Yesterday, I sat through a very well presented Webinar on “SKU Rationalization”. The subject matter was presented by a great professional in our industry who was basically right-on about a subject matter that has become a big issue across most manufacturers. The presentation dealt with SKU Rationalization from a position of “surgery rather than preventative medicine.” I certainly understood the presenter’s approach because SKU rationalization, for the most part in our foodservice industry, occurs after the cart-is-in-the-ditch and decisions then need to be made as to the “longevity of a SKU.” But how does a manufacturer get into this dilemma? Let’s look at some key points about SKU rationalization:
- Rationalization is best exercised “before” a SKU goes into production, not after its failure
- Most SKUs, tagged for potential elimination, were created as “tweaks” to an existing SKU
- Many new SKUs are directly proportionate to industry “chain business growth”
- It could be argued that over-indulgence in “SKU-birth” is directly proportionate to size and culture of a manufacturer:
- The bigger the Manufacturer . . . the greater the attitude to “make it and see if it sticks”
- Too many departments that can approve a new SKU
- Customer desires always trump production rationale
- We can afford the potential mistake(s)
- Smaller, entrepreneurial businesses cannot afford mistakes
- Decisions to eliminate certain SKUs generally result for a few reasons:
- Miscalculated demand . . . did not need it in the first place!
- Cannibalization – product replacement
- Cost versus profit sensibility (cents-ability!)
Explore this topic in comparison to hiring new employees. The more time an organization spends in the selection process probably assures them of less time spent on replacing employees. Therefore, a true “Best Practice” concept is one that supports a “gatekeeper process” by which a Product Management committee exercises “rationalization to introduce a new product, rather than rationale to eliminate one.”
Bud Hilton
Chariman & CEO