The expectations of customers are getting higher day to day. The distributors who accommodate their customers through various channels created for retaining them. It is important to offer appropriate variety of products to customers, along with attention in community, engagement and relationship management. In this situation, there will be constant pressure to broaden product offerings. Adding new products can boost the sales, new category of customers, and an increased switching cost for customers.
On the other hand, the overall profitability can be reduced as a reason of a large portfolio. A better assessment of the current state of affairs is required to counter the declining performance. A good assessment process means collecting data from sales, service and all other business aspects.
The gathered information can point out many business issues, so it is very important to diagnose the problem first. We can determine whether SKU sprawl is be the problem according to the pare to principle (80/20 rule), by a simple analysis . When applied to SKU proliferation, if 80% of the profits are delivered by 20% of the products, you can go to a conclusion that both the visible and invisible costs of portfolio management is adding to the bottom line.
Once the issue is found, next step is to identify the problem products. To get meaningful answers to the problem, you shall only depend on decision-grade data.
To get the appropriate data you need, estimate the costs that go away if a particular product were to go away. Activity-based costing methods will result in a more accurate product cost, rather than flat, proportional assumptions. Getting better data and its extension to geographic models, vendor pricing, sales categories and other SKU influences depends completely upon this full absorption method.
Once that hard work is complete, the measurements become a foundation for a SKU rationalization process that reflects the balance of profitability with customer value. Each product can be placed into a category based on sales and profitability
After all the hard work, the measurements become a reliable data base SKU rationalisation process that shows the relationship of profitability with the value of customer. Finally, you can categorise the products based on sales and profitability.
Portfolio management becomes efficient when they are equipped with appropriate information and they can prepare the strategy about their SKU sprawl.
However, It is important to figure out which product, brand or company needs special considerations. A strong and compact rebalance will be included with features that portfolio managers know best, and their inclusion will result in best solution along with the broad support for the whole process.
Successful SKU rationalization results in an increase in profitability decrease in working capital, and improvement in customer service levels. The overall complexity of running the supply chain will drop as the portfolio becomes more streamlined. And, if done correctly, this exercise can result in a shift in behaviour across the company.
The important goals of a SKU rationalisation is an increased profitability, a decreased working capital and improved customer service levels. When portfolio becomes more streamlined the overall complexity of running supply chain will drop.
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