SKU Remediation Patrick Rogan Manager of Forecasting MeadWestvaco, Sidney June 1, 2005

1
SKU RemediationPatrick RoganManager of
ForecastingMeadWestvaco, SidneyJune 1, 2005
2
Overview

• About MeadWestvaco Consumer Office Products
• Variety - what consumers, retailers and resellers
  want
• Variety ? more SKUs. Sales and Marketing want
  more, Operations want less
• What is the right, or most profitable number of
  SKUs?
• SKU Remediation definition and a process
• Process ABC analysis, survey
• Results
• Next steps

3
About MeadWestvaco Sidney

• 80 years in the dated goods business
• Keith Clark, AT-A-GLANCE, Mead, MeadWestvaco
• Products
• Customers
• Highly seasonal business
• Annual cycle
• Level load manufacturing strategy
• Make to stock
• High Risk of Obsolescence

4
Consumers Demand Variety

• Retailers/resellers look to manufacturers to
  provide variety
• The right number and mix of products ensures
  placement in retail plan-o-grams and dealer
  catalogs
• Costs increase with the increase in the number
  and variety of products
• Increased set-ups
• Short runs
• Increased number of parts and materials
• Increased inventory levels - ROA negatively
  impacted
• Increased administrative costs

5
Organizational Conflict

• Sales and Marketing want more variety, more SKUs
• Operations favor fewer number of items
• Some costs, for example, forecasting and
  planning, are directly related to the number of
  products a company offers
• It takes ten times the effort to forecast 10
  items at 100,000 as it does one item at
  1,000,0000

6
What is the Right or Most Profitable Number of
Items to Carry?

• MeadWestvaco Consumer Office Products in
  Sidney, NY is using SKU Remediation to answer
  this question
• SKU Remediation is the systematic identification
  and removal of low profit and low revenue
  products from a companys portfolio (Using SKU
  Remediation to Eliminate Low Value Products by
  Michael Roberts. Chemical Week March 14, 1999
  161, 11 Page 59.)

7
Process for SKU Remediation

• Identify the group of items for analysis
• Conduct Pareto or ABC analysis (used to
  demonstrate 80/20 rule)
• Identify low value C items (bottom 5 of items)
• Survey product marketing owners to question value
  of keeping C items in the portfolio
• Identify drops
• Deal with inventory, potential obsolescence

8
ABC Analysis of Planning Products and Organizers
9
Survey Questions for Marketers

• Is the item a customized special for a
  customer?
• Does the item have a high volume parent item?
• Is the items forecast less than its standard
  cost?
• Is the item vital to a key customer?
• Does the item fulfill a strategic need?
• Does the item have some other competitive
  significance?
• Is the item new?
• Is there a viable substitute for the item?
• Is the item cataloged?

10
Results - SKU Remediation Drop Summary

• Note On-hand inventory will be sold down prior
  to drop/discontinue.
• We applied the process to another group and
  dropped 416 SKUs
• Together, with earlier drops on the original
  1,607 C items, we are dropping 1,057 SKUs!

11
Next Steps

• Next steps
• Code items as drops to prevent continued
  production
• Marketing will work with customers
• Remove from catalogs and sales collateral
• Sell down
• Code discontinued and identify any substitutes
• Liquidate any remainders after sales drop off
• Decide on frequency of SKU Remediation process
• Planning strategy on remaining C items