Portfolio drift never announces itself. It is simply the result of a number of perfectly rational individual decisions, for example a line extension to fill a shelf space, a custom product for a major customer that can be stocked in addition to the standard product, a legacy article that is still ordered from time to time and hence is kept in the portfolio.
While strategy can be set by someone in the corporate office, the real challenge is to implement the necessary steps within each functional area where actual product decisions are made and manufactured. The following covers the mechanisms to ensure alignment, the data required to make decisions and the manufacturing constraints that have to be taken into account.
Translate strategy into decision criteria people can apply
Strategy documents set out the strategy destinations. The product development process needs clear rules. Most attempts at alignment fail at translation.
Workable criteria to assess new product proposals will always lead to a different answer based on the input (e.g. Some thresholds to be reached, products that the business will decline to launch). However, criteria should be few and easily memorable.
What a usable criteria set looks like
- Minimum contribution margin by channel, with an explicit exception process rather than informal tolerance
- A cap on total active SKUs per category, so additions force a conversation about removals
- Defined strategic categories where lower initial margin is accepted, and a time limit on that acceptance
- A stated position on customer-specific variants, including the volume commitment required to justify one
Stated as criteria, thresholds change the burden of proof for any proposed product. The threshold acts as a surmise that is required to be overturned by the individual proposing the product.
Score the portfolio you have before planning the one you want
Most of the prioritization efforts are allocated to new ideas rather than trying to address the larger problems of the existing range of products. These quietly accumulating products consume capacity, working capital and attention.
Run a periodic assessment of all your active SKUs against the same set of criteria that you use to evaluate new ideas. This will sort your products into a few actions instead of a long list that no one ever gets around to using.
| Category | Typical signal | Action | Review cycle |
| Core | Meets margin and volume thresholds, fits stated strategy | Protect capacity, invest in cost reduction | Annual |
| Strategic build | Below threshold, serves a named strategic goal | Fund with a defined exit date | Quarterly |
| Cash generator | Strong margin, declining or static category | Minimize investment, harvest | Semiannual |
| Candidate for exit | Fails thresholds, no strategic rationale | Phase out plan with customer transition | Immediate |
Exit decisions for products have to have an owner, a date for disposal and a customer plan. Without this, products end up staying in the portfolio forever and annual portfolio reviews end up as a meaningless ritual.
Build visibility that crosses functional boundaries
Having all relevant information stop at different points for commercial, operations and finance functions creates huge challenges when trying to get alignment of what products the business is developing. This normally gets resolved in a very slow moving quarterly off-site.
Shared visibility does not necessarily mean a single system, though it is worth adopting purpose-built software to plan and manage your product portfolio from one reference data set that everyone works from. There should be room for argument as to the interpretation of the data but not as to the numbers upon which everyone is working.
The fields that matter most
- Lifecycle stage, maintained by one named owner per product
- Current cost build, updated when inputs change rather than annually
- Capacity consumed per unit on the constrained process step
- Strategic classification from the portfolio assessment, visible to everyone
- Planned changes, including reformulations and packaging moves, with dates
Test portfolio decisions against manufacturing reality
If a portfolio plan is not matched to the capabilities of a plant then it will inevitably result in commitments that cannot be fulfilled. The complexity costs associated with changeover time, minimum order quantities, qualifications of additional suppliers, and required safety stock to cover longer lead times on low volume items must also be considered.
Involve operations in the assessment of proposals early in the evaluation process. Ask what products are displaced from a constrained line and the changeover times for the proposed products at the proposed volume.
Questions worth asking early
- Does this product share a platform, or does it introduce a new process step
- What minimum run size makes it economic, and does forecast demand support that
- Which existing SKU gives up capacity, and has that trade been agreed
- What is the qualification lead time on any new input material
Give the review cadence real authority
It is critical that portfolio reviews are able to say no and that those decisions hold. Thus it is important to have the people with budget authority attend, to have removals as well as additions considered on the standing agenda, and to keep a record of decisions and bring that to the next meeting.
Hold the reviews at intervals consistent with your overall planning cycle. Review outputs should flow directly into the next cycle of the budget and the organization’s overall capacity.
