Product Management Lessons from Mickey Drexler

My favorite T-Shirt in the 90’s was a Gap T-Shirt with world flags on it. Because of this, I became aware of Mickey Drexler and what he was able to do with the Gap brand. I’ve continued to follow him through leaving the Gap and then joining J. Crew. Mickey was recently a guest on David Chang’s Podcast, The David Chang Show, where he shared some of his experiences turning around and building brands, the future of retail, and his thoughts on different brand strategies. While these concepts obviously apply to retail, many apply to any type of product management.

Portfolio Optimization

Mickey started as a buyer at Bloomingdales when he was 23 and worked his way towards eventually becoming the CEO of Ann Taylor at 35 and then the CEO of The Gap at 39. When discussing his Ann Taylor experience, he discusses some of the first meetings he had with the team. He references a meeting where he recommended discontinuing an item and received some pushback:

“But we sell 50 of those per week?” to which he replied, “Go find something we can sell 100 per week”.

I’ve experienced this several times in my career. I’ve taken over an existing set of products and my first management step is to review the portfolio.  This includes investigating product performance, margin, total sales, customer base, etc. In every case there is a small subset of products that make up most of the sales, with the remainder of the portfolio doing very low volumes, only having one or two customers, or selling none at all. When making the decision to discontinue some of these low performing products, I always have a conversation like what Mickey experienced. The sales or ops team has had a reason for why we should keep a slow-moving product in the portfolio:

·       Our #1 customer must have that product

·       But that’s the only product Customer B uses

·       They may not use those regularly, but when they do, we’re the only one that can provide it

In most cases customers can be moved to a higher performing product or the profit generated by these low performing products isn’t enough to justify keeping it. There are several reasons this may be the case:

Most manufacturing companies are going to use a standard cost in their system for a product. During the process of setting up manufacturing the company will make assumptions on materials, quantities, and processes needed to produce a part. Based on these assumptions they’ll enter a cost for the product into their system. From then, until the next "cost roll", the cost in the system or the cost shown to operations will be set. When a product becomes slow moving, it usually costs the company more to produce than what the standard cost will indicate. To name a few: manufacturing quantities will be lower (increasing the per unit set up charge), shipping per part will be higher, and the opportunity cost for switching for a low volume part will be higher. This is one of the reasons sales/operations will push back on discontinuing a product, it still looks profitable to them even though the actual cost is much higher. Also, if you produce a slow-moving part and then lose a sale, the inventory is more likely to sit for longer incurring further charges.

Overall, optimizing your portfolio to just the highest moving parts increases the efficiency of manufacturing, shipping, inventory, and operations.  A smaller portfolio is also easier for the sales team to focus on selling.

Understanding these dynamics is incredibly important when taking over an existing portfolio. Starting the product management process off with rationalization and optimization of the portfolio will go a long way for successful product strategy. 

The Case for Product Management

When building a portfolio its helpful to understand the impacts of life cycle management and scope creep as you add new SKUs to the product mix. In order to capture as much market share as possible and serve their customers, the Sales & operations teams will request every product modification requested by their customers. Without a process, the engineering teams will work to meet the needs of the market. The result is an overworked engineering team and a portfolio that is bloated.

Having a product line manager places a buffer between the engineering team and the sales organization that will vet and qualify new product requests. This process will determine the need for the request against the current portfolio, the economic viability of the portfolio extension, and the return on the required investment. A good product line manager will ensure the largest return on development dollars and the most optimized portfolio of products for capturing the target market share.

Once, I took over a portfolio of products once that had bloated to 217 SKUs. My team and I worked to cull out the low performers so that we could present the simplest and understandable portfolio to our sales professionals and ultimately the customers. The result of our efforts was a portfolio of only ~50 products that had clear reasons for meeting the needs of our customers. With this smaller group of products, we streamlined manufacturing and were able to capture more market share through focused selling.

Caveat

There is one caveat to the strategy of optimizing the portfolio based on product performance and this is the general store model. If you’re a general store for your industry and your customers come to you for regular items as well as the one-offs, it could hurt your business to cull out the one-offs. If you’re not the only general store in town and a customer comes for their usual items as well as a one-off or two and they find that you do not have it in stock. They will go to the general store down the road to get their one-off products. If this happens enough, they’ll just start going to the general store down the road for all their products. I’ve experienced this in my past as well.

Of course clothing retail and in my experience Completion Technologies don’t fall into the general store model so these lessons apply.

Portfolio Management

With limited time, money, and resources it is imperative to build a portfolio of products that provide the highest return of investment. Rationalization, simplifying, and optimizing the group of products you provide makes it easier for sales professionals to communicate with their customers, supply chain to deliver at the best cost, and simplifies operations. It impacts every part of the business.