Drivers and Challenges of Product Diversity

This is the first in a series of posts on achieving product diversity with scale. The series will address how companies can meet the diversity of requirements—and the requirements of diversity—while achieving economies of scale across the enterprise.

We’ll begin by identifying the challenges many companies face in light of increased product diversity and the effects this has on an organization.

In today’s competitive and expanding global environment, fewer companies are able to sustain profitability with a “one size fits all” approach. Product diversity has become a must for manufacturers looking to expand into global markets and offer more choice to customers.

Typical factors that drive the need for product diversity:

  • Increased competition
  • Growing demand because of moves into new global markets
  • Increased customer preferences
  • Growing regulatory requirements

Product diversity is a powerful growth driver, but with poor planning and management it can have very negative effects across the enterprise and into the engineering department and supply chain.

Enterprise Challenges. The biggest challenge for the enterprise is missed opportunity. Managing complexity is more time consuming for an organization and therefore it takes longer to design products and introduce them into the market. Competitors who are on top of their diversity challenges are quicker to market, thus eroding profits from their adversaries.

Additionally, extra time in the planning phases has a domino effect on the supply chain, leading to slowing responsiveness and limiting flexibility.

Mergers and acquisitions can both ad opportunity and create more challenge with increased and variable customer expectations.

Engineering Challenges. With increasing product complexity, new demands on the engineering department include:

  • Increased data needs to be managed by systems and people
  • More designs need to be maintained
  • Changes need to be propagated

All this leads to increased R&D costs and ultimately the cost of goods sold.

Sourcing Challenges. As a result of product diversity, the purchasing department can add to inefficiencies, with an explosion in unnecessary components. Poorly managed product diversity means component and module information in sales orders may be wrong or obsolete. This leads to sourcing decisions based on incorrect and out-of-date information, thus driving up costs.

The effects of these challenges can be far reaching:

  • Cost of goods sold rocketing through the roof
  • Increased inventories result when every component is considered as part of a unique item, and the ability to share and reuse common parts and modules is not adequately managed
  • More time and resources are spent on part management, thus eating into profits
  • Procurement inefficiencies lead to supply-chain ineffectiveness

And this ultimately leads to dissatisfied customers and dwindling market shares.

To survive in today’s ever changing and competitive global environment, companies have had to rethink their strategies and diversify, but this creates a whole new set of challenges.

What does product diversity mean to you? What challenges has your company had to address?

This entry was posted in Best Practices, Supply Chain Management and tagged , , , . Bookmark the permalink.

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