Talking about the complexity of product lines from Hanwang and Apple

An article in Harvard Business Review, Issue 4, 2012, on how to make buying decisions easier for consumers The difficulty of product information, simplifying the difficulty of their verification information, and making it easy for them to weigh and compare products to make a final purchase decision. Too many product models not only increase the difficulty of decision-making for customers, but also increase the difficulty of every link in the supply chain such as sales, production, supply and after-sales service, reduce operational efficiency and increase unit costs. At a time when products are popularized and cost pressures increase, the increase in product complexity is a challenge facing every company.

How many times have you faced numerous product models and don't know where to start? Go to Hanwang Technology's website to see their electronic paper book series, there are 37 models, and there are 23 types of business series. If you are a busy professional manager with only 5 minutes, can you quickly decide which model to buy? Can you figure out the difference between N618 Mars and N618A Mars? What about N510 Essence and N510? N518A, N518 Government Edition, N518 Imagination Supreme Edition, N518 Essential Edition, do you know which is which? Go to Zhongguancun and find 10 people from Hanwang himself. I am afraid that few can explain these products clearly. Coupled with the numerous screen sizes and product features, do you know which one to choose? Poor consumers, faced with twenty or thirty electronic paper books, so many choices, it is really difficult to increase business income for Hanwang.

Among local enterprises, Hanwang is one of the rare companies with its own intellectual property rights. One of the few remaining fruitful tech companies. To be able to survive so many years of storms and not fall, the King of Han is indeed awe-inspiring. However, their product management is a sigh of relief. So many product models have become a nightmare for consumers, and naturally also a nightmare for Hanwang. Just think, facing 37 types of electronic paper books, how high is the probability of being able to accurately predict sales? What is the probability of being able to schedule production exactly according to market forecasts? How likely is it to be able to schedule purchases on time, by volume, and by material? In the entire supply chain, the probability of each link being right is basically zero. As a result, there are shortages, shortages, and accumulations. On the one hand, consumers want what they don’t have, and on the other hand, consumers don’t want them. They have a lot of backlogs. The price of electronic products has fallen so fast, and inventory depreciation alone is a big expense. The side reflects the high cost of high complexity.

As the stock king of the IPO that year, Hanwang was in a predicament. On the surface, it was because of the impact of Apple's iPad, etc., but also because it was deeply trapped in the quagmire of its own complexity and could not extricate itself. Hanwang thus became a negative teaching material for poor operation. To say that it is an operation problem is actually an injustice to the operation and supply chain departments, because most of these operational problems are rooted in the proliferation of product lines, and the initiators are product management, R&D and marketing.

After reading Hanwang, then look at Apple. You go to Apple’s website and say you want to buy an iPad, and you see only two options: black and white, both starting at $499, and a three-year-old would choose. Then there are three options for the amount of storage: 16GB, 32GB and 64GB, for parents with different wallets to decide. All of this can be summed up in two words: simple. Simple for consumers, because they don't have to worry about so many models and don't know which one to buy; simple for producers, because except for the color of the casing and the size difference of storage space, it is actually just one product. Apple is good for forecasting, Foxconn is good for production, and suppliers at all levels are ready to prepare parts. The product is simple, the supply chain is simple, consumers love it, and it's no surprise that the iPad has been successful.

On closer inspection, the complexity of a product is largely created with good intentions. Out of the idea of market segmentation, or in order to serve every desire of every person in every corner, people make dozens of product models. In fact, the dividing line between what customers want and what customers need has always been blurred and difficult to capture. In the words of Henry Ford, before the automobile, if you asked consumers what they wanted, they would have said a faster wagon. You can't turn a blind eye to the needs of your customers, because you will lose customers; however, blind obedience will also make you miss the opportunity to create and lead the future needs of users. This is a pair of contradictory demands, there is no optimal solution, only try to balance. Mature industries, with few exceptions, will fall into a situation of greatly increased complexity. Whoever can effectively control the complexity is more likely to have the last laugh.

When people launch so many product models, they rarely fail to think about the dangers of a flooded product line. It's just that they were lucky and hoped that a certain product would be an instant hit. Even if it doesn't work out, it's not your own department to pay for it - who's ever heard of a company letting a marketing or design person leave because of a pile of sluggish inventory? If you succeed, it is due to marketing and design (that’s right); if you fail, it is considered a tuition fee, and the blame has always been the market that does not argue for itself: the market changes too fast, the plan can’t keep up with the changes, and so on. With so many product models and limited R&D resources spread so thinly, all of them have become half-way goods. In today's market competition, the more wins the less, and the winner takes all. Looking at the mobile phone market, Apple's iPhone has always been so few models, only 8.8% of the global market, but accounting for 73% of global mobile phone profits. Of the remaining 27%, Samsung accounted for 26%, HTC was basically the same, and the remaining brands, at least hundreds of models, were losing money. This ideal must be understood by most people, but the interests of departments and individuals are often higher than the interests of the company. Smart people will do stupid things and continue to make one product model after another.

Hanwang's 37 electronic paper book models are by no means what consumers can think of. So, don't complain about consumers and customers. Only those knowledgeable sales, product management and design staff, working behind closed doors and thinking hard, can create such a pile of products. Just like around 2000, Motorola launched more than 50 kinds of mobile phones in order to catch up with competitors in digital mobile phones, and there are more than 100 kinds of photoelectric cells. With so many models, only a powerful company like Motorola has the strength to develop them. Then the company began to lose weight. More than ten years later, the effect can be guessed from the sale of Motorola's mobile phone department.

Not long ago, I saw Chang Xiaobing, the chairman of China Telecom, criticizing some mobile phone manufacturers, saying that they made so many kinds of mobile phones that people could not even understand the names. The article mentioned that Apple's iPhone varieties are simple, because they are in the high-end market; those domestic manufacturers mainly focus on the low-end market, so they have to come up with more models. It is inaccurate to make such an explanation for the reasons for the proliferation of domestic mobile phone product models. Variety has always been synonymous with the high-end market, and the rich pay more attention to customization than the poor. Otherwise, Rolls-Royce would not have to be custom made by hand. The more high-end the product, the higher the requirement for customization is usually. But Apple did not win by launching many product models, but by having an accurate grasp of the real needs of consumers and winning customers with differentiated product design and technology. It has also established an agile and fast supply chain, using modular standard components and manufacturing and logistics processes, so that products can be updated quickly while also responding to highly variable market demands.

The bane of product line flooding, with few exceptions, is unconstrained innovation, not only by designers, but also by marketers who come up with new ideas because they influence design. Some people may say, if there are all kinds of constraints, how can we innovate? In fact, it does not follow the rules and does not form a circle: constraints and innovations complement each other and go hand in hand. Innovation does not mean that the more models the product has, the better, and the more complex the product line, the better. In Intel's case, chip production is synonymous with high technology and innovation, but it has a strict "strict copy" policy. That is to say, any key processes, procedures, equipment, and materials are absolutely prohibited from being put into production if they have not been verified and approved by the proven process. So is Japan. A few years ago we passed on a certain technology to 6 suppliers around the world. After half a year to check, only Japanese suppliers are still operating strictly according to the way we taught them, and they are the only ones that can meet the quality requirements. But that's not to say that Japanese suppliers don't improve quality and focus on innovation. They have Kaizen, able to improve processes, procedures and production methods through a series of stringent controls.

How to reduce the complexity of the product? Trimming a product line, like saving money, requires skill, but more determination. Behind every product, model, there is a person or people, even senior management. This product is like their child, whoever cuts it offends people. It depends on whether you have the determination and courage to make a change. From a technical point of view, it's actually very simple: Take the sales volume and rank it from high to low, and you will find that 80% of the total sales are likely to be generated by 20% of the products. You can follow this 28 rule to slash those products that contribute little to sales, unless the product is a potential stock.

There are techniques too, tell a Rubbermaid story. Lobomax produces a variety of home and office gadgets, such as accessories on desks, wastepaper baskets, and lunch boxes for microwave ovens. In terms of desk accessories, it follows the big furniture manufacturers. Whenever a furniture manufacturer introduces a new desk, it launches corresponding accessories. Each furniture manufacturer, each color is slightly different, high-end and low-end colors will also be different. In this way, Rubbermaid has made thousands of products, for example, there are more than a dozen types of desk filing cabinets in beige color alone. A variety of beige, very similar but different, production, sales and distribution are often mistaken. Infuriated, the CEO lined up a dozen beige filing cabinets on the table for marketers to identify. The models that can be recognized are retained; those that are recognized are eliminated. As a result, half of them were cut off. In this way, Lebamate cut more than 4,000 stock-keeping units (SKUs) to about 1,000. As a result, the inventory turnover rate doubled, and the number of distribution centers was reduced from 9 to 3 to 2, and finally only one remained. A year later, the company's profits had doubled, even though turnover had risen by less than 10%.

The original text is published with the permission of the author. Liu Baohong, US Certified Purchasing Manager (CPM), founder of "Supply Chain Management Column" (www.scm-blog.com), Executive Director of CSCS International. He graduated from Arizona State University with an MBA, specializing in Supply Chain Management, and obtained a Six Sigma Black Belt qualification. He currently lives in Silicon Valley and often travels between China and the United States, training local procurement, planning and supply chain management talents, and providing consulting services to help local companies improve their procurement and supply chain management levels. His book "Purchasing and Supply Chain Management: A Practitioner's Perspective" published in China in January occupied the top sales list of similar books for many months.