Tag: product
Connect With Us
Does Your Inventory Look Like Jurrasic Park?
Does Your Inventory Look Like Jurrasic Park?
I was working with a industrial manufacturer who made construction equipment, such as diggers and backhoes. They had a beautiful park-like setting around their factory. Artfully placed on manicured lawns around the ponds and fountains were quite a few backhoes . It reminded me of Jurassic Park. We discovered later that these backhoes were a lot like the dinosaurs – they had failed to adapt.
The backhoes in the park, though attractively displayed, were really just inventory. Those particular backhoes were there because they hadn’t sold. We soon understood why. The backhoe had about 40 features that the customer could choose. One of these features was a cup holder for the driver’s cab. There were two options: a stationary cup holder and a rotating cup holder that could be stowed under the dashboard. If a customer order matched a unit on the lot EXACTLY, except for the cup holder, then their inventory control system treated the two configurations as different. A whole new backhoe was scheduled and built, while the one with the wrong cup holder continued to sit on the lot, exposed to wind and rain and interest charges. Now, probably they should not have had two different cup holders in the first place. But if they did, the cost of giving away a rotating cup holder instead of a stationary one (about $20) was much smaller than all of the costs involved in building a whole new backhoe. And if the customer wanted a rotating one, he could probably have been persuaded to accept a stationary one today instead of waiting 3 weeks to get exactly what he wanted.
Two different configurations of a complex product might be “almost the same”, or “very similar”, or “quite different”, or “far apart”. Can we quantify these common sense terms? Surely two configurations that differ only on a cup holder, out of 40 features, are “almost the same”. If we can measure closeness, then we can see when a configuration in stock is “close enough” to what a customer wants.
For two configurations to be close to each other, there shouldn’t be too many features with different choices. Furthermore, some features are more important than others. In a backhoe, the engine, hydraulics, and buckets are very important. The cab is quite important. The cup holder is not so important. So two configurations are close to each other if they differ on a small number of features that are not very important.
The criteria for what is important can be based on knowledge about the product and what it is used for, and also on the cost in relation to other features. So “close enough” depends on how many features are different and how important those features are,. There might also be a probability of acceptance that depends on how many features are different. This can all be formalized, and we can compute a number that represents the closeness. If we can measure closeness, then we can automate the matching of orders and inventory in a much more nuanced way than “the same” or “not the same”. For complex products that are built to stock as well as built to order, this can substantially reduce inventory holding costs by keeping the inventory moving. This is the key to inventory optimization.
Each of those backhoes in the park had a story to tell. Stories like: “I could have been sold in October of 2007, but I didn’t have the rotating cup holder. Or in January of 2008, but I had flip-guard feet instead of street-guard feet.
Someday my perfect order will come, I know it will.”
Comments Off
Arm your salespeople to make the sale
I was talking to an executive at Oracle, and he told me that CRM is entering a new phase. Salespeople are the revenue generators of a company. Current CRM tools have served the purpose of helping salespeople organize their customers’ contacts and manage the sales process and pipeline, but this isn’t enough.
Your salespeople are representing and selling your product. Customers who want to buy your product typically list a few things they want and look to the salesperson to guide them. The salesperson is their advisor on your product offering. The salesperson is expected to know the product and suggest good choices for the customer. Is your salesperson equipped to do that?
There was a time when life was simpler and products were simpler. The customer said, “I want a 17″ TV.” The salesperson could look at what he had stocked and reply, “I have a 19″ I can give you for the same price.” Wow! Done!
Today, even the best salespeople don’t stay at one job for long. They move, selling what sells. Training sales newbies on a product is a big challenge for companies, and the cost of the salesperson not knowing the product he’s selling is VERY HIGH. As many as four out of five quotes are lost because customers weren’t guided to a good product selection. You can fill this gap by arming your salespeople with tools and product knowledge that will help them advise customers effectively on your product. Your company needs salespeople to have that capability so you can make money on the stuff they sell!
Comments Off
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.
Comments Off
What is sales history, exactly?
We often talk about the sales history of a product, so let’s explain exactly what it means. There is a raw sales history and a collapsed sales history. The sales history, raw or collapsed, is the starting point for all the analytics we will be introducing later.
Raw sales history
A product is a collection of features, where each feature has a set of mutually exclusive options (one of which may be “no,” “none” or “none of the above”). A sales history consists of a record for each unit of the product that has been sold, with a list of the options that were included. Since each record is for a specific unit, there may be a serial number feature. So imagine a table with a row for each unit sold and a column for each feature. The entries in a column are the different option choices for the corresponding feature. Blank cells indicate a “none” choice.
Comments Off
Help the sales team help the customer
This morning I was talking to the VP of business process improvement for a company that sells industrial machinery. Their products are highly configurable. She told me that every year they have 50% new configurations they have never seen before. The number of choices on their products has grown over time. ”A salesperson can’t know everything about the product,” she said. “Customers want a few choices, and before you know it, the quote has crept into a configuration that’s bad for the customer and bad for us. “
As the VP explained, the biggest opportunity for complexity management is at the point of taking an order. A customer wants to be guided to complete their order. This concept is called Demand Shaping. There are myriad ways a configurable product can be ordered. However, each customer cares only about a few features that are of high importance to him or her.
Extending the product configuration to gain insight
One of the most important components in choice complexity is the product configuration itself, the mixture of product options that give a product its unique signature. Obviously the typical product orderable options are needed to analyze the complexity of a product, but other more abstract options can offer surprising insights into product and customer behaviors.
A typical car configuration has options such as sedan, V6 engine, automatic, blue, cloth, AM/FM/CD, sunroof. But more abstract items can be recorded along with these to offer more insight. Sales type can be recorded to analyze what types of product configurations sell better in promotional sales events as opposed to normal sales transactions. An attribute to record an extended factory warranty option may provide new ideas for packaging options together with additional warranty services that customers are moving towards.
Comments Off
Stop product complexity at the door
In any manufacturing company that builds configurable products, there is a lot of discussion around what product complexity is. What’s interesting is that when times are good and there are lots of sales, the discussion is usually around how to simplify or streamline with the goal to sell more product even faster, that complexity is keeping sales from going even higher. In bad times, the discussion typically moves to how complexity is causing undue stress on the supply chain, creating problems with parts forecasting, quality and finished goods inventory.
Rarely do these discussions end with participants really agreeing about exactly what complexity is or how to reduce it. Solutions are attempted with internal projects like SKU reduction and part number reduction initiatives driven by Six Sigma teams that mean well and do good work, but usually are chasing the tail of the complexity dog, rather than leashing it for good and guiding it to higher profits, lower forecasting errors, even shorter sales cycles.
Comments Off
Key Concepts To understanding Product Variety
1. Product
A product is something offered for sale to customers. This is deliberately vague, because we want to encompass services as well as tangible products. Most of our discussion and examples involve manufactured products, but our framework also applies to services with many variants like insurance policies and cell phone calling plans.
2. Instance
An instance of a product is a specific unit of the product: the car that Joe buys, which has a specific VIN (Vehicle Identification Number).
3. Configurable Product
A configurable product is a product where the instances are not all identical. No. 2 pencils are not configurable. Computers, cars, tractors, refrigerators and cell phones are configurable.