SKU Optimization Profit Point SKU Optimization What is

SKU Optimization Profit. Point

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 Profit. Point at 610 -645 -5557