The Path to Operational Success—Maximizing Output with Limited Resources!

Today, meticulous resource allocation and profitability analysis are essential for maintaining financial health. Manufacturers, distributors, and retailers must always keep an eye on profits when manufacturing or purchasing goods. Companies should also assess their entire product portfolio to understand which items contribute the most to profits, and use these insights to determine which to double down on, which need price or design adjustments, and which to phase out.

 

The Eight Steps to Maximizing Profits and Meeting Customer Needs

 

01 Apply the Pareto Principle

 

Using the Pareto Principle to categorize your inventory is a great way to determine which items you should prioritize and which should receive less investment.

 

02 Document the Product Life Cycle

 

At its most basic level, the product life cycle includes four stages: introduction, growth, maturity, and decline. The product life cycle curve is an important framework because the stage of a product affects how it is evaluated.

 

03 Assess Products in Decline

 

Don't ignore products in the decline phase or those that have never gained traction—companies can't afford to let dying SKUs eat into profits, especially when their profit margins are low. Either rework the products to give them new life or make plans to phase them out.

 

04 Consider Material Inputs for Declining Items

 

The content of each SKU is another factor for companies to consider when looking at their product portfolio, to reduce the risk of ordering common components or materials and holding obsolete inventory.同时，increases in the cost of these inputs and procurement issues should also be a factor in decisions to optimize product selection.

 

05 Recognize the Role of Labor

 

Manufacturers are well aware that labor shortages are particularly acute in positions requiring specific skills or experience. For example, Deloitte predicts that manufacturers will be short of more than 2 million workers by 2030.

 

06 Balance Costs and Pricing

 

According to the S&P Global Purchasing Managers' Index, input prices have risen sharply since the start of the pandemic and will continue to do so. Therefore, it is as important as ever for companies to track the costs of producing or acquiring each item they sell.

 

07 Factor in Macroeconomic Conditions

 

In this era of economic turbulence, decision-makers should not only consider how a product performs in today's market but also how it will evolve in a future environmental market.

 

08 Always Follow Metrics

 

As we have pointed out, data plays an invaluable role in product rationalization. Sales history, trends, and profitability are important numbers in themselves, but they provide additional value when used to calculate KPIs.

 

Use a Unified System to Manage Your Product Portfolio

 

Calculating the numbers for every SKU you sell manually can be very time-consuming or completely impractical, depending on the size of your product catalog. This is why you need software that can help at every step, from managing product life cycles to tracking costs to pricing management to product development.

 

Leading cloud ERP systems, such as NetSuite, can serve as the central data repository for your entire business. For most growing and mid-sized companies, ERP has everything needed to act as a product lifecycle management system. NetSuite's inventory and order management modules can track all sales in real time so that you understand sales and profitability trends.

 

Since NetSuite is a single, centralized system of record, the inventory record can serve as a Product Information Management (PIM) solution, containing all relevant data about COGS, MSRP, bill of materials details, etc. These solutions track the specifications of each product and provide detailed information, such as release dates and historical performance, to help you understand where it is in its lifecycle. They also display standard and landed costs per item, along with the curve of changes over time.

 

NetSuite users can easily view reports on best-selling items, most profitable items, and the most expensive items to manufacture or purchase, making it particularly easy to distinguish top performers. NetSuite comes with pre-built dashboards to track common KPIs, and non-technical users can quickly set up custom dashboards.

 

Planning functions within ERP can help businesses forecast future demand, thus helping to avoid purchasing inappropriate products or excess inventory. For example, companies can see how the best or worst economic scenarios will affect the sales of different products. Manufacturers can take this to a new level with NetSuite MRP, which formulates production plans detailing the exact quantities of materials, parts, machinery capacity, and labor needed to meet expected demand. Then, businesses can identify most issues—such as labor shortages—and understand how this will impact financial performance so that plans can be made to minimize the impact.

 

Finally, data in NetSuite inventory records, such as sales trends, costs, and pricing history, can help determine the ideal price, and the system can also assist with promotion management. Users can set up price changes for specific periods, offer discounts for a limited quantity, and flag products that do not meet specific profitability thresholds for promotions. After discounts take effect, you can monitor the results in NetSuite.