In the industrial heartlands of Europe, and particularly in Germany, a key pillar of success has long been the ability to tailor products to the specific and sometimes highly nuanced demands of customers. Over time, this commitment to customization has evolved into a default mode of product development: each customer request, no matter how small, finds its way into the portfolio. New variants are added, but few are ever retired. The result? A sprawling portfolio burdened with complexity.
This path-dependent growth often leads to portfolios with hundreds – if not thousands – of Stock Keeping Units (SKUs) that add little value. Many of them are produced in low volumes, deliver minimal margins, and require disproportionate internal effort. Yet, because they exist across multiple departments and systems, their full cost and impact remain obscured. It’s only when organizations step back and conduct a systematic review that the magnitude of the problem becomes clear.
In today’s business environment – shaped by global competition, rising input costs, and a shift towards agile, customer-centric operations – this unchecked complexity is no longer sustainable. In fact, it poses a strategic risk. Companies that fail to address it may find themselves outpaced not just on cost, but on innovation speed, market adaptability, and customer satisfaction.
When variety becomes a burden: long tail, low returns
The economics of a bloated product portfolio follow a pattern that’s as well-known as it is frequently ignored: the 80/20 rule. Typically, around 80 percent of products generate only 20 percent of revenues – and contribute even less to profit. These low-performing SKUs hide in the so-called "long tail" of the portfolio. Their individual impact might seem negligible, but collectively they represent a significant drain on margin, focus, and operational bandwidth.
Behind each product lies an infrastructure of cost. From sourcing unique materials and configuring production lines to maintaining documentation, training staff, managing logistics, and integrating the product into IT systems – each SKU leaves a footprint. Multiply this by hundreds of products, and the hidden cost base becomes substantial.
Streamlining this long tail isn’t just about cost savings. When executed effectively, it becomes a margin-enhancing, growth-enabling measure. Internal benchmarks suggest that trimming just 20 percent of the portfolio can lead to a 5–10 percent increase in EBITDA. Add to this a reduction in obsolete stock of up to 40 percent, improved delivery performance, and lower working capital, and the business case becomes undeniable.
What holds companies back? Four systemic issues
Despite the benefits, many companies are slow to act. The reasons often lie deeper than operational inertia – they are embedded in how organizations think about growth, risk, and customer value. Four issues are especially prevalent:
- Lack of visibility regarding profitability
Many companies still lack SKU-level transparency on margins. While top-line revenue per product is tracked, the true cost-to-serve – across supply chain, service, and admin functions – is rarely fully calculated. Without this insight, poor performers remain hidden in plain sight.
- Life cycle management gaps
New products are launched frequently, often as a response to specific customer needs. Yet few companies apply the same rigor to retiring outdated or underperforming products. The result is an aging portfolio with high maintenance overhead and little strategic coherence.
- Misaligned customization incentives
Sales teams are often incentivized to close deals – even if that means triggering custom developments with high internal cost and low long-term payoff. Over time, this leads to a fragmentation of the offering that benefits few and burdens many.
- Weak response to market shifts
In rapidly changing markets, portfolios must evolve. Yet many companies find it hard to adjust quickly due to entrenched structures, unclear decision rights, and limited cross-functional alignment. Legacy products linger, while newer, more relevant solutions are underrepresented.
Overcoming barriers: from awareness to action
Even with a clear economic rationale, portfolio optimization efforts frequently stall – not due to flawed strategy, but because of organizational barriers. Interdependencies between products – whether in sales, supply chain, or procurement – can make rational cuts appear risky. Internal resistance also plays a significant role: teams accustomed to the status quo may fear disruption, especially if incentives are tied to legacy KPIs. Moreover, lacking market intelligence can obscure shifting customer preferences, particularly in niche segments where intuition often replaces data. To move forward, companies must build cross-functional alignment, invest in transparent analytics, and foster a change-ready culture. Only then can streamlining initiatives gain the momentum needed to succeed.
Turning insight into action: a proven three-step process
Effective portfolio streamlining follows a structured methodology that aligns financial logic with strategic intent. Porsche Consulting applies a three-phase model: