BY: MOHAMMAD WAHID ABDULLAH KHAN
Summary: A new product line under your responsibility or you has just landed a new job with products that may be unfamiliar. You’ve probably already been asked to resolve a crisis or two and help out with a big account that needs attention. Since there aren’t any time-outs in business, you must tackle these immediate issues with little knowledge of the product, the politics, or the market
When to pull a product from the line is as important as knowing when to introduce a new one. Consider such internal requirements as profitability, available resources and new growth opportunities. Examine external factors of sales-force coverage, dealer commitment and customers’ needs to determine if a comprehensive line is required.
The first step in establishing a regular product evaluation program is to create a Product Audit Committee. The committee may consist of members of the planning team or a separate group. This core group comprised of the top people in the marketing, finance, engineering and purchasing departments, should control decision-making authority about the design of the company’s product mix. Depending upon the dimensions of the product mix and the significance of the products, the Product Audit Committee should meet monthly and every product should have at least an annual review
What is a product?
A product is a problem-solver, in the sense that it solves the customers’ problems, and is also the means by which the company achieves its objectives. And since it is what customers actually get for what they pay, it is clearly a subject of great importance.
The clue to what constitutes a product can be found in an examination of what it is that customers appear to buy. Customers have needs, and they buy products to satisfy them. On market segmentation. At its simplest level, someone who needs a hole may buy a drill. But if a better way of making a hole is invented say a pocket laser – demand for drills may fall. The important point about this is that a company which fails to think of its business in terms of customer benefits rather than in terms of physical products or services is in danger of losing its competitive position in the market.
In Additional: When a customer buys a product, even as an industrial buyer purchasing a piece of equipment for a company, he or she is still buying a particular bundle of benefits perceived as satisfying Their own particular needs and wants.
What is a product audit?
A product audit is an objective description of the current state of your product. The simplest audit I have seen consisted of an inbound and outbound Strengths Weaknesses Opportunities Threats (SWOT) analysis.
ABOUT the Product Audit
One easy-to-install procedure with direct impact on profitability is the product audit. Just as regular physical examinations are essential to maintain the body’s good health, likewise, products require regular examination to determine whether they are healthy, need re-promotion, or should be allowed to phase out.
Begin your product audit by setting up a Product Audit Committee The product audit can assist the following:
1. Determine your product’s long-term market potential.
2. Assess the advantages and disadvantages of adding value to the product.
3. Alter your product’s market position compared to that of a competitor’s comparable product.
4. Evaluate the chances of your product being displaced by another product or technology.
5. Calculate the product’s contribution to your company’s financial goals.
6. Judge if the product line is filled out sufficiently to prevent your customers from shopping elsewhere.
In addition to the above criterion, consider such issues as availability of money and human resources, assessment of new product and market growth opportunities, and even the effective use of your executives’ time. Also, add such factors as your firm’s willingness to sustain sales-force coverage, dealer commitment and ongoing eagerness to respond to changing customers’ needs.
Product audit criteria
I. Operational/functional: Verify that sub-assembly or final product conforms to the Functional/operational test criteria.
II. Dimensional: Compare actual recorded measurement(s) of the selected characteristic with the approved design data. Verify characteristics are inspected using the correct calibrated tooling, gauging, fixtures, etc., surface finish dimensions and radius meet drawing tolerances, inspections are performed in proper sequence,
III. Visual: Inspect part for obvious external defects; (e.g., corrosion burrs, handling damage, and scratches)
IV. Identification: Compare actual identification plates, tags, markings etc. with approved design data or purchase order requirements and verify that identification is maintained throughout the product line;.
V. Documentation: Verify the latest revision level or changes, proper work instructions, completed operations, proper authorizations; proper use of statistical sampling;
VI. Special Processes: Verify special processes are in accordance with approved process specifications. Verify operator qualification/certification;
VII. Material: Verify that incoming raw material meets its specification requirements.
Product Audit Program:
How does such a committee operate? To do justice to each product and to have an objective basis for product comparisons, a common rating form should be used. For products that appear dubious and thus demand careful evaluation, a product audit form using a simple 1 to 5 scoring system using the above six criteria.
Phasing out weak products, the decision to drop them requires careful consideration of company’s obligations to the various parties affected by the decision. Supplier and customer notification and an adequate stock of replacement parts may be necessary
Conclusion: Finally, phasing out weak products or exiting a market requires careful consideration of your company’s obligations. For instance, there may be significant costs related to labor agreements, maintaining capabilities for spare parts, contractual relationships with dealers and distributors, financial institutions and so on. In sum, the product audit provides a practical approach to the profitability and the decision-making process.
About the Author
MOHAMMAD WAHID ABDULLAH KHAN
S/O MOHAMMAD SAADULLAH KHAN
Mr. Mohammad Wahid Abdullah Khan is the Project director of “Max Textiles Ltd”.Mr. Wahid has been in accounting field since 1999. Prior to that he had completed over ten (10) years in various fields of Business like - Accounts, Finance, Internal & External Audit, project budgeting and project costing related positions in some of the largest group companies & the join venture companies in Bangladesh.
He consults about small- medium business owners and services professionals, business consulting service and project process. He is most experience in Financial Risk Assessment, Financial analysis, Financial Advising and Project Cost Analysis. He has published more than 200 articles & case study in different international journals. Such as Business, finance, personal finance, international finance, auditing, Risk assessment topic and performance & industrial related,
Mr. khan’s most popular articles is “WAK” Model - The way of best solution for an organization internal audit process,( 1st,2nd,& 3rd part) “WAK” Model”- for successful financial resource , “Wahid khan”- cost analysis, Wahid theory – the key of dynamic series for successful financial consulting, Wahid techniques – the Significance and dependability manner for Performance audit(1st,2nd,& 3rd part) Wahid’s Opinion - non-conformity among the performance audit and financial audit, Wahid’s view- The cogent task and the confront of financial/economic analysis in the modern business decision making , Wahid’s outlook - The Business Financial Analysis Should Be Included several required Documents with the analysis report or plan, WAHID’S JUDGMENT- difference strategic plan as opposed to an operational plan ,WAHID’S METHOD– the charismatic and fruitful guideline for financial investment decision making ,WAHID’S MEASURE - the influential and evaluated of similarity between profit & non- profit business planning & Wahid’s philosophy- The examined & careful consideration of strategic planning against business planning, PPBS MODEL,
He has consulted with more than 30 service & product companies, in recent years Mr. khan has been spending most of his professional time for financial consulting , Mr. Wahid is the owner of “WAM Associates” and “WAK business solutions”
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