Optimizing the “U” in SKU

sku

By Jason Kelley
June 11, 2011

Category:
CPG
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Successful CPG manufacturers are much more likely than other CPG companies to engage in annual SKU optimization, according to Nielsen.

8 in 10 Winners Conduct Annual SKU Optimization
Data from the 2010 Customer & Channel Management Survey indicates 78% percent of the most successful CPG companies, or “CPG winners,” conduct SKU-optimization analyses once a year, while 42% of other players do. In winning companies, marketing and sales lead this analysis; in other organizations, finance and supply more often assume this role.

While all surveyed CPG companies use profit as a SKU optimization criteria and virtually all use volume, results show winners are more likely to take a strategic approach. For example, 100% of winners and 84% of other companies use strategic fit as a criteria. Similarly, 78% of winners but only 58% of other companies use future growth prospects, and 56% of winners and 42% of other companies use consumer decision trees.

Survey results show winners are more likely than others to initiate this process with a retailer. Only 22% of winners use a retailer request as criteria in their SKU optimization process, compared to 63% of other companies.

Winners are also more likely to apply a targeted approach to SKU optimization, focusing on one category at a time. Furthermore, winners create a relatively smaller number of customized SKUs for retailers. Seventy-seven percent of winning companies tailor less than 10% of their SKUs for individual retailers; 36% of other companies do so.

Complexity Management Seen More Relevant
A combined 96% of respondents see complexity management as more relevant (60%) or much more relevant (36%) than in the past. Despite broad efforts, only 30% of respondents are able to manage this complexity in an effective manner. Winners are reducing their SKUs below the category average while increasing revenue and achieving category growth by adhering to the following imperatives.

Most CPG Companies Pursue Standardization
The survey reveals that most CPG companies pursue standardization. While standardization initiatives have been implemented in many areas, more than 70% of respondents focus their efforts on supply chain, manufacturing, and marketing and packaging.

These players involve a broad range of cross-functional groups in the process of identifying standardization opportunities, including supply, research and development, finance, and marketing. Data indicates companies pursuing standardization initiatives usually realize the greatest savings in inventory, raw material, and packaging costs.

Other Findings

  • More than 40% of retailers reduced SKUs in 2009
  • 25% of SKUs generate 80% of respondent CPG sales
  • 77% of winning companies tailor less than 10% of their SKUs for individual retailers; 36% of other companies do