Portfolio Management & S&OP

AwakenYour SOP
Process with Product
Portfolio Management
By Patrick Bower
A
s consumers, we regularly face
a host of product dynamics
relating to the various goods
we purchase, whether or not we
realize it. Every year brings a plethora
of new product offerings as well as
old favorites touting enhanced claims:
brighter, whiter, tastier, spicier—all
intended to make a given product
more appealing. Marketers employ
countless strategies to position their
brands as more affordable, more
interesting, or more likely to stand out
on a shelf. Consumers may notice a
familiar product available in a different
size, a new flavor or fragrance, or with
packaging that features distinctive
new graphics or a reconfigured item
count. It is also quite common to
browse a shelf and discover that one
of your favorite products has been
discontinued. As everyday shoppers,
we have come to recognize that most
products are in a state of perpetual
flux. As manufacturers, however,
we are challenged to manage this
constant change.
PATRICK BOWER | Mr. Bower is Senior Director, Global Supply Chain Planning Customer Service
at Combe Incorporated, producer of high-quality personal care products. A valued and frequent writer
and speaker on supply chain subjects, he is a recognized demand planning and SOP expert and a self-
professed “SOP geek.” Prior to Combe, he served as the Practice Manager of Supply Chain Planning
at a boutique supply chain consulting firm, where his client list included Diageo, Bayer, Unilever,
Glaxo Smith Kline, Pfizer, Foster Farms, Farley’s and Sather, Cabot Industries, and American Girl. His
experience also includes roles at Cadbury, Kraft Foods, Unisys, and Snapple. He has also worked for the
supply chain software company, Numetrix, and was Vice President of RD at Atrion International. He
was recognized three times by Supply and Demand Chain Executive magazine as a “Pro to Know,” and
Consumer Goods Technology magazine considered him one of their 2014 Visionaries. He is the recipient
of IBF’s inaugural Excellence in Business Forecasting and Planning Award in 2012.
E X E C U T I V E S U M M A R Y | Despite the ever increasing rate of product innovation, one of the most underutilized
SOP process steps is product portfolio management. This SOP process step is designed to manage the complex
processes from ideation to commercialization, as well as the myriad of renovation projects and product discontinuations.
This process is not for the fainted hearted—but yields enormous alignment and synergy benefits when implemented.
Copyright © 2016 Journal of Business Forecasting | All Rights Reserved | Winter 2015-2016 | www.ibf.org 5

So, what forces drive the seemingly
never-ending product innovation?
Sometimes, a new product is in
troduced to serve a previously unmet
need; a genuine “new to the world
product.” Other times, market research
reveals a white space in consumer
tastes that may be exploited.
Some companies are compelled by
competitive forces to build a better
mousetrap—almost a form of product
Darwinism. Occasionally, the desire for
Figure 1 | Product Life Cycle Curve
Introduction Growth Maturity Decline
Revenue
Profit
Time
Revenue/Profit
It bears noting that while much of this discussion centers around
consumer goods, most non-consumer goods manufacturers also have
some variation of a product portfolio that needs to be managed. These
companies will have new, mature, and soon-to-be-obsolete products
in their lines. A chemical manufacturer might strive to introduce a new
compound each year while at the same time discontinuing an older
compound. And a silicon chip manufacturer often has a new technology
to offer every 3-4 months. Such companies must diligently plan their
innovation backlogs and herald new offerings with sales and marketing
initiatives while also trying to gracefully exit old solutions with a minimum
of inventory or obsolete risk. With few exceptions, non-consumer product
companies share the same concerns, issues, and process requirements as
their consumer-based counterparts.
NON-CONSUMER
PORTFOLIO MANAGEMENT
variety can be a motivating factor. One
needs only to consider the number of
cola beverages that have cycled into
and out of existence over the years
to acknowledge this fact. Most of the
time, however, product innovation is
driven by a simple desire to increase
revenue and profit. Product innovation
is rarely an altruistic endeavor.
In the consumer goods sector,
innovation matters—a lot. It is
commonplace for new product intro
ductions or product line extensions
to account for 25% or more of a
company’s top-line volume, clearly a
significant portion of overall revenue.
Regardless of market sector—whether
chemicals, confectionaries, or bever
ages—innovation is the core go-to-
market strategy of most companies.
And although innovation is most
often associated with new product
introductions, innovation can and
does influence sales at any point
throughout the lifespan—the product
life cycle—of any item.
FROM IDEATION TO
BIRTH TO DEATH:
UNDERSTANDING
THE PRODUCT LIFE
CYCLE
To understand product portfolio
management in the context of sales
and operations planning (SOP), you
first need to understand the product
life cycle, the conceptual phases of
revenue and profit typically observed
over the lifespan of any commercial
product and expressed in terms of a
product life cycle curve (see Figure 1).
As you might expect, most
companies have a backlog of ideas for
new product introductions crowding
their innovation agendas. Yet more
than ever before, renovation projects
are also populating these dockets.
As organizations trend toward scrap
pier, grittier approaches to the
marketplace, existing products in
their mature or declining phases
are reworked or renovated to satisfy
new market requirements. A mature
product may be changed in response
to a competitive threat or to qualify for
a different class of trade—by changing
its size or usage count, for example.

Figure 2 | Fundamental Structure of a Sales and Operations Planning ProcessThink of all the bulk items packed for
sales in club stores, or brand-name
consumer goods that are scaled down
in size to serve as price-fighter SKUs
(low-cost offerings designed to create
barriers to entry in a price-sensitive
class of trade like dollar stores).
Today’s innovation agendas are
also chock-full of product renovation
work including special pack outs,
IRCs (instant redeemable coupons),
consumer displays, new and aggressive
marketing claims on packaging,
compounding, or integrated pack
aging—all innovative product
variations that are used to fight for
every last dollar of top-line volume
or to beat back competition. Such
variants add inventory, item count,
and cost to the product portfolio; but
they also lend resilience to products
that would likely be lost to delisting
at retailers or discontinued in other
sectors.
Most organizations have a class of
vestigial, near-defunct products that
cling to some small dollar volume
and linger on the long tail of their
product life cycle. These items present
considerable planning challenges as
organizations attempt to orchestrate
a smooth inventory run out of these
products, hoping to mitigate the cost
of obsolescence while exiting the
marketplace.
Complicating matters even fur
ther, outside influences such as
industry sustainability initiatives,
green packaging, banned chemicals,
and heightened regulation of both
raw materials and finished goods are
driving considerable changes. (A 2014
Accenture study suggests 2-5% of
product innovation is attributable to
sustainability initiatives, up from 1%
just two years prior.) The reformulation
and repackaging of existing products
due to such influences are adding to
an already heavy burden on innovation
resources.
Considering all of this trans
formative, transitional activity, it is
not uncommon for product managers
to have up to 75% of their portfolio
in flux in any given year. Long gone
are the days when supply chain
practitioners focused on SKU-count
reduction and the efficiency of supply
chain operations. The pendulum has
swung toward more complexity in
the product mix rather than less, and
agility and expedience seemingly
have replaced stability as the focal
point in most product portfolios. Leon
Megginson has correctly said:
“It is not the most intellectual of
the species that survives; it is not the
strongest that survives; but the species
that survives is the one that is able best
to adapt and adjust to the changing
environment in which it finds itself. ”
Of course, in response to so much
activity centered on product change
there is a corresponding and ever-
pressing urgency to seamlessly
manage all such activity throughout
the various life cycle phases. This
is where the product portfolio
management process adds value.
SOP OR BUST
SOP purists would advocate that
all activities related to innovation—
and product transformations of any
sort—should be managed within the
product portfolio management review
sub process (or step) of a broader
SOP process. Essentially, the product
portfolio step is a blend of multiple,
smaller discussions, sub processes,
and meetings all rolled into a single
monthly status update meeting—the
product portfolio review step in an
SOP process. Given the potential
for so many touchpoints relating to
product innovation, it should arguably
be one of the SOP steps garnering
the most attention. Ironically, however,
it is the step most often missing from
real-world SOP implementations.
To better understand how, where,
and why the product portfolio review
step fits into the SOP process, it may
be helpful to take a step back. In the
most of basic definitions, SOP centers
on the demand and supply plans of an
organization. As SOP participants, we
work to reach consensus on a demand
plan, then balance demand to supply,
raise issues, and place an economic
value on the result. The outcome
of these efforts is reported to the
executive team for approval.
Figure 2 shows a classic process flow
for SOP. It seems straightforward,
right? Well, not really. If SOP were as
simplistic as this model suggests, most
meetings could be conducted over the
course of a few hours and with minimal
work. Planning the demand and supply
for base products tends to be very easy
in most sectors; the complexity arises
when change is introduced into this
simple model. Most change involves
new products or those in various
states of transition. Discussions
about new product launch details,
Figure 2: Fundamental Structure of a Sales and Operations Planning Process
Issues, Changes, Gaps, Metrics, Financial Implications, Strategy

forecasts, and capacity requirements,
for example, can easily double or
triple the complexity of the planning
process, resulting in a trickle-down
effect that can alter every associated
discussion throughout the process
flow. And when you introduce all other
transformational activity associated
with products—from product reno
vation to discontinuation—the dis
cussion can double yet again.
Imagine the conversation in a
demand consensus meeting when
a new product forecast is discussed.
Questions come fast and furious.
What is the total volume opportunity?
How large is the pipe fill? When will
advertising commence? How will this
new item affect other products in
the marketplace, both ours and our
competitors? Who is the consumer?
How big is the opportunity? What
share are we targeting? How will we
go to market? Will we support the
new product launch with trade spend
and promotions? How will this new
product impact the profitability of the
company? As a consensus group tries
to nail down volume and understand
market opportunity (and resultant
revenues), the questions pile up.
Similarly on the supply side,
advancing the same new product
through the supply and demand
balancing process, and determining
the proper build-out of the pipeline
inventory while at the same time
banding several different demand
and supply scenarios, will raise even
more questions. Will we have enough
capacity to meet demand for this new
product?What will we do if the product
is successful beyond our expectations?
Do we have slack capacity to leverage?
How do we prevent the build up
of excess inventory? Each of these
questions is essential, meant to
determine the best supply scenarios
to meet expected demand.
As you move to the reconciliation
and executive review process steps,
SOP continues to focus on all the
questions—the gaps and issues—
raised during the demand and supply
review phases. Innovation can be
disruptive to planning and will likely
inject more uncertainty in the demand
and supply plans. The result: there
will be numerous gaps to the plan
involving one or many of the products
in a state of transition. What is the
impact of these gaps on the bottom
line? On subsequent investment in
the product? Is the product going to
succeed?
SOP thrives and succeeds on the
seamless transfer of information and
decisions. Within the framework of
a product portfolio review, many of
the aforementioned questions would
have been asked and answered, and
the collective strategic intelligence
gleaned in the course of their
discussion would be available to all
of the other process steps that follow,
helping to remove the inherent
uncertainty that exists within the
planning process.
A TWINKLE IN
THE EYE
Before the first unit sells—indeed,
before any mention of a new product
even appears in any product portfolio
review agenda—it first has to exist as
the twinkle of an idea in someone’s
eye. That sparkly product concept is
matured, vetted, and if it is deemed
to be a viable concept then it is
commercialized and launched. New
products do not appear out of thin air
and certainly not before considerable
organizational engagement, analysis,
and planning.
To bring an idea to fruition, many
companies leverage a stage and gate
process to manage the ideas and
workflow required to make a product
concept a reality. While not a direct
SOP sub process, stage and gate is
an interrelated supporting process
that helps manage the workflow and
timeline of all tasks required to mature
a product concept, qualify it, and
then advance it toward a potential
commercial launch. Think of it like a
waterwaycanalwithgatesandlocks.As
an idea floats up the innovation canal,
it is allowed to pass through a gate only
if it has merit. Each gate—representing
financial, legal, operational, or
commercial hurdles—has a different
requirement or threshold that must
be met or exceeded to allow passage.
The gates along this canal may have
a variety of names, depending on
the organization, but their purpose is
Some businesses use the metaphor of an innovation funnel to describe
the stage and gate process. Ideas start at the top of the funnel and proceed
through a series of conceptual sieves or filters (gates). As ideas flow down
the funnel, the sieve traps unrealistic product ideas and prevents them
from progressing further. The sieves or filters are conceptually equivalent
to the gates of a stage and gate process. It is the same process model but
with a different metaphor.
GATES, FILTERS, AND SIEVES

the same: to serve as a successively
challenging and increasingly rigorous
validation of any new product concept.
The first gates in the process may be
called scoping or investigative, intended
to determine (in broad strokes) if the
idea is viable. Next is the business case or
development gate, wherein the concept
is further explored via analysis like mock
PLs to confirm whether there is a
business reason to proceed. Then comes
the test/validate gate, which employs
home use tests, concept surveys, and
pilot batches to determine whether
the volumetrics, manufacturability,
and commercialization makes business
sense and can be executed. Finally, the
production and launch gate usually
details the project planning needed to
bring a product concept to launch. If an
idea fails to pass through any of these
gates for whatever reason, it is killed or
sent back for more study; otherwise, it
proceeds toward launch.
While most marketers are enamored
with the creative side of new product
development, few companies approach
the matter as if indulging someone’s pet
project or whimsical idea. New products
represent a huge investment of time,
money, and resources; they require
concept designs, market research, and
consumer testing to prove if an idea is
viable.Legalandregulatoryhurdlesneed
to be cleared, and manufacturability
needs to be determined. New products
also require cost and pricing analysis,
share analysis, and other quantitative
analyses before they can be considered
for launch—all expensive undertakings.
This is why using the stage and gate
processissoimportant.Asaproductidea
matures throughout the development
process, both risks and costs increase,
so filtering marginal product ideas early
is essential—to help mitigate these
exposures.
As ideas pass through successive
gates they become more likely to launch;
once cleared for commercialization,
they become an official project. At this
point (and in no particular order) there
will be pilot batches to run, a sell into
the trade, creation of sales collateral,
package design, stability studies,
tooling, workflow systems entry, new
equipment purchases and installation,
trial runs, component ordering,
bottom-up demand planning, capacity
estimates, costing, and more. It takes a
lot of work to commercialize a product,
and in an ideal world all of it is tracked,
managed, and reported within the
portfolio management review step.
If you are not dizzy already, let me
recap. Within the product portfolio
review meeting, there is a lot of
information that needs to be transferred
to the other SOP process steps to aid
in planning. There is a process within
a process (stage and gate) that helps
qualify an idea for commercialization.
And if an idea is brilliant enough, there
is yet another process-in-a-process (a
project planning exercise) to make sure
all the details needed to commercialize
a product are managed. And this is just
for new product introductions.
In a well-orchestrated SOP process,
the product portfolio review step
encompasses a snapshot discussion of
each conceptual product’s:
• passage through the various stages
and gates,
• time spent within each gate,
• and the rationale used to determine
go or no-go decisions.
Each month, all participants in
this meeting share vital insight into
the status of all projects progressing
through the stage and gate process.
As I have indicated, a lot more
takes place in the portfolio management
review meeting than just discussions
around stage and gate/project progress
and the sharing of information. It is
also the SOP step during which all
discussions about product renovation
initiatives should take place. Topics may
include cost-reduction, reformulations,
packaging changes and claims
enhancements, sustainability initiatives,
and market-driven changes such as
special pack outs and the like. Some
of these will yield modest action
items that require little more than a
status update, like an artwork change
notice for a claim enhancement on
a package. Sometimes, though, a
resulting change may spawn a much
larger project that requires significant
planning to execute. Reformulations
are an example of a much larger-scale
renovation project, since they tend to
trigger many of the same hurdles as
a new product (i.e., legal, regulatory,
environmental, manufacturability). In
many organizations, these items are
added to the stage and gate process
workflow.
As if all this weren’t enough, the
product portfolio management meet
ing also is the forum for discussing
which products are to be slated for
discontinuation, and the implications
of obsolete inventory. Discontinuation
(also called product rationalization)
requires understanding the strategic
importance of an item as it may relate to
your entire portfolio. It is rare that such
decisions are made lightly, but once a
product is marked for discontinuation,
all the actions that follow are best
managed within the product portfolio
review step.
And finally, do not forget about
metrics; they are an important part of
the discussion as well. To assure smooth
flow through stages, there is typically
a standard measure of time allocated
for each initiative to dwell within each
gate. The percentage mix of portfolio
initiatives is also measured, to assure
the investment in any one portfolio is

adequately blended across a number of
different types of initiatives. It does not
bode well for only renovation projects
to be worked on, since older products—
even new and improved ones—
eventually wear out their welcome
with consumers and begin to decline.
Many companies tally up the projected
benefits of cost-reduction innovations,
while others sum the top-line value
of anticipated revenue residing in the
stage and gate process.
When done right (if done at all),
portfolio management review is a meaty
conversation. The meetings tend to be
long in duration and comprehensive in
scope, covering not just the projects and
their movements through various gates
but also the top-line and bottom-line
implications of the innovations being
discussed. Figure 3 shows most of the
elements considered during a typical
product portfolio management process
meeting.
Of course, none of this activity
prescribed for the portfolio manage
ment review step stands to bear any fruit
without a loop back to the other steps
in the SOP process. Demand forecasts
should be offered. Supply requirements
should be requested, either for pilot runs
or pipe fills and ongoing capacity needs
for new products. And there should be a
connection back to the executive review
step, for guidance to help determine
the relative priority of projects on the
innovation agenda.
IT’S ALL IN THE
DETAILS
Unfortunately, experience proves
that product portfolio review
meetings in the real world tend to
be as rare as left-handed spaghetti
benders. Few SOP implementations
even include the step, and those that
do use it in a limited way—mostly
for new product introductions. Those
advocating for this step within their
own SOP process will find it useful to
offer even more details—to facilitate
understanding and help strengthen
executive buy-in.
According to SOP process design,
the portfolio management step should
track metrics, decisions, and progress for
any new product concept: from ideation,
through commercialization, and launch
(presuming the idea progresses to
launch). It should also encompass post-
launchtrackingofnewproductsforsome
period of time, which applies as well to
the numerous types of product-related
renovations projects. This process step
should also be the focal point of all end-
of-life product decisions, including the
selection of items for discontinuation
and run out. The best practitioners of
portfolio management within SOP
consider any activity—related to any
product—worthy of discussion within
the process step itself.
The cadence and timing of the
portfolio management review meeting
is critical to success. The meeting
generally occurs in the early part of a
monthly SOP cycle so that all product
decisions are discussed and questions
about new and renovation products
are answered prior to the demand-
consensus and supply-balancing steps.
The underlying premise of this step
is to cull data from the new-product
development process so that enough
information about product plans may
be passed along to the other SOP
process steps—so that participants in
these subsequent steps may leverage
(within their own planning processes)
all previously vetted, measured, and
approved inputs.
The portfolio management step is
a formal meeting in which all parties
interact and engage in decision
making regarding transformational
products. It is typically orchestrated
by marketing personnel, with either
project management or research/
innovation groups serving as the chair
of the meeting. Governance of these
meetings tends to vary from sector
to sector, company to company. For
example, a chemical firm might assign a
Figure 3 | Scope and Substance of Product Portfolio ManagementFigure 3: Scope and Substance of Product Portfolio Management

technical business development leader
to facilitate the meeting. This is a logical
choice because these are the people
with a front-seat view of customer
needs in their industry and who carry
a lot of influence and sway over the
direction of future products. Participants
will also vary depending on company
and sector, with personnel from
operations (planning and execution),
sales, marketing, and finance typically
included in the process. Operations staff
will eventually have to plan the demand
and supply aspects of any new product
or product change, and sales members
will have to sell the product to the
eventual customer.
As for the SOP process itself, the
model remains mostly the same, with
the portfolio management step inserted
early in the process cycle and following
the same monthly cadence, as shown in
Figure 4.
The agenda for the product port
folio review meeting is centered
around understanding the progress on
the myriad initiatives at hand. Some
companies will discuss all initiatives
(even if affording them only a cursory
mention), others will only highlight the
projects that are off-course or delayed.
Here’s a typical agenda:
• Review of Metrics—Such as dwell
time for ideas in each gate, portfolio
mix (new, extensions, renovations,
etc.), on-time launch, gate failure
rates, post-launch metrics (relative to
plan).
• Review of Innovation “Funnel”—
Which ideas are new to the funnel,
which are in concept design, status
of prior items in the funnel, and
a review of those obstacles that
may be preventing an idea from
moving forward. This review should
also include summaries of all gate
activities (failures and passages).
• Review of Commercialization Pro-
ject Plans—A status update of
all projects approved for com
mercialization, typically with red/
yellow/green designations indicating
whether they are on time.This review
includes both new innovation and
major product renovations.
• Review of Critical Resource Load
ing—This review may encompass
anything: from the availability of a
chemist who can address product
renovation issues, to how long it may
take a designer in an art department
to develop an approved package
design.
• Review of Current Demand/Supply
Plans for Products in Commerciali
zation Stage—Requires detailed
assumptions to help set up inputs to
be passed to the demand review and
supply review steps.
• Review of Items Targeted for Dis
continuation and Run Out—Includ
ing the financial implications of lost-
volume dollars, returns, and obsolete
inventory risk.
• ReviewofProgressofAllRenovation
Project Plans That Fall Outside the
Commercialization Project Plans.
• DecisionsorExceptionsforExecutive
Review—Typically addressed when
a project is off-course, delayed, or
requires prioritization of resources.
For a process step that is often
overlooked, malformed, or utterly
forgotten, product portfolio manage
ment review is nonetheless vital to
ensuring a smooth-flowing SOP pro
cess in those organizations where
innovation is a priority. The benefits
of having a well-run product portfolio
management step are many: a well-
managed innovation agenda; better,
more cross-functional conversation
regarding all initiatives; and a clearer
perspective of the product pipeline for
both planning and execution. And the
single most important key to success is
simply to start meeting.
To the average SOP lead, product
portfolio management will look like a
daunting hot mess and a lot of work. It
is easy to get overwhelmed. But simply
starting the process, and then adding an
agenda item per month or per quarter
will help you begin to determine the
norms, metrics, and level of information
most appropriate to your organization.
Just start meeting is the simplest, best
advice. And avoid the inclination to over-
design this step; it will only exacerbate
cognitive dissonance and likely lead to
failure.
Of course, while everyone hates to
see another meeting on the calendar,
this meeting—once implemented—
can replace countless hours of one-off
conversations and convoluted e-mail
trains.The daunting mess will eventually
trend toward alignment, well-
constructed decisions, fewer delays,
and shorter innovation cycles.
An SOP process leveraging a
well-executed portfolio management
review step will serve as a conduit
through which a twinkle in your
eye can travel a canal, make its way
through a Gantt chart, and end up as a
product ready for launch.
—Send Comments to: JBF@ibf.org
Figure 4 | Sales and Operations Planning Including Product Portfolio Review
Figure 4: Sales and Operations Planning Including Product Portfolio Review
Products, Issues, Changes, Gaps, Metrics, Financial Implications, Strategy

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