Managing Product Lines for Growing Companies

As a new food company, the idea of having to manage (or even cut-back) on multiple SKUs may seem like an issue that is far in the future. But, at some point, your company will inevitably hit the point where there may be half-a-dozen or more products to manage, with associated unit costs and erosion of the cashflow. I've talked with a few startups where the founders were trying to decide whether to start a new production run, realizing that cash was too tight and could jeopardize the company's future. Inevitably, the issue would come back to this core truth: with growth of the top-line comes growth of the product line and associated costs. But as a forward-looking founder, you can keep costs under control and grow your bottom-line by actively managing the products you offer to customers. 

McKinsey has an insightful and important study on how to manage product lines for food companies. While much of the information is driven towards larger CPG brands, this applies as readily to small companies that are deciding how best to manage new product launches.

The main takeaway here is that while it's easiest take a deductive approach to product line management (that is, to discontinue the products that perform least successfully), that is often an oversimplification of the process. For instance, you could have a product that isn't a high-flyer, but serves an unmet need in the market, or a very specific need for your customers. Or, that product might sell stronger than any other in a particular region or at a particular time of year. 

For these reasons, in looking at product sales data, it's important to look at seasonality, geography, and an analysis of different customer profiles mapped to specific products, among many other things. 

While the process isn't a straightforward one, it's important to set up the framework for this early in the company's life. In doing so, product line management becomes an active part of a company's culture and short-circuits issues related to cash management and unit costs.