by: Cris Wendt
One of the behaviors that we see with many software companies and high-tech manufacturers is SKU proliferation. When SKU counts are in the thousands or tens of thousands of items, the task of pruning the product line can become increasingly difficult. This, in turn, exacerbates the SKU problem as something for someone else to solve. In addition to the problems mentioned in the previous blog post, the proliferation of product data also can undermine the transition to new ERP, CRM, or entitlement management systems.
At some point in most companies, an executive will get involved to trim the product line and begin a product consolidation effort. I have helped customers with a few of these, and they can be tedious and painful endeavors if left unaddressed for years: products have to be identified for removal, a transition plan has to be developed to address the customer install base issues, and a communication effort needs to be launched. This ongoing activity must also be managed. These efforts take valuable resources away from new product development or addressing important market needs. Once such an effort is completed, or well underway, the question is asked:
“How do I prevent SKU proliferation from happening again?”
While there will always be cases where new products do not succeed in the market, here are some suggestions on ensuring that your product lifecycle management (PLM) efforts are designed to keep your product portfolio as productive as possible.
1. Establish minimum annual revenue standards or annual volume standards for each new SKU or product number that will eventually make its way into your ERP and entitlement management systems. Depending upon the size of your company, the exact number may vary. The analysis for new product revenue should not just be viewed at a product line, but at the individual SKU level. Products/feature sets that do not meet these standards, but provide value can be incorporated into another, related flagship product. This in turn can be viewed as enhancing the maintenance value proposition. Often, the non-productive SKU’s tend to be product “add-ons”, “options” or “bundles” for a flagship product which drives the largest component of the revenue. For most enterprise software companies, we recommend a minimum annual revenue of approximately $50,000 or more. Of course, as the saying goes, “your mileage may vary”.
2. Create and publish product packaging and structure taxonomy standards to promote consistency among different products and product lines. This will ensure that as SKUs proliferate, there are standard structures and behavior that guides how product lines are put together and bundled, so that new partners and employees will be able to extend their knowledge of one product line to another. This includes not only the basic definitions such as “product”, “base product”, “add-on product”, “upgrade” and “update”, but there should be guidance on how to use these different structures to grow product lines in a systematic and consistent way. The taxonomy standards should also address when product functionality is best incorporated as part of a “maintenance release.” This is a fairly broad topic in itself, and will be the subject of a future blog.
3. Develop and Publish an End-of-Life (EOL) Process. This should include a standard templatized approach to:
· Identify revenue or strategy “triggers” that determine when products and product releases should be considered for end-of-life. Most companies already have standards for managing the end-of-life for different releases or versions.
· Business, customer, and legal issues to be considered.
· Transition considerations for customers who already own the product in order to maintain the highest possible levels of customer satisfaction.
· Create a 6 – 18 month plan of activities to progressively transition products from active marketing, sales, and support to final withdrawal.
· Communicate the plan through your website to customers and include all products and product releases in the End-of-Life process. This is a critical step to setting customer expectations that you do run a business and occasionally need to remove products from active sales and marketing. Our experience has shown that customers will appreciate your proactive approach.
· Update the Support portion of your website to include a section for End-of-Life products, including all products in the process, and identify the state of EOL. Don’t forget to include the status of product releases and any platforms (or OS versions) that are no longer supported. Here are some samples used on the websites of Infoblox and Acresso.
4. Actively manage the steps described as part of your existing PLM processes. You may want to assign personnel in either Marketing Operations or Sales Operations to take on the tasks of periodically reviewing the portfolio, reporting on metrics, and providing recommendations on products to EOL.
Are you encountering SKU proliferation? How are you dealing with it?
Did you miss Part 1? Are you being SKU’ered to death?
Next time – The Hidden Costs of Building it Yourself – The Case of the Wayward Sprinkler System. In the meantime:
- Take the 2009 Software Pricing and Licensing Survey for software producers and high tech manufacturers.
- Check out my new V-Smart Radio episode: Virtualization: a Brave New World.
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