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Reduce Complexity to Capture Value

US consumer-goods companies increased the number of new products introduced annually by nearly 60% from 2002 through 2011, resulting in significantly higher costs throughout their supply chains. However, those companies’ total sales during that period grew at just 2.8% per year, a rate that exceeded inflation only slightly. 

A BCG survey of top consumer goods executives found that many are dissatisfied with their company’s efforts to reduce portfolio complexity. Although more than 90% of these executives indicated that their companies had launched complexity-reduction projects, only 15% considered their projects to be successful. 

The dangers of complex portfolios don’t end with vague payoffs. Business should also consider other drawbacks, such as:

  • Greater downtime for product changeovers
  • Higher procurement costs
  • Increased difficulty in forecasting demand and high inventories
  • Higher administration costs
  • Ineffective marketing and promotion spend

How to Reduce Complexity and Capture Value

It’s easy to think that eliminating low-volume products is the answer, but it often fails to address the root causes of the higher costs created by complex portfolios. A better way is to develop a greater understanding about the market and the supply chain in order to make informed trade-offs between the value of diversity and the cost of complexity.

From the market side, you have to know what customers value. What do both existing and potential customers perceive as the strengths of your products relative to your competitors’ offerings? Knowing the answers to those questions can help businesses standardize their offerings by developing new products to serve customer needs, price points, channels, or regions.

When it comes to supply chains, companies can start by identifying the sources of complexity and pinpointing specifications or components that lead to bottlenecks and downtime. Those insights help drive efficiency by reducing the number of suppliers, streamlining plant operations, and redeploying the freed-up capacity.

An integrated approach allows businesses to differentiate products just to the extent valued by customers. They can focus on high-volume, high-quality products; they can streamline the supply chain and network footprint; and they can establish clear governance over the entire network. Companies that take this approach can achieve an important competitive advantage through both lower-cost operations and higher-value product portfolios.

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