Key Management Issues

Manufacturing firms face an agenda of issues related to finance, marketing, and industrial relations, attention is focused on selected topics of manufacturing that directly impact marketing channel arrangements. Two key manufacturing issues are discussed: (1) product proliferation and dynamics and (2) total quality initiatives. Although not a comprehensive list of all channel manufacturer-related issues, these two issues are significant drivers for a typical firm in determining how channel requirements will be delineated.

Product Proliferation and Dynamics:

A major concern throughout industry is the rapid expansion that firms are experiencing in the number of stock keeping units (SKUs) that they maintain in their product list. The traditional concept of new-product development is that an idea is generated and tested by marketing research in response to identification of a basic customer need. Fully understanding basic customer needs is viewed as a key to a successful new-product launch. Although this idea is sound in concept, the reality is that few firms have a highly successful new product track record. A large number of new products fail, resulting in conflict within the distribution process and the need to remove obsolete inventory.

The product line issue is intensified by a trend toward acceleration of product life cycles. The product life cycle is a concept that tracks a new item from introduction to obsolescence. The important point in terms of key manufacturing issues is the fact that average elapsed time from product inception to termination is accelerating. Because of the competitive dynamics of most industries, few products command long-term marketplace longevity. Most new ideas and product features are rapidly neutralized by competition.

Numerous examples are available from the food industry to illustrate the product-proliferation dilemma. The industry is characterized by a constant effort on the part of manufacturers to introduce new products into distribution. Many supermarkets offer the public over 10,000 different food items, which represent approximately 20 percent of those available in the channel of distribution. Retailers and wholesalers faced with a continuous deluge of new products have increasingly resorted to requiring manufacturer to sign performance agreements in which they agree to buy all unsold inventory back at the retail price if a product fails. Independent of the fairness of such agreements, the fact remains that the inventory mistakes must be cleansed from the channel.

Many critics of marketing cite the high incidence of minor package changes and slight product modifications that manufacturers institute in an effort to regenerate existing-product sales. For example, disposable-diaper manufacturers recently introduced specific products designed to accommodate basic anatomy differences of boys and girls. Without questioning the real differences or the value added by such proliferation, we still note the fact that the channel of distribution was forced to accommodate a significant expansion in overall SKUs. Nabisco Foods has been criticized for its proliferation of cookie and cracker packages that appear to offer little new in terms of products choice to the consuming public. However, to offset the critics, Nabisco can point to such product successes as Whole Wheat Triskets and Teddy Grahams, which represent highly successful new versions of old products.

The scope of proliferation is not limited to off-the-shelf consumer products. An increasing number of new product ideas are being launched as a result of basic research and development. Whereas a few years ago only two products were available to combat high blood pressure, today dozens of alternatives are available from which prescribing physicians may select. In many situations, vendor-based research and development is driving features that ultimately become part of new products. In the automotive industry such items as non-headlight nighttime illumination, elimination of all engine belts required to drive accessories, materials that have form and shape memory that resists denting, and environmentally toxic-free air conditioning are a few examples of technology-based development.

From the manufacturer’s level in the distribution arrangement new-product frenzy is launched. Because the rate of new product introduction is competitively driven, many manufacturers have reduced or eliminated the time traditionally devoted to market testing. Instead, they move directly into launch if the product appears to have the attributes of success. Since all new-product ideas have their champions, it is easy to see how the failure and recall rates could multiply as a result of the “throw it at the market and hope it sticks” philosophy. The sorting out of new-product mistakes is a costly channel management responsibility.