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WORDS FROM WALLACE

PRODUCT FAMILIES:
ARE YOURS OKAY?

Many an S&OP project has gone off the rails over the issue of product families. Companies sometimes use the wrong groups for product families, or they have too many of them. Let's look first at the issue of wrong groups.

How to Select Product Families

Here's what happens frequently: the S&OP initiative is based in Operations and those folks select families which best fit the Operations view of the world, which centers on how the product is made.

Okay so far. But bad things happen when Sales and Marketing is approached to get involved in forecasting and to take responsibility for it? (Why do they need to be responsible?) The production-oriented groupings of products make no sense to them; they think in terms of customers, distribution channels, product characteristics, and so forth - not what department the product is made in.

Sales and Marketing pushes back. Their position is that they've been given an impossible job: to forecast combinations of products that don't make any sense. Operations is unhappy; they feel that the sales and marketing people are being uncooperative. Arrows are shot; spears are thrown; everyone's unhappy.

In an effort to break the impasse, Operations agrees to revisit the product families to add some sales and marketing focus. When they do that, they probably make things worse! The new product families represent a compromise that satisfies nobody and irritates everybody. The impasse has not been broken and the S&OP project flounders. In many cases, the project dies.

That's too bad because the solution is so simple. It's based on the premise that product families must represent how Sales and Marketing view them. This is because they're the people who have to forecast them. It's essential to make this difficult forecasting job as "least difficult" as possible. This requires product families that match how the sales and marketing folks view them.

Therefore, families should normally be structured around one or more of the following kinds of characteristics:

product type (scotch, bourbon, gin)
product size (large, medium, small)
product performance (high speed, deluxe, standard, economy)
brand (Tide, Cheer, Dash)
market segment (industrial, consumer)
distribution channel (mass merchandisers, OEMs, aftermarket)

The fundamental question is, simply, how do you go to the marketplace? The Acme Widget Company (a fictitious organization highlighted in my book Sales & Operations Planning: The How-To Handbook) has an array of widgets that are sold into two very different markets: Industrial and Consumer. Within each of these, the products tend to fall into three categories: small, medium, and large. There you have it: six distinct product families, readily understandable by Sales & Marketing.

How Many Families Should You Have?

Six families is a good number for Executive S&OP. We recommend between four and a dozen or so. This gives rise to several other questions: a) why so few? and b) how can one describe a product line having, for example, over 4,000 (or 40,000) stock keeping units with a dozen or fewer families?

The first issue - the number of families - is based on how executives work. They don't have the time, or the inclination, to get involved in a lot of detail. They're not good at it, nor do they want to do it - and they shouldn't have to. That's why we say no more than a dozen or so families.

The second point concerns granularity: the number of families needed to adequately describe the total product line. Some companies find that four, or eight, or twelve families is all they need to do the job. Others need more granularity, and to achieve that they use sub-families.

In the Acme Widget example, let's say that there is a product performance dimension to their products: high speed, deluxe, standard, and economy. Well, one way to capture that is to create families containing those performance dimensions directly. This would give them 24 families:

two for industrial/consumer
times three for small/medium/large
times four for high speed/deluxe/ standard/ economy, thus 2 * 3 * 4 = 24

This is far too many for Executive S&OP.

What Acme should do here is to create sub-families. Stick with the six families, and then have four sub-families under each. At the Executive S&OP meeting, the six product families are reviewed at each meeting. When a problem exists with a sub-family but is not visible at the family level, the sub-family picture is viewed on an exception basis. In other words, at the Exec meeting, the focus is on the families but the sub-family views are there when needed for decision-making. Far better to do it this way than to laboriously plow through 24 families, most of which require no action.

But What About Capacity?

It occurs to me that some of you Operations people are thinking: "Time out! This isn't going to help us. There's no way we can we figure out what our future capacity needs are." But there is a way, and it's called Rough-Cut Capacity Planning. It involves the "translation" of the plans for product families into supply resources - and we'll cover that in a future newsletter. If you can't wait, click here for more information on Rough-Cut Capacity Planning.

Thanks for listening,

Tom

Tip from Tom: Are you considering lauching - or relaunching - an Executive S&OP project? If yes, then the next question is: do you have an Executive Champion? My colleague Bob Stahl says: "It's unlikely you'll be successful unless you have an Executive Champion actively involved and willing to put some skin in the game. Almost all S&OP efforts without a champion do not result in success."