Tag: predictive analytics
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What is sales history, exactly?
We often talk about the sales history of a product, so let’s explain exactly what it means. There is a raw sales history and a collapsed sales history. The sales history, raw or collapsed, is the starting point for all the analytics we will be introducing later.
Raw sales history
A product is a collection of features, where each feature has a set of mutually exclusive options (one of which may be “no,” “none” or “none of the above”). A sales history consists of a record for each unit of the product that has been sold, with a list of the options that were included. Since each record is for a specific unit, there may be a serial number feature. So imagine a table with a row for each unit sold and a column for each feature. The entries in a column are the different option choices for the corresponding feature. Blank cells indicate a “none” choice.
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Help the sales team help the customer
This morning I was talking to the VP of business process improvement for a company that sells industrial machinery. Their products are highly configurable. She told me that every year they have 50% new configurations they have never seen before. The number of choices on their products has grown over time. ”A salesperson can’t know everything about the product,” she said. “Customers want a few choices, and before you know it, the quote has crept into a configuration that’s bad for the customer and bad for us. “
As the VP explained, the biggest opportunity for complexity management is at the point of taking an order. A customer wants to be guided to complete their order. This concept is called Demand Shaping. There are myriad ways a configurable product can be ordered. However, each customer cares only about a few features that are of high importance to him or her.
When the tide goes out, it exposes products that were under water
The number of companies with complexity reduction initiatives has skyrocketed. Unlike five years ago, these are serious initiatives with management sponsorship and timelines.
A good friend of mine, who is a salesperson at a Caterpillar dealership, told me that when times are good he can sell any machine. When the times are bad, the bad stuff just sits around exposed.
Companies have proliferated their product offerings – there are almost infinite variations of everything that they offer. The rationale is that they will make one more sale because of that variation. But as product variations grow, the cost structure grows very fast as well, and the probability of finding that one customer who wants the new variation is quite slim. This results in excess inventory across the supply chain. And when the economic tide goes out, it exposes the cost of those product variations.
The companies with complexity reduction initiatives recognize that during good times and bad, managing product variants makes good business sense. Companies are now starting to implement metrics to measure product complexity because we all know that what gets measured gets managed! Product complexity metrics quickly expose underwater products.
The comment by my friend at Caterpillar reminded me of a trip I took to the Bay of Fundy. It is amazing how much is exposed when the tide really goes out, just like in this economy. The good news is that when the tide turns, the bad product lines it once covered will be significantly fewer, resulting in healthier and more competitive companies.
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Stop product complexity at the door
In any manufacturing company that builds configurable products, there is a lot of discussion around what product complexity is. What’s interesting is that when times are good and there are lots of sales, the discussion is usually around how to simplify or streamline with the goal to sell more product even faster, that complexity is keeping sales from going even higher. In bad times, the discussion typically moves to how complexity is causing undue stress on the supply chain, creating problems with parts forecasting, quality and finished goods inventory.
Rarely do these discussions end with participants really agreeing about exactly what complexity is or how to reduce it. Solutions are attempted with internal projects like SKU reduction and part number reduction initiatives driven by Six Sigma teams that mean well and do good work, but usually are chasing the tail of the complexity dog, rather than leashing it for good and guiding it to higher profits, lower forecasting errors, even shorter sales cycles.
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Why product complexity matters
I was telling some friends at a brunch about what I do, and how variety drives cost in manufacturing. “But all the manufacturing has moved to China,” commented one person. I’ve heard this comment over and over.
A picture is worth a thousand words — and here’s one that fits the bill.
- Commoditization of labor in manufacturing
- Higher output per worker
- The percentage of cost in goods is much higher
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