Cutting a product range that erodes margin

Food manufacturer

The range had 42 SKUs. Material losses and overtime were increasing, which led to a review of simplifying the range.

Approach

1. 01

   Frame

   We had to choose between expanding production and simplifying the range. An investment of $96,000 CAD was available, provided that essential commercial relationships were preserved.

2. 02

   Investigate

   Costs per SKU, changeovers and orders revealed six products in low demand, whose small batches created losses and frequent production changeovers.

3. 03

   Explain

   Insufficient overall capacity and an overly fragmented range were compared. Overtime was concentrated around small batches, which supported the second explanation.

4. 04

   Build

   We compared buying equipment, a general price increase, and removing six SKUs with substitute products offered, using the existing range as the reference.

5. 05

   Test

   These SKUs were suspended on a limited scope for eight weeks. The thresholds set in advance were 20% lower losses within that scope and no departure of an essential account. Losses fell by 24%; two substitutions were refused, with no account lost.

6. 06

   Decide

   Management removed four SKUs and kept two products under a minimum-order condition. The equipment purchase was postponed.

7. 07

   Steer

   At six months, the spending on losses and overtime had decreased. The lost contribution on the removed SKUs is still being tracked, to verify that the overall savings remain positive.