitoring
      • Surgical
      • Orthopedics
    • Top 30 Company Report
    • Expert Insights
    • Slideshows
    • Videos
    • eBook
    • Resources
    • Podcasts
    • Infographics
    • Whitepapers
    • Research
      • White Papers
      • Case Studies
      • Product Spec Sheets
      • Market Data
    • MPO Summit
    • Events
      • Industry Events
      • Live From Show Events
      • Webinars
    • Microsite
      • Companies
      • Product Releases
      • Product Spec Sheets
      • Services
      • White Papers / Tech Papers
      • Press Releases
      • Videos
      • Literature / Brochures
      • Case Studies
    • About Us
      • About Us
      • Contact Us
      • Advertise with Us
      • eNewsletter Archive
      • Privacy Policy
      • Terms of Use
    Columns

    Having the Right Products in Your Product Portfolio

    ...

    Related CONTENT
    • Olympus Corporation Launches Powerseal Advanced Bipolar Surgical Energy Products
    • Abbott Buys Walk Vascular, a Thrombectomy System Maker
    • Baxter to Acquire Hillrom in $10.5 Billion Deal
    • Confluent Opens Specialty Medical Polymer Tubing Center of Excellence
    • Ramin Mousavi Appointed CEO of CathWorks
    07.27.07

    Having the Right Products in Your Product Portfolio



    By Bruce E. Jacobs



    Too many enterprises have product portfolios comprised of stock-keeping units (SKUs) bloated with products that underperform financially, consume resources and incur costs without providing the minimum rate of return the company requires from its investments. The product offering of SKUs is a portfolio of investment opportunities and costs that need to be managed like assets. Each product in the portfolio, whether it is a finished good or a component part for resale, should achieve the minimum return on investment the enterprise requires from its portfolio of financial investments. If it cannot achieve the minimum investment threshold, the underperforming SKU had better be making a substantive contribution to either another SKU’s investment return or a customer’s revenue volume.

    The proliferation of underperforming products erodes a company’s profit and revenue potential—the added complexity from underperforming products inconspicuously siphons resources and misuses capabilities that should be reserved for products that drive the company’s business and are demanded by its customers. Yet, adding products to the portfolio is perceived by many firms as a way to increase revenue and, thereby, create growth.

    The Business Problem



    The business problem is not the number of products or SKUs the product portfolio offers customers. Instead, the challenge is having the right products—those that generate the required return on investment the enterprise expects from assets in its investment portfolio. The proliferation of SKUs in the product portfolio has certain effects on the markets and revenue base in which the company competes. Underperforming SKUs allowed to proliferate in the product portfolio indicate the company doesn’t really understand its market and customer requirements. As more seemingly indistinguishable variations of the same product are offered, the following occurs:

    • The additional SKU generates marginal revenue increase

    • Revenue from stronger products in the portfolio is pirated by the underperforming products, which suboptimizes revenue for both groups of products

    • Customers become confused and frustrated trying to understand the insignificant distinctions between products

    • Underperforming products dilute the enterprise’s concentration of resources such that products with the greatest potential do not get the support required to reach their potential

    The objective is to have a product portfolio of SKUs that provide the highest return on investment for the company, as measured by the criteria it establishes. Most firms fill their portfolios with too many products, and not enough of them justify staying there. The fundamental problem is the more SKUs an enterprise offers its customers, the greater the total cost structure required to market, manufacture, distribute, source, maintain, service and provide warranty. But product proliferation can be a competitive distinction if used strategically—the issue becomes recognizing poorly performing SKUs and eliminating them in a timely manner from the product portfolio. This requires the rigor of a management-driven product rationalization process based on relevant data. Depending on a product’s lifecycle, product rationalization should be performed annually at a minimum. Products with short lifecycles or high seasonal-based volumes require more frequent rationalization.

    Management Process



    Product rationalization is not a management process that is well designed or well executed by companies that manufacture engineered medical products, aerospace, commercial and industrial products. Automotive-based aftermarket manufacturers, as well as distributors and wholesalers, do not assess their product portfolios with sufficient rigor and discipline. In the absence of a formalized management process, most rely on their materials and inventory management and their reorder processes to alert them to a product’s underperformance. The materials and inventory management processes are designed to manage inventory, make product available for sale to the customer and reorder products when inventory is depleted. These processes do not measure how a SKU performs or determine if a product should remain or be eliminated from the portfolio.

    Unfortunately, without a formalized product rationalization process, underperforming SKUs are recognized too late, and the enterprise is faced with eliminating the excess inventory and taking a loss on the product. The product rationalization process identifies early the products that are underperforming when compared to the performance criteria established by the firm. This provides adequate time for management to either improve the product’s performance or implement an orderly product elimination and liquidation of the inventory, mitigating major writeoffs and losses.

    Rationalizing the product portfolio is a management process that requires a level of rigor in gathering and analyzing data, defining performance measurements, identifying product underperformance, determining how to improve performance and eliminating underperforming SKUs from the product portfolio.

    The higher the quantity of products targeted for elimination due to poor performance, the more data and facts are required about the products. Too many underperforming products are left in the portfolio because of the lack of adequate supporting data. With the appropriate analytics and measurements, the decision to maintain an SKU in the product portfolio is fact-based.

    Performance Measurements



    Determining performance measurements for products in the portfolio requires the company to define the minimum level threshold of performance each SKU must meet to remain in the portfolio. Typically, these measurements are not defined. Performance measurements that should be considered may include:

    • Annual revenue dollars achieved per SKU

    • Annual quantity of units sold per SKU

    • Gross profit margin achieved by SKU

    • Ancillary products’ revenue generated by SKU

    • Number of customers that purchase by SKU

    • Return on owned inventory

    Once performance measurements are determined, each SKU in the portfolio is measured to identify how the product is performing. Underperforming products are analyzed further to understand their performance and costs and determine the options available to improve them. If it is determined an SKU’s performance cannot be improved, it becomes a target for elimination.

    Product Elimination



    The rationalization process identifies the performance of every SKU in the portfolio. Underperforming SKUs become targets for elimination from the portfolio, which requires an elimination strategy. Specifically, the strategy must address the migration of existing customers to other products in the portfolio and replacing the lost revenue when the product is eliminated. In addition, inventory must be depleted to minimize the inventory write-off. This is tied to timing the product’s elimination from customer catalogs, finding secondary markets that will purchase any excess inventory and offering special pricing and discounts to eliminate the inventory.

    Having the right products in the product portfolio requires the company to have a formalized management product rationalization process. Most firms never have enough good products but always have too many poorly performing products in their portfolios. Every enterprise knows the top performing products and the worst performing products in the portfolio. Without a formalized rationalization process, the company doesn’t know how the products between the best and worst are performing. In addition, very little is done to improve the performance of the in-between products until they migrate to being the worst performing products in the portfolio.

    The first-time rationalization process will target portfolio products for improvement or elimination, ranging from 20% to 35% of the total SKUs offered. Subsequent rationalizations will identify 12% to 20% of the SKUs that either underperform and need improvement or elimination.

    The product rationalization process is a management process that ensures products offered in the product portfolio can perform at the level expected from the enterprise’s investment. Rationalizing the portfolio the first time is always the most difficult. Gathering and analyzing the appropriate data and information take the longest time to complete. However, once the process is completed the first time, replicating it the next time becomes simple.

    Bruce E. Jacobs is a principal with BKD, LLP, a CPA and advisory firm, and a member of BKD Manufacturing & Distribution Group, providing solutions for the management and financial needs of medical device businesses. Bruce has more than 26 years of experience in manufacturing and distribution strategies. Contact the author at bejacobs@bkd.com.
    Related Searches
    • Contract Manufacturing
    • R&D & Design
    • lifepak 1000 defibrillator
    • Materials
    Related Knowledge Center
    • Contract Manufacturing
    • Materials
    • R&D & Design
    Suggested For You
    Olympus Corporation Launches Powerseal Advanced Bipolar Surgical Energy Products Olympus Corporation Launches Powerseal Advanced Bipolar Surgical Energy Products
    Abbott Buys Walk Vascular, a Thrombectomy System Maker Abbott Buys Walk Vascular, a Thrombectomy System Maker
    Baxter to Acquire Hillrom in $10.5 Billion Deal Baxter to Acquire Hillrom in $10.5 Billion Deal
    Confluent Opens Specialty Medical Polymer Tubing Center of Excellence Confluent Opens Specialty Medical Polymer Tubing Center of Excellence
    Ramin Mousavi Appointed CEO of CathWorks Ramin Mousavi Appointed CEO of CathWorks
    Health Canada Approves Quidel’s Sofia SARS Antigen FIA Test Health Canada Approves Quidel’s Sofia SARS Antigen FIA Test
    Confluent Medical Expanding Costa Rica Manufacturing Facility Confluent Medical Expanding Costa Rica Manufacturing Facility
    Fluid Management System Market to be Worth $23.2 Billion By 2028 Fluid Management System Market to be Worth $23.2 Billion By 2028
    ClearDATA, BioIntelliSense Collaborate to Enhance RPM Security and Compliance ClearDATA, BioIntelliSense Collaborate to Enhance RPM Security and Compliance
    Safeguard Medical Buys PerSys Medical Safeguard Medical Buys PerSys Medical
    The Reemergence of Pulsed Field Ablation in Cardiac Electrophysiology The Reemergence of Pulsed Field Ablation in Cardiac Electrophysiology
    Private Equity Group to Buy Medline for Over $30B Private Equity Group to Buy Medline for Over $30B
    Abiomed Buys preCARDIA, a Heart Failure Tech Firm Abiomed Buys preCARDIA, a Heart Failure Tech Firm
    Fresenius Kabi, Corvida Medical Forge Distribution Pact for Drug Transfer Device Fresenius Kabi, Corvida Medical Forge Distribution Pact for Drug Transfer Device
    BD Names Elizabeth McCombs as CTO BD Names Elizabeth McCombs as CTO

    Related Breaking News

    • Surgical
      Olympus Corporation Launches Powerseal Advanced Bipolar Surgical Energy Products

      Olympus Corporation Launches Powerseal Advanced Bipolar Surgical Energy Products

      Deliver consistent sealing reliability in an ergonomic, multifunctional design that promotes procedural efficiency.
      Olympus Corporation 09.21.21

    • Cardiovascular
      Abbott Buys Walk Vascular, a Thrombectomy System Maker

      Abbott Buys Walk Vascular, a Thrombectomy System Maker

      Adds mechanical thrombectomy devices for treating patients with peripheral blood clots.
      PR Newswire 09.02.21

    • Baxter to Acquire Hillrom in $10.5 Billion Deal

      Baxter to Acquire Hillrom in $10.5 Billion Deal

      The acquisition will broaden access to care in the hospital, home and alternate site settings.
      Baxter International 09.02.21


    • Tubing & Extrusion
      Confluent Opens Specialty Medical Polymer Tubing Center of Excellence

      Confluent Opens Specialty Medical Polymer Tubing Center of Excellence

      New facility offers component design support, PTFE liners, polyimide tubing, and multilayer composite tubing.
      Business Wire 09.01.21

    • Ramin Mousavi Appointed CEO of CathWorks

      Ramin Mousavi Appointed CEO of CathWorks

      New leader worked at Baxter International and Edwards Lifesciences.
      PR Newswire 08.27.21

    Loading, Please Wait..

    Trending
    • How To Overcome The Top 6 Medical Device Manufacturing Challenges
    • Portable, Home-Use Device Quickly Measures Inflammation Levels
    • AI-Enabled SKOUT Device Improves Colorectal Cancer Screening
    • 5 Ways Plastics Revolutionized The Healthcare Industry
    • 7 Steps To Create Your Own Medical Device Marketing Plan
    Breaking News
    • MPO's Most-Read Stories This Week—July 2
    • OmniGuide Awarded FDA Clearance for RevoLix Hybrid Thulium Laser
    • Pancryos Forges License Agreement for Microencapsulation Device
    • FDA Awards IDE Approval to SELUTION SLR Drug-Eluting Balloon
    • Matt Rainville Joins Bigfoot Biomedical as Chief Commercial Officer
    View Breaking News >
    CURRENT ISSUE

    June 2022

    • OEMs Seek Molders Offering Timely Techniques
    • Robotic Surgery: Cutting Through to the Latest
    • Packaging, Sterilization Considerations Go Part and Parcel with Product Development
    • View More >

    Cookies help us to provide you with an excellent service. By using our website, you declare yourself in agreement with our use of cookies.
    You can obtain detailed information about the use of cookies on our website by clicking on "More information”.

    • About Us
    • Privacy Policy
    • Terms And Conditions
    • Contact Us

    follow us

    Subscribe
    Nutraceuticals World

    Latest Breaking News From Nutraceuticals World

    Pharmavite Expands in Ohio with $200 Million Investment
    Nestlé Health Science Expands in New Zealand with Deal to Buy The Better Health Company
    Younger Consumers Drive Growing Demand for Ingestible Beauty and Skin Care Products
    Coatings World

    Latest Breaking News From Coatings World

    Azelis Acquires Chemical Partners, Strengthens Leadership in Africa and Middle East
    Emmanuelle Bromet Named Arkema Sustainable Development VP
    ROSS Planetary Dual Dispersers Have Unique Processing Flexibility
    Medical Product Outsourcing

    Latest Breaking News From Medical Product Outsourcing

    MPO's Most-Read Stories This Week—July 2
    OmniGuide Awarded FDA Clearance for RevoLix Hybrid Thulium Laser
    Pancryos Forges License Agreement for Microencapsulation Device
    Contract Pharma

    Latest Breaking News From Contract Pharma

    Bayer Opens New Research and Innovation Center at Kendall Square
    Lonza Names Maria Soler Nunez as Head, Group Operations
    Eurofins DiscoverX Opens Shanghai Office
    Beauty Packaging

    Latest Breaking News From Beauty Packaging

    Dexlevo Introduces Beauty Treatment technique, ‘GOURI’
    Revision Skincare Exec Wins Ernst & Young Entrepreneur of the Year
    Latest Updates About Cosmoprof North America
    Happi

    Latest Breaking News From Happi

    SCOTUS EPA Ruling Won’t Impact General Regulatory Authority
    Toning Collection For Zero-Brass Blondes is New at Colorproof
    Esthetician Studio Beauty Concepts Files Trademark Infringement Lawsuit Against Kim Kardashian and Coty, Inc.
    Ink World

    Latest Breaking News From Ink World

    Weekly Recap: Flint OPS, Xerox and MNYPIA Top This Week’s News
    Azelis Acquires Chemical Partners, Adds to Leadership in Africa and Middle East
    International Paper Publishes 2021 Sustainability Report
    Label & Narrow Web

    Latest Breaking News From Label & Narrow Web

    UPM Raflatac boosts operations in US, All4Labels returns to HP and more
    Fedrigoni Self-Adhesives to exhibit at Labelexpo Americas for first time
    CELAB Europe wins Paper Recycling award
    Nonwovens Industry

    Latest Breaking News From Nonwovens Industry

    Glatfelter, Blue Ocean Closures Partner with Absolut
    What You’re Reading on Nonwovens-Industry.com
    Daio, Livedo Partner to Recycle Diapers
    Orthopedic Design & Technology

    Latest Breaking News From Orthopedic Design & Technology

    ODT's Most-Read Stories This Week—July 2
    NuVasive Inc. Opens Singapore Experience Center
    Pedicle Screw Systems Market to Top $3B in 2027
    Printed Electronics Now

    Latest Breaking News From Printed Electronics Now

    Weekly Recap: eMagin, Identiv, and Japan Display Top This Week’s Stories
    Epishine is Building a New Solar Cell Factory in Linköping, Sweden
    Toppan Establishes CVC Fund and Investment Management Company in the US

    Copyright © 2022 Rodman Media. All rights reserved. Use of this constitutes acceptance of our privacy policy The material on this site may not be reproduced, distributed, transmitted, or otherwise used, except with the prior written permission of Rodman Media.

    AD BLOCKER DETECTED

    Our website is made possible by displaying online advertisements to our visitors.
    Please consider supporting us by disabling your ad blocker.


    FREE SUBSCRIPTION Already a subscriber? Login