Tag: cost
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Customer power
What if you could reduce the cost of marketing while giving customers better access to what they really want? Consumer empowerment requires that companies give up some control over product access, promotions and price in exchange for increased consumer responsiveness. See this Q&A with professor Luc Wathieu, Harvard Business School.
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8 more definitions you need to know for product complexity analysis
1. Kit
A kit is a collection of parts that are used together for some purpose — for example, all the parts needed to implement air conditioning on a particular model of a car. A kit is assigned its own part number.
2. BOM
BOM stands for bill of materials. When a customer makes a selection of choices chooses a configuration (i.e., makes a complete set of option choices), the manufacturer translates the order into a collection of parts that are needed to assemble it. The BOM is expressed in terms of part numbers. These part numbers may refer to whole kits, composite parts or specific atomic parts. A complete vehicle, or washing machine, will contain many parts that the customer has not chosen. But these parts appear in every instance, or else they are implied by the combination of choices that the customer made.
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Product management to fit?
I often hear clients say, “We’ve been told by management that we should only have a standard and premium model.” Then product teams are tasked to fit the line to that limitation, while no product analysis was done to support the decision.
While reduction in configurations is important, how it is achieved is just as important. Using a quantitative approach earlier in this decision-making cycle can help the management team make an informed decision. Maybe a reduction to two models is just too aggressive; adding one additional model might be the difference in having proper market coverage. Examination of customer buying trends and patterns should be the first indicator for product direction. Determining product strategy based on market needs as opposed to retrofitting the product to an idea could lead to more effective product lines for both the manufacturer and consumer.
Why product complexity matters
I was telling some friends at a brunch about what I do, and how variety drives cost in manufacturing. “But all the manufacturing has moved to China,” commented one person. I’ve heard this comment over and over.
A picture is worth a thousand words — and here’s one that fits the bill.
- Commoditization of labor in manufacturing
- Higher output per worker
- The percentage of cost in goods is much higher
