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Looxent provides clients with practical and implementable solutions, driving fundamental change that leads to significant improvements in business value. Through this approach, Looxent positions itself as the most trusted partner for clients, consistently proving its reliability and commitment.

Retail & WholesaleIdentifying Additional Value-Up Opportunities in Companies with Sustained Innovation Initiatives


Successful companies consistently engage in continuous improvement efforts to enhance profitability. However, prolonged improvement activities can lead to organizational fatigue, making it increasingly challenging to identify transformative ideas. Over time, simpler, short-term problems are resolved, leaving more complex, chronic issues as the primary focus. Without a shared sense of urgency, driving active improvement becomes difficult. This case study highlights key areas to examine and strategies for uncovering additional value-up opportunities or proactively addressing potential risks in such companies.

1. Addressing New Product Profitability Decline by Eliminating Fundamental Cost Drivers

The profitability of a company’s current product portfolio is often determined by products developed two to three years earlier. Similarly, the company’s future profitability hinges on the success of products currently in development. While new product development (NPD) is critical for securing long-term success, managing competing departmental interests during this process can be challenging. Poor coordination often disrupts the balance of product value, leading to increased costs, reduced sales, and diminished profitability. When repeated, this pattern results in declining overall profitability.

Key drivers of declining profitability in new products include:

Overengineering and Feature Creep

Intensifying market competition often prompts excessive feature additions to maintain product competitiveness. While individual quality or service improvements may appear rational, collectively, they escalate costs. It is essential to assess the customer’s perceived value of each feature and align it with appropriate pricing to maintain profitability. Establishing a robust value-cost trade-off framework ensures customer satisfaction and company profitability.

Misaligned Pricing Strategies

Introducing additional features frequently inflates product prices. However, if customers fail to perceive the value of these enhancements, sales may decline, necessitating discounts or promotions that erode profitability. Companies must anticipate competitive pressures during the early stages of product planning, using comprehensive market analysis and scenario planning to prevent such outcomes.

Operational and Supply Chain Inefficiencies

Factors such as insufficient early-stage development of critical components, applying overly stringent quality standards across all products, or failing to optimize shared components can lead to higher costs. Addressing these issues requires strengthening NPD processes, reinforcing cross-functional collaboration, and implementing target costing practices.

2. Reassessing Supply Structures for Growing Product Lines

Even profitable companies must adapt to changing markets. Mature markets often face declining profitability, necessitating exploration of new business opportunities. Many companies test new product lines through ODM/OEM suppliers to minimize risk. As these products grow into core business areas, the need for profitability optimization intensifies.

Dependency on ODM/OEM Suppliers

Increased reliance on suppliers often weakens a company’s negotiating leverage. While suppliers benefit from higher production volumes, much of the associated financial gains remain with them. To address this, companies must analyze supplier financials and negotiate equitable profit-sharing agreements that reflect increased volumes.

Transitioning from Agency-Based Sourcing to Direct Sourcing

Engaging overseas ODMs through agencies may initially reduce risks but can result in higher costs and diminished transparency as volumes grow. Companies should gradually transition to direct sourcing, beginning with an internal assessment of resources needed to replace agency capabilities. This phased approach minimizes risks while improving profitability and control.

3. Developing Mid- to Long-Term Production Optimization Strategies

Rapidly growing companies often face capacity constraints. Escalating labor costs and stricter working-hour regulations further complicate capacity expansion. Addressing these challenges requires evaluating various options:

Domestic Outsourcing

For companies facing seasonal demand fluctuations, outsourcing excess production locally can reduce fixed costs and handle variable demand. Establishing partnerships with external producers and maintaining robust quality assurance systems are essential for success.

Overseas Manufacturing

Exploring low-cost manufacturing options in regions such as Vietnam, Malaysia, or Indonesia can provide significant cost savings. Beyond labor costs, sourcing raw materials locally in these regions offers additional advantages. Companies should conduct a thorough analysis of each production site’s capacity, constraints, and risks to develop a long-term capacity strategy.

Conclusion: Emphasizing Structural Operational Enhancements for Sustained Growth

Improving the profitability of new and growing products, optimizing supply chains, and planning for capacity expansions are not short-term endeavors but critical to long-term success. Companies that have already achieved significant growth through past improvement initiatives must shift focus toward addressing more fundamental operational challenges. By tackling these foundational issues, organizations can unlock new opportunities for sustainable value creation.



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LOOXENT

A  21F. Parc.1 Tower2, 108, Yeoui-daero, Yeongdeungpo-gu, Seoul, Korea 07335

T  02-546-8222      F  02-546-8226

E  service@looxent.com 

© 2024 LOOXENT. ALL RIGHTS RESERVED.