Managing Product Proliferation along the Supply Chain
New research has identified ways that companies can improve profits, customer responsiveness and cost efficiency with their product proliferation strategy.
Isik Bicer, an Assistant Professor of Operations Management and Information Systems at Schulich, co-authored the research paper together with Florian Lücker of the Bayes Business School and Tamer Boyaci of ESMT Berlin.
The research paper, titled “Beyond Retail Stores: Managing Product Proliferation along the Supply Chain”, was published in the journal Production and Operations Management.
The paper explored one of the difficulties of product category management: the sharp increase in operational costs when product variety is expanded. According to the researchers, in order to alleviate the negative impact of operational costs associated with category management, manufacturers often delay the differentiation so that the order quantities of the final products are determined only after accurate demand forecasts are available. The researchers found that, although delaying the differentiation is very effective in improving the profitability, it has some limits and would occasionally hurt the profits.
“The dark side of the delayed differentiation strategy is that this strategy may cause a loss of profit if its implementation requires redesigning the operations by expediting high-cost activities,” says Bicer. The researchers propose some alternative methods that combine cost efficiency with delayed differentiation to increase the profits substantially.