Rising SKU Complexity versus SKU Rationalization
In the dynamic landscape of the Fast-Moving Consumer Goods (FMCG) industry, companies face a profound challenge: the ever-expanding complexity of their product portfolios. Since 2005, the number of Stock Keeping Units (SKUs) within typical FMCG portfolios has tripled, offering consumers a vast array of choices.
However, beneath this diversity lies a critical issue: a significant proportion of these SKUs represent low-performing products that contribute insignificantly to total sales while keeping production lines busy. This conundrum strains distribution efforts, fragments the focus of sales teams, consumes operational resources, and strains relationships with both suppliers and customers.
Moreover, these unproductive products not only absorb margin directly through the discounts required to maintain their presence in the market but also indirectly through the substantial marketing and merchandising efforts expended in an attempt to attract consumer attention to these underperforming items.
In this complex landscape, the prevailing solution, SKU rationalization/simplification, comes under scrutiny for its inherent flaws, including a centralized approach that may overlook critical local market insights.
Challenges in SKU Rationalization
SKU rationalization emerges as a major focus point in managing product portfolios. Nonetheless, this seemingly harmonious practice is burdened by its own complications and pitfalls. Understanding the intricacies of SKU rationalization becomes critical within the orchestration of strategic decision-making, as it navigates the narrow line between portfolio optimization and its own potential pitfalls.
As McKinsey also notes, simpler is sometimes better. Read more here.
Challenges in SKU Rationalization
Considerations for Improvement
Increased SKU Complexity
A significant rise in the number of SKUs within FMCG portfolios, leading to increased operational complexity.
Data-driven insights: Leverage data analytics to identify low-performing SKUs accurately. Next, market segment analysis: Assess SKU performance within specific market segments. Finally, do regular updates: Continuously monitor SKU performance and eliminate SKU’s that stand at the tail.
High Percentage of Low-Performing Products
A substantial portion of the portfolio consists of low-performing products with minimal sales contributions.
First, prioritize segmentation: Analyze SKUs based on market segments and customer preferences. Second, local insights: Involve line managers and regional teams in SKU assessments. Finally, flexibility: Adopt a flexible approach to SKU management.
SKU Rationalization Flaws
SKU rationalization is often a centralized process that may not adequately consider local market conditions or customer insights.
Local input is important: Incorporate insights from local managers who have a deep understanding of specific markets. Second, data-driven decisions: Leverage data to validate rationalization decisions. Finally, do regular reviews: Continuously evaluate SKU performance.
These considerations aim to address the challenges posed by SKU rationalization in FMCG companies and enhance the effectiveness of portfolio management while maintaining flexibility and responsiveness to market dynamics.
Let’s explore how.
Using AI Tools for Portfolio Optimization
Utilizing AI for portfolio optimization in Revenue Growth Management (RGM) offers a multitude of benefits:
In the dynamic market landscape, staying competitive and making informed decisions is crucial. With the help of Copilot, and RAI’s cutting-edge AI-powered platform, you too can navigate the complexities of portfolio management and pricing strategy with ease.
Now let’s explore how you can leverage AI-driven insights to optimize your business strategies effectively.
Unlock the Power of PPA with RAI COPILOT and Minimize Process Efforts
Do you ever find yourself wondering about your PPA (Price Pack Architecture)? Now, you can address this crucial aspect of your business with ease. Simply ask COPILOT, and it will provide you with the insights you need. It will also proactively alert you with optimization recommendations.
This means that you are eliminating manual data collection, data curation, and similar resource-intensive processes, which translates into saving up to 95% of the total time needed for it. Here lies the opportunity to transform your processes with AI for quicker insights and focus on strategic actions instead.
Before diving further, here’s an interesting read (or you can also listen to it) from McKinsey on good packaging practices.
Analyze PPA Performance with COPILOT and Streamline Your Decision-Making
By proceeding to the platform via COPILOT, you gain access to in-depth analysis. Here you can evaluate your portfolio’s performance against market trends for informed data-driven decisions.
This way, effortless data insights are at your fingertips, ensuring you can make on-demand, continuous, and market-aligned portfolio optimization decisions, while uncovering white space opportunities with AI.
Benchmark Against Competitors
Next, compare your company’s value and volume growth performance with competitors and market growth rates to understand the total and cross-market with ease. Additionally, Copilot identifies losses for you, ensuring you stay informed and in control of your operations.
Price x Pack Analysis
Dive deep into the intricacies of your portfolio with Copilot’s pack x price analysis. Examine categories, channels, and package types to uncover white space opportunities in portfolio optimization and pricing decisions. Gain a clear understanding of how your performance measures up against the competition so you can make the right decisions.
Craft Your PPA Strategy & Automate Monitoring
For new product launches and delists, our platform allows you to build a PPA strategy with AI automatically. Share it for approval with bookmarks easily, ensuring that everyone is on board and aligned with your strategic goals. With the power of AI, your decisions will be well-informed and data-driven.
Additionally, you can set new monitoring alert levels, for full automation of the monitoring part of the process. Neat, right?
Mastering SKU Complexity and Financial Growth with AI-Driven Portfolio Optimization
In conclusion, the challenges of SKU complexity and rationalization in the FMCG industry present a multifaceted issue, impacting not only distribution and resource allocation but also the very essence of financial planning and strategic portfolio management. While SKU rationalization, as traditionally practiced, has its shortcomings, it remains a vital consideration in achieving effective portfolio optimization.
To address these challenges and bolster the effectiveness of portfolio management, the considerations presented in this article offer data-driven solutions, market responsiveness, and a flexible approach. These measures ensure that FMCG companies can adapt to the ever-evolving landscape while maximizing efficiency and profitability.
Moreover, as the business world becomes increasingly dynamic, leveraging AI tools for portfolio optimization, such as RAI Copilot, introduces a transformative element. By embracing AI automation, businesses can unlock a wealth of benefits, including improved data insights, streamlined decision-making, benchmarking against competitors, and efficient strategy crafting.
With AI at your side, you’re not only saving time and resources but also gaining a competitive edge in the FMCG sector. You can focus on what truly matters—strategic growth and data-driven decision-making, ultimately paving the way for enhanced financial growth and sustainable success. In the face of SKU complexity, financial planning with AI becomes the gateway to thriving in a challenging industry landscape.
So, take the leap and explore the possibilities AI-driven insights can offer for your business. With tools like RAI Copilot, you can navigate the complexities of portfolio management and pricing strategies with ease, optimizing your business strategies and setting the stage for sustainable financial growth.