SKU rationalization is an interesting process. We have been working with a client to help them analyze product performance with the goal of reducing under-performing SKU’s. This lead us to research other organizations that have tackled this same problem. We found an encouraging example worth sharing. In the April 2006 Harvard Business Review, there is an interesting story of how Clorox attacked this problem and the results they achieved.
According to the article, Clorox identified 30% of their SKU’s were falling short of sales volume and profit targets. In order to address the problem, they created an annual planning process where under-performing SKU’s were scrutinized and put onto a “glide path” to either be improved or eliminated. If they are within 5% of target, they are put on “yellow” and if they are below 5% of target they are put on “red”. All red SKU’s are evaluated for elimination. The results reported are impressive; today 90% of Clorox’s SKU’s meet volume and profit targets. Retail sales per SKU have grown by more than 25%, and net customer sales per SKU have almost doubled over the past four years.
This type of analysis is very powerful. We have seen that many times the growth in unique SKU’s, or reluctance to eliminate a product, can be a challenging managment issue. But by evaluating sales and profit performance for SKU’s on a regular basis, an objective evaluation can be made, and profits across the board can be improved.