C2.4.3 Cost Reduction – Products to Discard

Over time, the range of products that you have on offer will grow.  Not all of these are good contributors to your Profit. Make positive product decisions and eliminate the ones that detract from your Profit. Take into account such things as inventory, warehousing, sales, personnel, price discounts, time commitment and similar.

Product Decision Focused

Perform an 80/20 analysis on your full product range, or at least on categories of those products.
Go to the article: SM2.6 80/20 Business Analysis

Sort them by their contribution to your present Profit.
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All things being equal, the ones that are presently making the biggest contribution to your Profit are likely to continue to do so.

Exceptions to this might include such things as:

  • When the market for a product is saturated and further growth seems unlikely.
  • When you can’t get more of the product to sell.
  • If the product is comparatively new, or otherwise disadvantaged, and you still think it has room to grow.
  • If the products complement some other profitable product and so should be retained.

Keep in mind, that 80% of your products probably only contribute to 20% of your Profit.
Therefore, cutting substantially from this weaker end of the product range you have on offer, means that you will be automatically freeing up resources.
Things such as capital and people, that can either be re-deployed to focus on the highly profitable products or can be considered for a redundancy as we discuss in following sections. Product decisions have a wide influence.

There will undoubtedly be push back from staff on some of the products you want to cut.  You might even find yourself resisting axing old favourites.

If you have properly shone some light on the actual profitability of the product, you can put the onus on staff to defend their product decisions of why something should not be cut.

Boston Consulting Group Growth Share Matrix (BCG Matrix)

Another approach to product decisions and quickly cutting through the clutter of multiple products and, even more usefully multiple product lines, is to quickly place each of them into one of four categories.

Go to the article: Why Boston Consulting Group Growth Share Matrix Helps

In a matter of minutes you will have identified the:

  • “Dogs” with low growth and profitability and should be eliminated.
  • “Stars” that are quite the opposite and should be nourished.
  • “Cash Cows” that are growing and spinning great cashflow.
  • “Question Marks” which are growing but not producing much income.
    Will that change and they become “Stars” or are they going to continue to drain the bank and therefore be better treated as “Dogs”?

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