Accounting Best Practices, Fifth Edition

16–33. Reduce the Number of Product Options

Design engineers like to offer a wide range of product options from which customers can choose. The assumption is that customers will perceive a company to have a high degree of customer service by offering products in a multitude of variations. The trouble with this approach is the considerable expansion in the number of subassemblies and items that must be kept in stock to deal with the full range of possible variations in product configurations. In many cases, specific configurations are ordered so rarely that inventory must be stored for long periods prior to use; the odds of eventual obsolescence due to nonuse are also high.

The solution is to offer customers a greatly reduced set of product options. One can then reduce the number of inventory items kept in stock to those used on a small number of basic offerings. This approach does not mean that customers are offered only a “bare-bones” product—on the contrary, a fully loaded product is quite acceptable, but the number of variations from that fully loaded model must be kept low in order to avoid retaining inventory for rarely ordered features. Customer satisfaction levels will still remain high as long as they can choose from a clustered set of features offering them the choice of minimal extras at a low price, many features at a high price, and just one or two variations between ...