In today’s economy, there is strong pressure on reducing inventory in order to achieve a better working capital position. In the first instance, organizations that want to gain better fundamental control of their stock need to improve their product lifecycle management. A good way of doing so is to include a Product Management Review process in the Sales and Operations Planning (S&OP) cycle, as a step before the Demand Review.
By structurally involving product managers in the supply chain process, supply chain managers can significantly reduce the risk of obsolete stock or service issues. According to estimates, 7 out of 10 products are over-forecast while 3 out of 10 products are under-forecast.
In many manufacturing companies the product managers are still ‘masters of the business’, which means they have an almost unassailable position. A monthly Product Management Review gives Supply Chain the opportunity to challenge those product managers. Whereas product managers are usually very optimistic in their estimations when launching a new product, their operational colleagues are more down-to-earth. By repeatedly requiring the product managers to validate their forecasts for New Product Introductions (NPIs) the forecasting process becomes more precise, especially as the launch date approaches.
To prevent the stock capital from going sky-high, it is also essential to efficiently monitor the End-Of-Life (EOL) products. Ultimately, every organization’s goal is to get the best bang for its buck – in other words, to generate the best margin per invested dollar. Therefore, when launching a new product, you should consider which product could possibly be taken out of the range. The Product Management Review gives you the opportunity to raise this question with the product managers, who generally do not lose any sleep over stock levels. Operations and Supply Chain, on the other hand, are judged on the inventory levels and therefore have every interest in making the product managers’ impact on the inventory levels very clear.
Reading the above, you could even wonder why product managers aren’t financially challenged about the yield of a product over its full lifecycle and thus also about inventory rotation and obsolete stock. So far, this isn’t the case. On the contrary, most product managers’ bonuses are based on the number of NPIs – a remuneration method that paves the way for a proliferation of products in the portfolio.
The product managers’ input is also crucial to correctly estimate the medium- to long-term volumes that will go into promotions, projects, tenders and other ‘events’. I do believe that Sales is well positioned to provide that information in the short term, as the events are linked to specific customers and opportunities. However, in my opinion, product managers are best placed to provide the medium- to long-term forecast input because they have first-hand information about how the market is expected to evolve.
So, to sum up, there are several good reasons to include a Product Management Review as an extra step in the S&OP cycle: from better managing NPIs and EOLs to improving event forecasts. In the longer term it will certainly also improve your service-cost-cash balance thus it will easily pay for itself.
