Portfolio optimization at a juice bottler
A large juice bottler was struggling to keep up with a surge in demand. The client suspected that low volume SKUs were contributing to complexity, resulting in increased manufacturing downtime, and dampening efficiencies but were unable to quantify the true impact needed to enable change. The company commissioned Wilson Perumal & Company to deploy our unique complexity-costing methodology to identify the true costs of producing each SKU and to optimize portfolio profitability while improving operational efficiencies.
The company bottled 250+ SKUs across five different manufacturing plants. As demand spiked, plants were struggling to fill orders on time in part due to frequent product changeovers. The team recognized the need to prioritize but didn’t have a clear view of each SKU’s profitability other than by traditionally derived standard costs. Standard labor and overhead rates hid the cost of complexity (extra steps, additional changeovers, additional storage, etc.) and did not give a true view of profitability, thus making it difficult to make portfolio optimization decisions. Further complicating the situation, each plant had different operating efficiencies and labor costs resulting in different production costs for the same SKU.
Historically, the product portfolio had been managed based primarily on relative sales volume of a SKU. This approach fell short as it did not account for pricing, manufacturing difficulty, and other sources of complexity.
Leveraging similar past experiences, WP&C executed a five-week assessment of the product portfolio. The company’s products were assessed at a channel, category, and SKU level. Once the assessment was complete, opportunities were identified and solutions were developed. Key activities included:
Figure 1: Complexity Adjusted Labor & Overhead Per Case By SKU, Product Category 1
Complexity adjusted labor & overhead per case increases dramatically for orders of less than two full pallets
Throughout the project, WP&C worked closely with finance, sales, and operations teams to identify, qualify, and implement holistic changes. Key recommendations to improve profitability and increase operational efficiency included:
Figure 2: Four “Rules of Thumb” for Managing Complexity
WP&C viewed the business with a complexity lens and developed a new way of understanding profitability at the product level. The WP&C team worked with the company to develop and implement specific solutions at the individual product level to reduce complexity and unlock additional profits. Results included:
The company bottled 250+ SKUs across five different manufacturing plants. As demand spiked, plants were struggling to fill orders on time in part due to frequent product changeovers. The team recognized the need to prioritize but didn’t have a clear view of each SKU’s profitability other than by traditionally derived standard costs. Standard labor and overhead rates hid the cost of complexity (extra steps, additional changeovers, additional storage, etc.) and did not give a true view of profitability, thus making it difficult to make portfolio optimization decisions. Further complicating the situation, each plant had different operating efficiencies and labor costs resulting in different production costs for the same SKU.
Historically, the product portfolio had been managed based primarily on relative sales volume of a SKU. This approach fell short as it did not account for pricing, manufacturing difficulty, and other sources of complexity.
Leveraging similar past experiences, WP&C executed a five-week assessment of the product portfolio. The company’s products were assessed at a channel, category, and SKU level. Once the assessment was complete, opportunities were identified and solutions were developed. Key activities included:
Figure 1: Complexity Adjusted Labor & Overhead Per Case By SKU, Product Category 1
Complexity adjusted labor & overhead per case increases dramatically for orders of less than two full pallets
Throughout the project, WP&C worked closely with finance, sales, and operations teams to identify, qualify, and implement holistic changes. Key recommendations to improve profitability and increase operational efficiency included:
Figure 2: Four “Rules of Thumb” for Managing Complexity
WP&C viewed the business with a complexity lens and developed a new way of understanding profitability at the product level. The WP&C team worked with the company to develop and implement specific solutions at the individual product level to reduce complexity and unlock additional profits. Results included: