Intro

Product Management

Most companies have a process for the development and introduction of new products to the market place. Yet once the product is launched, many companies do not have an established process or measurement system to optimize the financial returns of the existing product line. The absence of a proactive product management process typically results in an ever-expanding product line and ever-expanding support costs.

Typical Product Distribution


The problem with this approach is that it results in product distribution in which 80% of the gross margin dollars are derived from 20% or less of the products. With a product distribution curve this steep it means that approximately 40% of the products are either breakeven or losing money on a fully loaded basis. The cost to maintain this portion of the product line is not clearly identified anywhere in the financial statements, but it is staggering. The support costs (factory overhead, sales, marketing, engineering, and administrative) are the majority of a company’s cost structure. Alignment of support costs and related resources to the high return products can have a dramatic impact on the bottom line.

Approach

The Boulder Group Team will work with you to develop a comprehensive picture of your existing product line characteristics and develop team based solutions that will unlock profit opportunities in your company. The key steps in this approach would be as follows:

  • Establish cross functional Product management Team
  • Map existing product management process, responsibilities, and measurements identifying barriers and opportunities
  • Complete  comprehensive product line analysis
  • Document long term product strategy
  • Identify products that have opportunities to improve gross margins utilizing a Margin Improvement Matrix approach
  • Prioritize and implement specific product improvement action plans
  • Develop the future product management process
  • Determine Optimal Product Mix model and targeted gross margin percentages for model…an example of a model is illustrated below
    Product Mix

Summary :

A company is much better off to take decisive action to maximize the gross margin contributions of its product line with such things as product redesign, adding support costs to increase sales volume of high gross margin % products, or in some cases truncating products than carrying a product line filled with obsolescence and lower gross margins. If these resources are refocused on the higher on the high selling, high gross margin products, the company gets substantially more bottom line results.