SKU Optimization

1. SKU Optimization ProfitPoint

2. 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

3. 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

4. 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

5. 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?”

6. 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

7. 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

8. SKU Optimization • Want to learn more about this process? • Contact ProfitPointat 610-645-5557