Stealth?

What made me think of that word? 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 and the aim of the game is for a 'Statue' to touch or tag the Curator without being seen moving.

A lot is happening when the Curator is not looking. Similarly, in FMCG companies (other sectors are available) SKU numbers are increasing by stealth.

Shopper Complexity

I am a frequent visitor to FMCG retails outlets for both business and the 'pleasure' of seeing local senior management investing their money. When travelling, I always take a look at the local retail market to see what is different or innovative or simply odd. One thing struck me on recent visits to three very different countries in Europe, Africa and the Middle East. My word there are a lot of SKUs on the shelves, on racks, on gondolas, in windows, on the floor and even hanging from the ceiling. Do you really need all of them?

Companies speak about 'necessary complexity', 'selective assortment' or my favourite 'the price list', but as far as I can see SKUs are being added to portfolios willy-nilly and with a scatter gun approach. Every time you add an SKU you are incurring extra cost and impacting the efficiency in the Supply Chain but these aspects are rarely used as the basis for a new SKU introduction. Do all your SKUs actually pay their own way or are they simply destroying value?

To be or not to be, that is the SKU

You really need to ensure every single SKU - permanent, temporary, promo, tactical - is adding something to the corporate pot over and above what it costs to have the SKU routinely planned on the portfolio. Once you have established the status quo you then need to focus on those your attention on those with turnover/profit/margin at the lower end of whatever scale you define is right for your business.

If the performance of newly launched SKUs is not carefully monitored they can sometimes hide under the radar and stay on the portfolio. Arguments about sustaining a certain range, a regional jewel or a retailer-specific SKU can be heard but the final decision must be for the good of the company and not an individual or department.

Divorced, beheaded, survived...

When an SKU is clearly not paying its way then notice should be served and if improvement is not forthcoming within a reasonable time frame, delist! Get rid of the dead wood and put your scarce resources behind what is actually successful on the shelf. 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, different colours, numerous pack sizes and X number of facings like the competition (the competition is not always right!), whether they make money or not. Oh, and don’t forget those promotions and special editions as this is where the Statues game mentioned earlier comes into play.

When the CEO is not looking, SKUs that were meant to be temporary or tactical often become permanent. The CEO looks around and asks if SKU numbers are under control and she/he gets nods from sales and marketing colleagues but turns away again before the Supply Chain and Finance guys can object. As the Curator of your business you need to be firm but fair with what is listed on your portfolio. If some people do not like that then perhaps divorce is the only answer although beheading is a bit messy and best avoided.

Help, I need somebody!

If you have any Supply Chain or Route to Market problems or opportunities you would like to discuss, then please reach out to Enchange.com via telephone, email, or live chat.