Supply Chain Blog

A Practical Guide to FMCG/Pharma SKU Complexity Reduction

Posted by Dave Jordan on Mon, Feb 28, 2011

Get your business in shape to take advantage of the expected upturn in economic conditions by giving your sku list a thorough review. Few businesses are lucky to operate with just one or two monster skus but an excessive list of items on offer can severely affect your customer service performance.

In the customer service article above we looked at the cost to have an sku on the price list and it is not insignificant when you take all elements of supply into account. If skus do not pay for themselves and contribute to bottom line then why do they exist? Skus plodding along with low margin AND low sales turnover cannot be worth the cost and effort of maintaining them, can they? They are simply getting in the way of more profitable skus.

If you could base your business on high margin/high turnover skus then of course you would. Life is not that simple and the market place is ever more competitive so you need to constantly review the wisdom of what you are putting on shelves. Unless your business is in dire straits a large proportion of your skus will be either low margin/high turnover or vice versa. Both situations can provide reasonably healthy growth but wouldn’t it be better if you could edge them towards the high/high green quartile as per the diagram below?SKU ComplexityThe first step is to make an estimate of what your business spends on keeping an sku on the pricelist. This is not an accurate science but you need to put a “stake in the ground” and agree a number, say 30000Euros. If your margin does not at least break-even then delisting may be the way forward. Staff who look after those skus in the yellow segments need to be challenged on a quarterly basis to get their skus away from the red and towards the green.

If you carry out such an assessment and find that a majority of your skus are in the segment then you might benefit from a professional spring clean of your portfolio. Such an approach will remove any emotion and bias when clinically assessing what you should be placing in front of consumers.

Tagss: SKU, FMCG, Dave Jordan, Performance Improvement, Pharma