SIMPLIFIED DIVERSITY or Diversity Rationalization
Complex products ranges waste the profitability
The cost-effectiveness of products ranges is very often deteriorated by numerous variants of products sold at very low quantities :
Very often, half of the variants of a range make 99% of the turnover, and the other half… hardly 1% !
This fragmentation of the developments and manufacturing generates huge indirect costs hidden that weigh on the balance sheets of the company.
Actually, we exhaust the ressources by creating and producing a multitude of products …that are in reality loss-making !
Spurred on by Alan Mulally, New CEO, Ford cut its number of platforms from 20 to 8 and the number of models from 97 to 25.
In 2009, the group posted a profit of $ 2.7 billion.
Lisible and simple ranges are more attractive for the customers
Too complex ranges, making skeptikal the potential buyers, are not anymore an asset for the company’s image.
One year after his return, Steve Jobs had reduced the total amount of Apple products on the maket from 350… to 10 !
This simplification has not only saved Apple, but it also made the company enter into the most profitable decade never known by an american company.
In 2009, the NOKIA range proposes 125 phones models…
… while the APPLE range, as simple as possible but very innovative, proposes only 5 models !
The very dense range of the finnish manufacturer will not prevent its collapse, until the acquisition of the activity by Microsoft.
The diagnosis of diversity can be done quickly
It is quite easy to draw up the diversity diagnosis of a products range :
- The diversity costs (development, changes in manufacturing, purchase overcosts, logistic overcosts…) can be synthetized on a simple scale.
- The real profitability of references recalculated thanks to the scale reveal the simplification axis to priorize.
When they are not distributed anymore – and then mainly carried by the major flux – but imputed along the scale, the diversity costs highlight the range rationalization priorities.
The best diversity choicesare are to be thought from the very beginning
The diversity of the key needs must be expressed as soon as the Design to Cost & Value approach starts.
It is the entry key to structure the range and guide the diversity and modularity choices of the products.
Two major obstacles must be prevented in term of diversity :
The excess of standardization that extend over the range overcosts that should only concern a minority of products (expensive requirement, oversized design)
Excess of diversity that splits unnecessarily the developments and productions for tiny sold quantities.
A consensus for the benefit of the real innovation
There is no question of brutalizing the customers habits but rather to acquire the major progress axes that simplify the offer, while releasing costs and ressources for the benefit of the real innovation.