Here is the second in the series from Dean Crutchfield.
Cutting costs: Analysis Paralysis
Two of Three
By Dean Crutchfield
The key focus now is on removing non-value added activities, steps, processes and entities, e.g., moving to point-to-point, right-first-time (Six Sigma) and lean manufacturing principles, including performance management and talent management.
Needless to say, offshore full-service manufacturers (FSMs) are prevalent across all major verticals, with India and China leading the way, and other regions like southeast Asia moving in fast. The efficiencies and savings are substantial: recent studies indicate that more than 85 percent of outsourced transactions have achieved savings greater than 30 percent, a boon for manufacturers and beneficial for retailers.
However, there is also an accelerating trend with offshore FSMs buying European Union and U.S.-based brands and importers, in addition to creating new brands. These are primarily focused on the new and emerging markets (as well as the more traditional U.S. and European markets) and represent a paradigm shift: As new entrants, they represent both a challenge and an opportunity to the “competition” status quo in terms of suppliers and potential substitute brands.
Outsourcing to low-cost locations is a no-brainer. So too is reducing COGS, that tried and tested initiative to continue to reduce the cost of the product and so increase initial markup. The road less traveled is brand rationalization. Believe it or not, many brands don’t make money for companies, and it’s amazing that most companies don’t know which of their brands make money for them, how many are profitable and even, in some extreme cases, especially with private label, how many brands they have!
The key is to have all involved in the process so that you can identify potential opportunities in the market, encompassing your customer needs and how they’re satisfied, the number of brands in the portfolio, their equities and attributed awareness, the strategic priorities for each product category, success metrics with regard to the performance for each category, and the benefits and costs for brand rationalization as a growth strategy.
Companies can boost profits by deleting loss-making brands, as the freeing up of resources can be invested in making the remaining brands better. However, there is always pressure from executives, brand and category managers who keenly retain sub-optimal brands for emotional or historical reasons and job security, all of which can literally paralyze any rationalization occurring, no matter how well planned out.
Dean Crutchfield is a New York-based brand consultant who has worked on major private label programs for Tesco, Staples, Carter’s and most recently the creation of Target’s Up&Up brand.