Gain Efficiencies by Product Variant Strategies
When companies extend offerings through product variants, they will face increasing costs and related challenges as the portfolio grows in complexity. Concurrently, variants generate deep customer value and justify higher price points, where mitigation strategies will enable improved lead times and profits gains.
Products variants to leverage selling price and profits
Extending offerings with variants is a historic trend across industries, as it fulfills the needs of a diverse customer base, by meeting specific customer demands and generating deep customer value. As a result, boosted prices are justified by an increased willingness to pay, leveraging price points and profits.
“A wide product portfolio does not only support sales, but also triggers complexity cost challenges”
A wide portfolio increases complexity, where added product variants bring complexity costs, despite lowering direct costs per variant. Complexity costs derive from challenges associated with entangled logistics, inflated stock requirements, longer lead times, and required manufacturing flexibility, which must be mitigated to retain delivery lead times and maximize profit gains.
Mitigation strategies to improve lead times and profits
A standard method to mitigate complexity costs is to apply a modularization strategy. By systemizing product variants across the product portfolio and fundamentally changing the product architectures through modules, manufacturing can be optimized to maintain standardization, efficiency and lead times, while reducing stock requirements and logistics complexity.
“Delayed customization postpones the customer specific decoupling point in the supply chain”
Delayed customization is a supplementary strategy to mitigate complexity costs, based on the principle of postponing customer specific decoupling points in the value chain. E.g., by performing customer adoption locally, market specific variants derive from an optimized product base. Consequently, the strategy promotes standardization and simplifies forecasting, to reduce lead times.
“Digital transformation unlocks more revolutionary mitigation strategies”
The digital transformation unlocks more revolutionary strategies to reduce complexity costs. By basing all products on the highest specification variant within the product family and applying a software control strategy to define product variants, e.g., by digitally limit the product performance, complexity cost and lead times can be decreased. The strategy however require IT resilience, but when successfully applied, a new aftermarket is reached as customers can upgrade variants post-purchase.