Saturday, May 14, 2005

Where are we going with this choice business?

I was reading an old Harvard Business Review Article titled "What is the right supply chain for your product?" by Marshall L. Fisher written in early 1997. In that Marshall had mentioned that Procter & Gamble and its competitors were selling 28 different types of toothpaste. He mentions that P&G had come to the decision that world does not need 28 different kinds of toothpaste and that toothpaste is a category in which a move from treating it as an innovative product to treating it as a functional product (decrease the new product introduction frequency and increase product life cycle to 2 years and reduce product variety by pruning low volume varieties) makes sense. This sounded so unintuitive to me that I thought I will go back and look at the number of varieties of Crest that P&G sells today. If Marshall's thought process is correct, P&G should be selling fewer products now. Nothing significant has changed in the toothpaste business that was not know in 1997.

Contrary to Marshall's thinking, P&G today sells at least 32 different types of toothpaste. This does not include new offerings like refill cartridges for their IntelliClean System. P&G is a savvy company from both the supply chain perspective and the market perspective. They understand the supply chain cost of having a large variety in their products and actively work on trimming it. The only reason why they have to end up with 32 different types is because the market demands it. The market is going to continue to demand more and more choice. So when designing supply chains bet on the trend that more product variety with lesser per product volume is going to be shipped through it rather than the other way round. Betting that product variety can be decreased and building supply chain for that is a loser strategy.

What do you think?

Karthik Mani

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