Low Sales Growth Suggests Supply Chain Complexity Resulting from Product Proliferation Not Worth It
By: Boston Consulting Group August 28, 2014
A high degree of product diversity has become the norm across all industries in recent years as manufacturers have expanded their product portfolios to capture new revenue sources. The product variations can be staggering to consider. So can the complexity that results.
Consider these examples of product proliferation: more than ten different fragrances for one fabric-softener product; more than 30 different refrigerator-door handles for one white-goods brand; and nine sizes of one flavor of a cookie brand in a single region.
Many companies have found that offering a diverse product portfolio is essential for maintaining a competitive edge. However, companies often launch product variations without fully understanding the extent to which the variants will increase complexity and costs in the supply chain or be considered valuable by customers. As a result, the avalanche of new products has often generated higher costs without a clear payoff. U.S. consumer-goods companies, for example, increased the number of new products introduced annually by nearly 60 percent from 2002 through 2011, resulting in significantly higher costs throughout their supply chains. However, those companiesí total sales during that period grew at just 2.8 percent per year, a rate that only slightly exceeded inflation. A similar disparity between the number of products launched and the revenue growth achieved has occurred in Europe, across industries.