S&OP and Product Review

Kids love toys. They love to play with them and it keeps them occupied giving parents the breathing space they deserve. As kids grow bigger, the toys they play with change. Once the kid is bored with his toy, or if he sees his friend play with a new toy, he instantly craves for a new toy. This aspect of a kid manifests itself in different ways as one grows up. We wish for the new iPhone, the new Tesla car, new clothes and so on. Companies cater and encourage this little kid inside us by bringing out new products at regular intervals. The first step in this endeavor is to design the product the company wishes to launch. To that effect, companies have specific Research & Development divisions that take care of the engineering and design aspects. Then they need to estimate the size of the market and the approximate number of target customers they would like to reach out to and when. From there, they should plan on getting the raw materials, plan on the production and distribution, the promotional activities needed to get launch so as to be ready for everything before the launch date. This process of conceptualizing and planning to launch a product into the market is called as New Product Introduction.

Sales and Operations planning, as we saw in previous articles was initially aimed at balancing demand and supply but later evolved in scope to include many other aspects of long-term planning. We also saw that a successful S&OP process is driven by demand and the demand plan sets the tone for the entire process. This is a logical way to ensure that our supply chains are demand driven and we are able to be prepared in the long term. One of the important aspects of this demand is the demand that the company creates through its promotional activities. If the company is introducing a new product in the market, then it is imperative that the company conducts promotional activities for that product.

The above concepts enable us to arrive at the reasoning why Product Review should be the logical first step in the Sales and Operations Planning process. An S&OP process where finance is integrated, enables us to track the budget for new product development projects. In addition to the budget allocation, other aspects like product line improvements, portfolio review, phase-in phase-out, obsolete inventory, product profitability, etc will be discussed. If Product Review is not an integral part of your S&OP process, then you risk missing out on an important demand element in your long-term planning process. According to Nexview Consulting, 39% of companies do not have a Portfolio review as a part of their S&OP cycle while another 43% have it only occasionally. Only 18% of the 32 companies that responded have Product review as a part of their S&OP process.

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The scope of Product review can be covered by revisiting the product lifecycle chart. The product lifecycle graphically traces the sales volume of the product during the course of its life. It gives us insights into the four different stages of in the life of the product – the Introduction stage, the growth stage, the maturity stage and the decline stage. A sufficiently large organization will have a product portfolio and these products will fall into any one of these four stages. In the product review stage, the products in each of these stages will be discussed and the future direction for these products will also be strategized. New product introductions occupy an important place in the Product review phase as these are relevant to the overall growth strategy of the company. Promotional pushes required for products in the growth stage and the financial investment needed will be reviewed. The products in the maturity stage are taken care of by the rest of the S&OP process as these contribute to the bulk of the demand and supply requirements. Products in the decline stage need to be planned appropriately, how the products will be phased out and what new products will be introduced in their stead needs to be appropriately planned for.

There is no single outcome of a product review. Each review decision pertaining to the respective product lines are conveyed to the respective product management teams. The demand element arising from a new product introduction is captured in the consensus demand plan of the demand review and the capacity requirements feature in the constrained demand plan of the supply review. The major impact of having product review as part of the S&OP process is to establish a uniform communication. Sometimes, timelines are missed and new product launches appear later than originally planned but these changes are not communicated. Having Product review as one of the first steps in the monthly S&OP process cycle ensures that such failures in communication do not occur and everyone is on the same page. There might be three possible outcomes of a product launch

1. Consumer demand is on par with the forecast
2. Consumer demand might be higher than Consensus Demand leading to lost opportunities or
3. Consumer demand might be lower than consensus demand leading to excess inventories.

State of art S&OP software can help solves this issue in the Product review by using scenario planning techniques. The upside and downside scenarios are planned for and the company can react to the market more swiftly.

One important aspect that I would like to touch upon is regarding the new product introduction and strategic fitment. Product ideas are dime a dozen and the number of products that go from ideation stage to deployment stage is very low. In this funnel, companies sometimes consider dropping certain ideas simply because it wasn’t their core competency or maybe it wasn’t a part of their strategic vision. Companies aim to see if the product satisfies a need of their intended customer and place bets on such products even if they do not form a part of their core offerings. Blue ocean strategies can help identify if the products that the company is going to invest in will add value to the company in future. With the landscape of various industries changing at a faster rate than ever before, a finger must always be held on the pulse of where the industries are headed.

Did you enjoy reading this article? You can find my other posts on S&OP here. Look forward to your thoughts and feedback.