Strategic product rationalization
OVERVIEW
In order to capture more of the demand curve and keep up with rapidly changing consumer preferences, companies across industries often expand product offerings to thousands (or even tens or hundreds of thousands) of SKUs. While this is beneficial to growing top line, the increased complexity can add significant costs for manufacturing and the supply chain. DPO&Co examines products on an economic value added (EVA) basis to determine the most profitable SKUs; clients in turn understand which product complexity is worth keeping and growing and which complexity should be fixed or discontinued.
CASE EXAMPLES
12-week project: Supported a consumer goods company in harmonizing their packaging specifications, which resulted in 12% savings opportunities
Situation
- Client had more than 400 different packaging specification combinations across 20 different plants
- Multiple strategic sourcing efforts had been conducted to reduce cost from supplier negotiations, hence management was looking for alternative operational lever to cut costs
- Client had looked into standardizing the specifications, however, faced a push back from marketing and sales teams
Approach
- Collected packaging information / specifications utilized in multiple facilities, combining internal and external data collection provided by incumbent suppliers
- Analyzed current specifications and evaluated potential families according to the largest volume and unique specifications based on item requirements
- Collaborated with marketing, design, and operations teams to ensure new packaging family grouping was suitable with current product and shipping requirement
- Worked closely with incumbent suppliers to understand cost impact for new packaging grouping
Impact and Results
- Identified 12% cost savings opportunity by removing low volume and non-impactful packaging specifications, reducing the number of colors, and increasing minimum order quantity
- Renegotiated with incumbent suppliers by leveraging larger volume for standardized packaging
- Developed phased plan to pilot the type of packaging to be transitioned, prioritizing “high savings and low impact to customers” packaging