Supply Chain Blog

FMCG SKU complexity: range extension by stealth!

Posted by Dave Jordan on Wed, Nov 13, 2013

What made me think of that? Do you remember that playground game called Statues? One person is the “museum” Curator and stands at the end of a field or yard. Everyone else stands an agreed distance away from the Curator.  The aim of the game is for a "Statue" to touch or tag the Curator.

The Curator turns away from the Statues and then they run and try to tag the Curator. However, whenever the Curator turns around, the Statues must freeze for as long as the Curator looks their way.  If a Statue is caught wobbling or moving, they are sent back to the starting line to begin again.

The same is happening in FMCG board rooms across the globe.

I am a frequent visitor to FMCG retails outlets for both business and the “pleasure” of seeing domestic senior management investing our money. When in different countries I always take a look at the local retailers to see what is different or innovative. One thing struck me on recent visits to three different countries. My word there are a lot of skus on the shelves, on racks, on gondolas, on the floor and even hanging from the ceiling. Do you really need all of them?

CEO’s speak about “necessary complexity” and “selective assortment” but as far as I can see skus are being added to portfolios willy-nilly, with major emphasis on the willy. Every time you add an sku you are incurring extra cost and less efficiency in the Supply Chain but these are rarely used as the basis for a new introduction. Do all your skus actually pay their own way or are they actually destroying value?

SKU complexity cost resized 600Analysis at a brand level is for sales and marketing to either brag or invent excuses about in-market performance. You really do need to ensure every single sku is adding something to the corporate pot over and above what it costs to have the sku on the portfolio. Once you have established the status quo you then need only to focus on those with turnover and profit/margin at the lower end of whatever scale you define.

When an sku is clearly not paying its way then notice should be served and if improvement is not forthcoming, delist. Get rid of the dead wood and spend scarce resources behind what is actually successful. I am not suggesting a ruthless sku rationalisation process in the style of King Henry VIII (strictly 1 in: 1 out) but a routine process with board level involvement will pay dividends.

Whatever process you put in place there are team members who simply worship skus. They like variants and different colours and numerous pack sizes and X number of facings like the competition, whether they make money or not. Oh, and don’t forget promotions and special editions as this is where the Statues mentioned earlier come in.

When the CEO is not looking, skus that were meant to be temporary or tactical become permanent skus. The CEO looks around and asks if sku numbers are under control and he gets nods from sales and marketing but turns away again before the Supply Chain and Finance guys can get a word in. As the Curator of your business you need to be firm but fair with what is on your portfolio. If some people don’t like that then perhaps divorce is the only answer – beheading is best avoided.

Why not check out the SKU Complexity e-book?

Image courtesy of Ambro at freedigitalphotos.net

Tagss: FMCG, Dave Jordan, CEO, Supply Chain, Cost Reduction, Sales