By Jeff Metersky, Vice President, Supply Chain Strategy Practice, Chainalytics LLC
Monday, July 13, 2009
I have had a couple of experiences over the past month that have made me wonder if now is the perfect time to evaluate product portfolios and eliminate underperforming SKUs. From my observations, it seems that the current economic climate has driven consumers to focus on “basic” items. Variety of colors, different packaging sizes and configurations, or even premium options no longer appear important. But low cost options are.
My first insight happened when purchasing our new car. When we shopped around for our mini-van three years ago there were several body and interior color combinations at all style levels. This time around there was only one interior for each body color and if we wanted a black interior, we had to go with the most expensive model. Surely this would impact their sales. The American consumer loves to have lots of choices. But the impact hasn’t materialized. The dealership has had no observable impact on sales, and the portfolio change has allowed them to manage inventory more effectively and lower overall pricing. In the last three years this manufacturer rationalized their portfolio by reducing the combinations and shaping their demand.
The second experience comes from my recent participation at the Supply Chain Leaders in Action conference attended by top executives and staff from 50 of the largest companies in the US. Multiple retail and CPG companies indicated that while overall sales were down, sales of “basic” products were fine. Their comments were all similar: too many varieties of product on the shelf that weren’t moving. Exactly how many different colors and package combinations of pens are needed when consumers are buying lowest-cost copier paper in the smallest size possible? I recently read a Wall Street Journal article that supports my observations. According to Ilan Brat, Ellen Byron, and Ann Zimmerman, in the next year, retailers will slice assortments by 15%. This will put pressure on consumer product companies to scale back products and target more effectively. If they don’t, they may be pulled off the shelf altogether.
The current economic climate is a perfect time to rationalize your product portfolio. When demand is down, or even non-existent, removing slow-moving options from your offerings will go unnoticed by your customers. Taking action now will allow you to reduce your complexity, better manage your inventory, and position you to be more effective in shaping your demand in the future. And while it might not be what the consumer imagined, it will be exactly what they need.