By: David Znidarsic
Previously we discussed how to some, "SKU reduction" means simplifying a complex product portfolio. This time we will discuss how others view "SKU reduction" as a means to efficiently producing a complex product portfolio.
Efficiently Producing a Complex Product Portfolio
You might be spending too much money and time producing the multiple products that comprise your complex portfolio. In this situation, you are convinced that you must continue to offer the complex combination of products and options you currently sell. In fact, you might even be planning to provide more product combinations and more options. Here, you are not trying to reduce the complexity of your portfolio, but trying to produce your complex portfolio more efficiently.
Often a company doesn't plan to create a complex product portfolio. Instead, it happens over time when markets demand products derived from an already successful product. Those derivatives could be a result of capabilities added to or removed from that product; then there are derivatives of those derivatives, etc. After a few years or few product releases, you've met the immediate customer demand, but you can't sustain the cost of providing all of these options.
In this example, at the core of all these derivatives is a base product. The best way to efficiently continue to provide all derivatives is to engineer one master product, to which and from which capabilities can be added and removed. If those capabilities are implemented in software (or firmware), then use an electronic software license management system to control which customer gets to use which capability. Even if licensed capabilities and capacities are implemented in hardware, electronic license management systems may still be able to help. If the hardware's configuration can be controlled by firmware or software, then that controlling firmware/software can interrogate an electronic license and instruct the hardware how to configure itself.
Implementing an electronic license management system to efficiently produce and maintain a complex product portfolio is a best practice followed by thousands of hardware and software providers. The flexibility of such a system allows you to introduce additional capabilities to existing customers, as well as reduce capabilities in order to reach low end markets without eroding your high-end price points.
How have you tackled "SKU reduction" and "SKU complexities"? What are your best practices?

