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Winning Practices on Complexity Management
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Winning Practices on Complexity Management

Part 4 of 4: Emerging from the Storm: How Leading Customer Organizations Reignite Growth, Findings from the 2010 Customer and Channel Management Survey

About the Survey: The 2010 Customer and Channel Management (CCM) Survey provides an up-to-date perspective on the practices of top-performing CPG companies across the following dimensions: sales strategy, pricing and trade investment, strategic customer collaboration, and complexity management. This year’s survey was conducted in spring 2010 and is produced in collaboration with the Grocery Manufactur­ers Association (GMA), McKinsey & Company, and The Nielsen Company. Approximately 220 CPG executives from more than 50 compa­nies with close to $160 billion in U.S. manufacturer sales—in the food, beverage, personal care, and home care categories—participated.

Forces are combining to make manufacturers’ product portfolios and value chains more complex. Channels have varying price-point, size, and packaging requirements (for example, discount stores require small packages with lower price points). Individual retailers are seeking competitive advantage through differentiated product offerings and requesting customized SKUs, while also focusing on assortment optimization for their stores (more than 40% of retailers reduced SKUs in 2009). And as 25% of SKUs generate 80% of CPG sales, according to survey responses, manufacturers recognize the value of reducing SKUs and effectively managing complexity.

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Our survey revealed that a majority of respondents are using two approaches to address this complexity challenge. Despite broad efforts, only 30% of respondents are able to manage this complexity in an effective manner. Winners are reducing their SKUs below the category average while increasing revenue and achieving category growth by adhering to the following imperatives.

Implement robust SKU optimization. Seventy-eight percent of winners conduct SKU-optimization analyses once a year, while 42% of other players do. In winning companies, marketing and sales lead this analysis; in other organizations, finance and supply more often assume this role. Ideally, SKU optimization should be considered not only from the perspective of the manufacturer but also from that of the retailer and consumer. Winners also take a more strategic approach to this analysis, according greater importance to criteria such as strategic fit, growth potential, and consumer decision trees, as opposed to retailer requests.

exhibit-10

Effectively and proactively engage retailers in the SKU-optimization process. Top-performing CPG companies proactively engage retailers in the SKU-optimization process. Survey results show winners are more likely than others to initiate this process with a retailer; others may simply react to a retailer request. Winners are also more likely to apply a targeted approach to SKU optimization, focusing on one category at a time. Finally, winners create a relatively smaller number of customized SKUs for retailers—77% of winning companies tailor less than 10% of their SKUs for individual retailers; 36% of other companies do so.

Take a cross-functional approach to standardization. Our survey reveals that most CPG companies pursue standardization. While standardization initiatives have been implemented in many areas, more than 70% of respondents focus their efforts on supply chain, manufacturing, and marketing and packaging. These players involve a broad range of cross-functional groups in the process of identifying standardization opportunities—including supply, research and development, finance, and marketing. Companies pursuing standardization initiatives usually realize the greatest savings in inventory, raw-material, and packaging costs.

Download a free copy of the full report:  Emerging from the Storm: How Leading Customer Organizations Reignite Growth,  The 2010 Customer and Channel Management Survey