Transportation & Logistics International - Summer 2015 - 13

Inventory Management
Summer 2015

It is the less obvious impacts of excess SKUs that
do the most damage: they diffuse focus across a
larger number of products.
portfolio management, the process that
defines a goal or purpose for each brand,
product or package and ends with either
improved performance or SKU rationalization. This process is founded upon a
strong understanding of each product's
contribution. Volume contribution is
often the starting point because most
consumer packaged goods organizations
focus first on growing market share, but
as an organization's portfolio management process matures, the analysis of
how a product is impacting performance
shifts from volume and revenue to
margin so the financial impact is clearly
understood and takes center stage in the
decision-making process. The process
should continue to mature, showing
portfolio performance using any metric
or combination of metrics that best
reflects management's thought-process.
Improving your approach to portfolio
management may seem challenging,
but starting simple and improving as
the portfolio becomes more productive
provides a logical path to improve your
approach and continue to drop more
profit to the bottom line. Here's what
this maturation process looks like:
* Periodic SKU Rationalization:
Most organizations rationalize their
portfolio only once a year, some
even less, allowing suppliers and
retailers to define what they will
carry. Even a periodic rationalization of products is an improvement
over this failure to control your
own destiny. This is a fairly simple
process. Identify underperforming
SKUs by contribution, pull out the
products that have both the lowest
number of customers purchasing

and also re-purchasing them, and
you have a short list of candidates
that can be potentially rationalized.
* Continuous Portfolio Segmentation and Analysis: When management first agrees to carry a product
(or a new brand), they do so because
they believe it will allow them to
compete more effectively in the
market - they have a long-term goal
in mind for each product. Getting
the organization to act upon these
goals requires the ability to create
custom grouping of products that
exceed the common brand, product
and package relationship found
in portfolio data. These groupings
will reflect management's intent
and create five non-typical groups:
core products; strategic products;
future growth products; products
which block competitive products
and cannot be rationalized; and all
other types of products. By removing those products that cannot be
rationalized from the overall group,
the process becomes more efficient
by clearly identifying those that
have no role in the organization's
strategy and are not only unproductive, but also the most distracting.
Management can focus on the goals
of each product in each subgroup,
driving greater performance. While
this continuous and strategic
approach to portfolio management
yields significantly higher returns
than a periodic approach, it can be
further enhanced to include the
consumer's perspective.
* Occasion-based Segmentation
and Rationalization: Consumer

behavior - which brands and packages customers prefer on which occasions - should influence the ideal
mix of products contained in a portfolio. Creating non-typical product
groups based upon this consumer
perspective follows a basic rule
of portfolio management: not all
products within a portfolio actual
compete with each other. Products
only compete if consumers consider them for the same occasion-
consumption on the drive home
versus once at home. Companies
that do not take this market-driven approach are prone to not only
competing with themselves on
specific occasions, but also miss the
opportunity to compete on some
occasions. Occasion-based segmentation combined with continuous
segmentation allows management
to marry portfolio management
with strategic efforts, more effectively penetrating the market by
targeting all opportunities with
productive products.
To truly be effective, portfolio management must be tightly integrated into
operations. Segmentation and analysis
provide the proper starting point for
action that will lead to a positive financial
impact. Financial benefit is realized when
rationalization is coordinated with the
actions of managers and operations staff
in the field where real value is added.
David F. Giannetto is senior vice president
at Salient Management Co., where he assists
consumer product goods companies, manufacturers and retailers in the use of information and analysis to manage more efficiently.
He is author of three books, including the
newly released "Big Social Mobile," and can
be reached at dgiannetto@salient.com or on
Twitter at @dgiannetto. For more information,
visit www.salient.com/portfolio.
SUMMER 2015 TLIMAGAZINE.COM

13


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Table of Contents for the Digital Edition of Transportation & Logistics International - Summer 2015

Contents
Transportation & Logistics International - Summer 2015 - Cover1
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Transportation & Logistics International - Summer 2015 - 1
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http://www.nxtbook.com/nxtbooks/knighthouse/tli_vol7issue1
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2017fall_vol2
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2017fall_vol1
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2017summer
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2017spring
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2017winter
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2016fall
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2016summer_vol1
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2016summer_vol2
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2016spring
http://www.nxtbook.com/nxtbooks/phoenix/tli_2016winter
http://www.nxtbook.com/nxtbooks/phoenix/tli_2015fall_v2
http://www.nxtbook.com/nxtbooks/phoenix/tli_2015fall
http://www.nxtbook.com/nxtbooks/phoenix/tli_2015summer
http://www.nxtbook.com/nxtbooks/phoenix/tli_2015spring
http://www.nxtbook.com/nxtbooks/phoenix/tli_2015winter
http://www.nxtbook.com/nxtbooks/phoenix/tli_2014fall
http://www.nxtbook.com/nxtbooks/phoenix/tli_2014summer
http://www.nxtbook.com/nxtbooks/phoenix/tli_2014spring
http://www.nxtbook.com/nxtbooks/phoenix/tli_2014winter
http://www.nxtbook.com/nxtbooks/phoenix/tli_2013fall
http://www.nxtbook.com/nxtbooks/phoenix/tli_2013summer
http://www.nxtbook.com/nxtbooks/phoenix/tli_2013spring
http://www.nxtbook.com/nxtbooks/phoenix/tli_2013winter
http://www.nxtbook.com/nxtbooks/phoenix/tli_2012fall
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