A common misconception is that complexity reduction is not innovation. In reality, it is probably the most comprehensive form of innovation.
Complexity Reduction
If your company is like most, your raw material and product portfolio will have grown increasingly complex over the years. Do these materials still contribute to your business or are they only costing you money and making you more prone to errors?
Streamlining is not easy. First, it requires a thorough understanding of the ingredients you currently use. Second, it requires a commercial and functional analysis of the products you produce. Only then can you start reducing complexity without introducing commercial risks.
Ingredient complexity
An ingredient portfolio tends to grow with time. New ingredients are introduced because of new functionalities, better prices, etc., and old ingredients are seldom eliminated. The end result is that you have an ingredient portfolio with a large number of ‘historic’ ingredients. In addition, many of these ingredients will only be used in small quantities.
Cleaning up this portfolio requires thorough knowledge of the functionality of each individual ingredient. Based on this analysis, you can start clustering ingredients and identifying the few best candidates in each cluster. As a result, you are probably upgrading a lot of existing products already, while reducing purchasing, inventory, and complexity costs. A valuable added benefit is that this reduced ingredient portfolio and increased knowledge allows for much quicker innovation of new products!
In our experience, ingredient portfolios can be reduced by 50% to 75% in most situations.
Product complexity
The same may be true for your product portfolio. Although difficult, you will greatly benefit by eliminating a lot of small products and (almost) duplicates that add little (or negative) value. You do not always know how your clients use your products and are therefore not always able assess the risk in doing this.
One way to approach this challenge is by using building blocks. Cluster your products by functionality and create one base recipe for that cluster. Tailor-made products and new product introductions are then only done by adding to the base recipe, the ‘building block’. This keeps complexity down, and you only have to keep the central building block up to date.
This not only reduces complexity, but also allows you to minimize new product time to market.
