Unlocking Profits: Transforming Your Product Portfolio Management Strategy

Nick Verstraete
Apr 30, 2024 2:17:42 PM

Building strong Product Portfolio Management and optimizing margins is no easy task, as we see regularly with a lot of our B2B manufacturing customers who struggle to answer increased market volatility and continuous product variety pressure. That’s why we focus on creating winning portfolios to deliver growth, improved profitability, improved working capital and fixed asset efficiency.  

In this blog I’ll discuss how you can reveal which parts of your broader portfolio are contributing to a winning position, how to define portfolio actions, and how to follow up on those actions and their resulting impact. 

The only way is up

Portfolio Management strategies allow you to constantly revise your product portfolio investments according to changing market conditions and product pressure. The main idea is that you increase the number of customers and products that are in your winning segment, also called the triple U segment, where sales is Up, margins are Up, and your working capital and fixed asset efficiency (in short: capital employed efficiency) are Up (see below) 

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The goal of Portfolio Management is to move products up this ladder. When you can’t stop products from falling, it’s your cue to consider strategies to move them out, preferably before they are in the triple D segment. Howeverwhen  we take a look at the results of a recent poll we did during the Supply Chain Innovations event making these portfolio decisions and evaluating them is quite difficult for Supply Chain or Sales teams 

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As the participants to this poll indicate, Sales often has an over-positive outlook on new products or services, or Supply Chain lacks the right data to convince Sales to review or cut a product or service when needed. To help an organization keep their portfolio healthy, a portfolio manager needs to define so-called ‘portfolio guidelines’ to keep everyone aligned and avoid conflicting ideas on how the portfolio should be managed. 

Guidelines and actions across departments

Defining what kind of stock you have, or need is a first key step on the path towards more inventory accuracy. There are 5 common types of stock a company can use. Each of them has its own drivers
that are meaningful to the business of an organization. 

Are we more growth-driven, margin-driven, or do we need to free up cash by reducing inventories? By translating the company objectives into the portfolio guidelines, the portfolio manager can turn Portfolio Management into a tactical process supporting the company objectives. You can find more examples of these guidelines in our ‘Building Winning Portfolios’ whitepaper. 

Additionally, when you make this process cross-functional, it will greatly increase cross-collaboration between the different portfolio stakeholders, and improve ownership of the decisions made. The key here, as in any process, is to follow up on the decisions and the ability to measure the impact. Too often I see at my customers that only 20% of the decisions are followed through within a 3-month period. The same becomes clear from the SCI poll: our participants indicate they lack a common awareness on portfolio complexity or a structured Portfolio Management process with clear roles and responsibilities. 

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From blind spot to decision-making

To increase the cross-collaboration on Portfolio Management you need better data and insights, if you want to have a chance to convince other company stakeholders of your decisions. Unfortunately, Portfolio Management is still a blind spot in the tooling landscape, which becomes apparent when you look at the biggest challenges put forward in our SCI poll. Here, data gathering & analysis lands in second place, which is a telling sign that the need for proper tooling is high. 

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Usually, Portfolio Management is not supported by default functionality of neither financial planning tools, supply chain planning tools, product lifecycle management tools or ERP tools. This is one of the reasons many companies do their portfolio analysis ad hoc, rather than as a structured process. 

If companies do build something to counter this, the results will typically be BI reports which create the insights, but don’t guide you on the different dimensions in our portfolio ladder, nor do they support action management. Eventually, this process makes you prone to the 20% follow-through on the actions defined and turns it into a weak and poorly adopted process.

Why are we investing in effective Portfolio Management? 

To facilitate creating awareness on portfolio complexity for all stakeholders, so you can increase your company’s profitability. We offer the appropriate tooling to kick-start, improve and support the widespread adoption of your Portfolio Management process. With that goal in mind, Solventure has developed Solventure Perform, a software tool that natively connects to your ERP system in order to generate output based on the latest available portfolio data.  

It was crucial for us to include not only the product dimension in this tool, but also the customer dimension of the portfolio. This way, the portfolio analysis can start from either of the two dimensions and is always interconnected. Its multi-dimensional interactivity makes Solventure Perform unique in its power to slice & dice data that is impossible to achieve in Excel. Understanding customer behavior and profitability also makes this software a perfect fit with the (often annual) negotiations with customers. 

Finally, Solventure Perform supports the portfolio workflow and action management, which are essential to follow up on and realize the value behind your portfolio decisions. Integrated value trackers allow you to monitor the value creation which will help you in driving the process adoption and the sponsorship of the P&L owner. 

Want to learn more about effective Portfolio Management? Be sure to read the inspiring whitepaper we wrote on this subject, or see how Solventure Perform can streamline your portfolio management here. 

Want to learn more about effective Portfolio Management?

Register now for our upcoming webinar on May 23. 


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