How Do We Actually Make Money with High Product Variety?

What do I make money with, what do I lose money with?

Welcome. One question has come up very often in recent weeks, as blunt as it sounds: what do I actually make money with, and what do I lose money with? On the one hand this concerns orders: do I still want to offer this order at this price? And it concerns many family businesses in particular that have grown historically through different products, product families and product groups. The variety is enormous, but which variant actually makes money?

In a total cost view the question is: what do we want to stand for? Do we want to serve the niche or produce a stable small series? I've brought three points on how we break down a very complex product or order portfolio in the first place, so that a basic understanding of the status quo emerges. Optimization can then be built on top of that.

What can I change, what not?

A question that works very well: what can I change and what can't I change? It's simple, but it defines something decisive, namely what I take as given. Not changeable, for example: my warehouse. I don't want a new site or a new warehouse. So everything we produce and sell in different markets first has to fit into this space. A trivial example, but there are also customers who say: I'm willing to expand, I have building land anyway.

And what can I change? Can I change a purchase price for steel right now? If I negotiated well and have certain conditions, I may be less affected by fluctuations than others. For everything that comes into the company, meaning materials, purchases and raw material flows, there are things you can and want to negotiate, and price and market fluctuations that are what they are. You have to work with them.

What do I want to change, what not?

Then we go one level deeper: what do I want to change and what don't I want to change? An example: a family business is historically known for being called when nobody else can make something anymore. That's its DNA, and it wants to keep it. It is perfectly fine, without any judgement, to say: there are certain things I don't want to change at all. That narrows down what we can optimize, in a good way. Because if we have 5,000 variables we could change and don't agree where to start, things have gone rather badly.

That's why we always ask about what we can do first and then about what we want. It sounds trivial, but it is already a method. And then the third question: should I change it, yes or no?

The list and the cutoff

When there is a problem, say the contribution margin of a product group is getting out of hand or the margin is becoming so small that something has to happen, but nobody knows yet where to start, a completely normal list helps. Without pressure about whether to start with the buildings, the product variants or the question of which product has the highest personnel costs in production. Just write down what comes to mind first, from gut feeling, because you know the company.

Such a list can have 50 or 80 points. Then we prioritize: what is less important, what more important? And we make a cutoff: we first focus on the top 3, 5, 10 or 12 influencing factors that we can or can't change, and build up how they are related. How we proceed to create transparency in a very complex world and find levers, we'll show in the next video.