Leading CPG companies are leveraging advanced analytics to eliminate cost-cutting unknowns and maximize the profitability of their portfolios. Done right, portfolio optimization can set your business on a fresh, positive trajectory.
At the heart of any portfolio optimization is SKU rationalization. This comes with many potential options, constraints and interdependencies. This dialogue may sound familiar to you:
- Do I cut a small volume product? What if that product is critical to a large customer?
- Is that low margin product just priced incorrectly, or should it be eliminated?
- If I eliminate a set of SKUs, what does that mean for the production line where they were produced?
- If I eliminated certain pack sizes or flavor variations, how will that impact the remaining products?
- Once I decide to eliminate certain products, what do I do with my existing inventory?
Leading companies deploy advanced analytics to help them sort through the millions of possibilities for their portfolio. We’ve seen the most successful efforts include the following:
Senior executive sponsorship is crucial because SKU and customer rationalization will affect every aspect of your organization. The degree of change management effort will be significant, and while the work will be done at a highly granular level, driving the adjustment to a successful conclusion requires strong executive support.
Understand the marginal impact on the cost structure when the product mix changes.
Consider all the options such as bundling, price changes, and changing the timing of production are some of the additional options to consider.
Model, decide, act. Run multiple scenarios (within the context of a company’s strategy) to determine the potential disposition of the portfolio and the financial impact to the business. Once decided, be relentless in execution. In our experience, slow implementations lead to lost momentum and backtracking.
Manage for the future by establishing the ongoing capabilities, metrics, analytics, and management routines to be able to productively manage the portfolio on an ongoing basis.
Optimize the portfolio. We’ve seen first-hand when big companies leverage advanced analytics to optimize their portfolios, they have a distinct advantage over competitors.