A mid-sized European supplier of formulated industrial products was experiencing flat sales and lower than average profitability. Relatively few products accounted for the vast majority of the company's sales and profitability. The end result was excessive finished goods and raw material inventory costs, increased production complexity, poor product differentiation and customer confusion.
An analytical based product line rationalization process was put in place. The number of active SKUs in the product line was dramatically reduced. Those products eliminated represented only a small fraction of total company sales. In addition, an "evergreen" product management process encompassing both new and existing products was instituted to prevent future product proliferation.
- The immediate impact of the product line rationalization process was that total inventory costs were reduced by 42%.
- Over a two year period the effects were more profound.
- The increased focus on the key products valued by customers allowed the company to obtain an 8% increase in total sales and record company profits.