Dealing with Packaging Complexity: Tips 1 to 4
By Stephen McIndoe, VP Consulting, Be4ward
In my previous article, I introduced the concept of packaging complexity, where the growth in the product portfolio results in a substantial rise in packaging components and an associated reduction in packaging line efficiencies. In this forthcoming series of articles, I am going to look at some steps you can take to manage or cope with this challenge.
1. Understand the product/therapy strategy and value of complexity
Is the commercialization strategy for the product and therapy and the subsequent value of complexity understood?
Different products will have different requirements for the complexity of the packaging componentry and SKU portfolio. This can be driven from many factors, including but not limited to:
- Therapeutic, titration, and dosing requirements
- Unmet medical needs
- Legislative requirements of countries in which the product will be marketed
- Competitor activity and the competitive environment
- Commercialization strategies for the product
- Market positioning and product cost profile
- Product lifecycle, line extension, and patent expiry strategies
- Combination products, starter packs, special usage requirements, and other opportunities to assist patients and healthcare providers
- Product protection, temperature, and security requirements
- Likely local dispensing requirements
Prior to undertaking any complexity reduction activities, it is important to understand and document these requirements to:
- Ensure they are clearly defined and met
- Ensure they are maintained as needed
- Ensure appropriate control can be provided to prevent further non-essential requirements emerging
2. Understand the portfolio, volumes, and lifecycle of SKUs
Is the portfolio, volumes, and lifecycles of your SKUs understood?
The next step in a complexity reduction activity is a detailed understanding of the target SKU portfolio. The scope of this may be certain brands, geographic areas, supply chains, or perhaps, your entire company portfolio.
For the chosen portfolio, you will need to understand:
- The description of each SKU – product, dose form, strength, volume.
- Where are they supplied from, which market(s) are they supplied to, which distribution lanes are used?
- What is the subsequent component range?
- What are the SKU volumes?
- What is the financial contribution of each SKU?
In addition, it is important to understand where each SKU is on its product lifecycle. Are volumes increasing or decreasing? Typically, products go through lifecycle: launch, growth, maturity, and tail off. The value of portfolio complexity often varies through this lifecycle. Therefore, it is important to understand where a product is on its lifecycle as products where the volumes are likely to increase need to be considered differently from tail products where the volumes are declining.
3. Clear approval and control processes for portfolio changes
Do you have clear approval and control procedures for adding and removing SKUs from your portfolio?
First, do you have the appropriate cross-functional governance to ensure that all relevant impacted parties are engaged in the decision making and represented appropriately at a senior level? Failure to have a balanced governance will likely result in sub-optimal decisions and low levels of buy-in.
Second, do you have a clear set of principles endorsed by the senior governance team to manage the portfolio? These define the “rules of the game” and set the criteria that decisions should be made against.
Third, do you have rules and processes in place for adding or deleting SKUs and components? These processes need to ensure that the decision making hierarchy aligns with the complexity of change occurring. Processes should also include routine reviews of the portfolio (see Tip 4).
Finally, do your processes ensure that the costs for change are considered in decision making and preferably charged to the groups in the organisation driving those changes, for example, charging the cost of artwork change to the originator?
4. Prune the portfolio regularly
Is there a regular process to review the portfolio and prune unnecessary or non-performing SKUs?
The performance of the portfolio is dynamic, changing due to many environmental and lifecycle factors. Therefore, a review process should ideally be performed on a routine and repeating basis to maximize the effectiveness of the portfolio. The review should be designed to categorize the portfolio. One way we would suggest is these three groupings:
- Capitalize – the best performing SKUs, contributing the majority of revenue, where sales effort should be focussed to maximize return.
- Control – SKUs that should be maintained in the portfolio, either because volumes are growing, but not yet providing revenue to get to the next category; because volumes are in decline, but not yet critical; or because they provide portfolio support to other capitalize SKUs. These SKUs should be monitored to ensure on-going viability.
- Challenge – SKUs with low volumes and/or low revenue. These SKUs should be subject to challenge to remain on the portfolio, either being discontinued, substituted, or shared with other markets.
Two things to consider carefully:
- When substituting SKUs, ensure the financial benefit exceeds any potential lost sales.
- Small incremental reductions in the portfolio can have little effect on complexity at supplying sites. Savings are often only generated when lines or facilities are rationalised or eliminated.
In my next article, I will look at four more activities that can help you control your packaging complexity.
Other articles in this series: