Product Portfolio Selection via Revenue Coverage Optimization
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Solution Overview
Problem
Businesses face increased inventory and management costs due to product proliferation, and consumer confusion from numerous product choices, which can lead to lost sales. Existing methods struggle to efficiently select a product portfolio that maximizes revenue without overwhelming customers with too many options.
Innovation Solution
A method that uses a linear programming relaxation to optimize product portfolios by allowing continuous values for decision variables, generating a series of optimal solutions along an efficient frontier of revenue coverage versus portfolio size, and employing the Revenue Coverage Optimization (RCO) technique to reduce the number of products needed to achieve desired revenue levels.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If numerous products are offered for sale, then customer variety and choice are improved, but inventory and management costs increase
Solution Approach 1:
The patent applies parameter changes by transforming the product selection problem into a linear programming optimization problem. It changes the approach from intuitive product selection to mathematical optimization, using parameters such as revenue coverage, profit margins, and order frequency to determine the optimal product portfolio size and composition that maximizes revenue while controlling inventory levels.
2Adaptability or versatility
If numerous products are offered for sale, then customer variety and choice are improved, but management costs increase
Solution Approach 1:
The patent replaces manual product portfolio management with an automated linear programming system. Instead of relying on human judgment and experience for product selection, the system uses mathematical models and computational algorithms to automatically determine the optimal product mix, thereby reducing management complexity and enabling data-driven decision-making.
3Adaptability or versatility
If numerous products are offered for sale, then customer choice is improved, but consumer confusion increases leading to lost sales
Solution Approach 1:
The patent applies partial action by determining that a limited subset of products is sufficient to capture the majority of revenue. Instead of offering all possible products, the optimization identifies the minimal necessary product portfolio that achieves target revenue coverage, thereby reducing consumer confusion while maintaining adequate product variety.
4Quantity of substance
If a limited product portfolio is selected, then inventory and management costs are reduced, but revenue coverage may be compromised
Solution Approach 1:
The patent incorporates feedback mechanisms through iterative optimization processes. The linear programming model continuously evaluates the impact of product selections on revenue coverage and adjusts the portfolio composition accordingly. This feedback loop ensures that the reduced product portfolio maintains adequate revenue coverage by strategically selecting products with highest profit margins and order frequencies.
Data Source
AI summary
A method for determining a total benefit derived from a subset of products in a product portfolio includes identifying a set of customer orders having a set of ordered products from the product portfolio and an order benefit and selecting the subset of products from the product portfolio. The method also totals the order benefits from the set of customer orders whose set of ordered products are included within the subset of products from the product portfolio. An apparatus is provided for use in determining a total benefit derived from a subset of products in a product portfolio.