The Process
The cost of managing, producing, storing and distributing goods is directly
related to the number and variation of those goods. Typically, the old 80/20 rule
applies: 80% of revenue is generated by 20% of goods, leaving 20% of revenue
spread across the remaining 80% of goods. Throughout the cycle of introducing
new products – phasing out old products, satisfying niche markets, and
penetrating new markets – many organizations end up producing goods longer
than necessary.
Identifying the most cost-effective products to discontinue is at the core of product
rationalization. This process may identify outdated and/or nonvalued features, as
well as areas for which outsourcing may prove the most cost-effective solution.