Optimizing SKU Portfolios for Profitable Growth

SKU Optimization ProfitPoint

SKU Optimization What is SKU Optimization? It s a systematic and consistent business process for analyzing, evaluating and deciding on how to manage your SKU portfolio in order to better align with your organization s overall strategies, objectives and goals This process is a blend of critical analysis tempered by the realities of the competitive marketplace Typically, most companies develop and execute an annual process for the evaluation of their SKU portfolio

SKU Optimization Many consumer product companies have added significant numbers of SKUs over the past decade as they attempt to create a unique consumer proposition and increase overall demand for their products Average number of SKUs in a typical supermarket has increased from around 10,000 to more than 40,000 over the past 15 years

SKU Optimization Vast majority of product companies never required a SKU optimization process in the past as their SKU portfolio was dramatically smaller and simpler

SKU Optimization Supply chain organizations are confronted with the challenges of SKUs consuming a finite amount of space and capacity in their operations Routinely, supply chain operating costs increase as fast or faster than the growth in revenue from new SKUs Labor and asset productivity are negatively impacted Sales and marketing organizations challenge supply chain functions with It s just 5 more SKUs- what s the big deal?

SKU Optimization Benefits of an enterprise-wide SKU Optimization Process Identify profitable from unprofitable SKUs and rank order SKUs from highest profit to lowest Better understanding of total landed costs for specific SKUs and key drivers of operating cost components Enables more targeted actions to reduce costs Improved product availability (lower out of stocks) A defined, systematic process for evaluating SKUs that all of the key functions impacted by the SKU portfolio will understand Over time, organizations will also develop an improved understanding of revenue and profitability targets for new SKUs before they are launched A more educated and informed workforce Drivers of key costs and profitability Better understanding of how new SKUs support the Company s overall short-term and long-term strategies Workforce will be able to make better everyday decisions in their respective functions

SKU Optimization Major Components of this Process Understanding an organization s strategies, objectives and goals (both short-term and longer term) Analyzing and developing operating profit by SKU Operating profit represents gross margin less operating expenses, such as warehousing, distribution, etc. Develop simple but powerful links between key costs and activities in each operating expense area Review of initial SKU profitability analysis and its potential implications Consider other factors such as market share, competitive positioning, future category growth Finalize decisions around SKU deletions and implement according to organization s annual planning calendar

SKU Optimization Want to learn more about this process? Contact ProfitPoint at 610-645-5557