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RESULTS: Initiatives > Sku Rationalization
- Many companies have found or otherwise suspect that they carry more skus than they really need. Redundant, slow-moving, or superfluous products are often by themselves unprofitable; but they may even inhibit the profit potential of other products by consuming scarce resources that could be better allocated to more efficient offerings.
- Determining which skus to keep, and which to nuke, requires the right information, and the VDDW approach delivers. First, the rationalization effort requires a deep understanding of Net Operating Profit, product by product. Those which erode the bottom-line are candidates for elimination. Second, it requires understanding whether the product is universally unprofitable, or only for certain market segments or certain types of transactions. Third, it requires understanding a given product’s affinities – that is to say, which products tend to be sold together. An unprofitable product may in fact be a loss leader for other products that are profitable, and shouldn’t therefore be thoughtlessly whacked. Fourth, understanding which resources the product consumes, and how much, is important so as to determine what to do with the freed up capacity that results from eliminating the product. Should those resources be re-deployed elsewhere, and if so where, or should that capacity be eliminated?
- The VDDW approach elucidates net operating performance, the efficiency of various product-customer-supplier interactions, product affinities, and resource capacity & consumption for all products in the enterprise portfolio, and is therefore a solid foundation for sku rationalization initiatives.
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