Client:
A Middle Market Manufacturing Company
Challenge:
A manufacturing company with an extensive and increasingly complex product catalog faced challenges in profitability tracking, operations efficiency, and customer service performance.
Over time, the company had significantly expanded its SKU count, largely driven by customer demands and product variations like packaging types. However, they did not have a clear view of profitability at the individual SKU level. While sales per SKU were monitored, no process or systems were in place to evaluate contribution margin or lifecycle value.
This lack of financial clarity caused ripple effects:
- Manufacturing inefficiencies due to excessive changeovers
- Reduced forecast accuracy and overstocking
- Higher warehousing and logistics costs
- Strained fulfillment performance and operational complexity
- The company knew it needed to rationalize its product portfolio but lacked the tools, process, and governance to do it confidently.
Strategic Objectives:
- Develop a repeatable, data-driven method for evaluating SKU profitability
- Identify and eliminate or repurpose low-margin and negative-margin SKUs
- Reduce operational strain by simplifying the product catalog
- Implement governance around product lifecycle, service levels, and stocking strategies
- Improve manufacturing efficiency and sales focus to boost margin and cash flow
Approach:
Waypost worked closely with cross-functional teams to identify root causes behind SKU proliferation and poor margin visibility. Key issues included lack of lifecycle governance, customer-driven SKU creation without strategic oversight, and weak costing data.
To address these, Waypost:
- Built a financial model to calculate SKU-level contribution margin
- Assessed each product’s operational cost impact, including changeovers and stocking burden
- Facilitated collaborative review workshops with finance, operations, and sales
- Recommended actions for end-of-life decisions, customer transitions, or margin improvement efforts
- Designed processes for ongoing SKU governance, including service level setting and stocking policy alignment
The analysis revealed that 20% of the SKUs, including $1.2 million in negative-margin products, were eroding financial and operational performance. A mix of SKU sunsetting, customer migration, and price adjustments was recommended and implemented.
Key Steps:
- Data modeling of contribution margin by SKU
- Operational impact review of low-volume, high-burden items
- Development of SKU governance and lifecycle management process
- Internal alignment around margin thresholds and rationalization criteria
- Design of tracking tools and roles for future SKU oversight
Assessment Areas:
- SKU count growth and causes
- Margin contribution and operational impact
- Product lifecycle and end-of-life processes
- Forecasting and stocking alignment
- Financial system limitations and costing accuracy
Tools and Methodologies:
- Contribution margin modeling
- Operational burden analysis
- SKU rationalization workshops
- Lifecycle management process design
- Custom dashboards and tracking templates
Deliverables:
- SKU-level profitability analysis
- Actionable SKU reduction plan
- Product governance and lifecycle process
- Service level and stocking strategy framework
- Financial impact model with forecasted margin and cost improvements
Conclusion:
Waypost equipped the client with the tools and governance to make informed decisions about their product catalog. Several negative-margin SKUs were retained for strategic, loss leader) reasons., while others ended or transitioned—freeing operational capacity and focus.
The results included:
- Lower inventory, warehousing, and logistics costs
- More accurate forecasts and leaner safety stock
- Reduced manufacturing complexity and scrap
- Improved margins through focused sales efforts and strategic pricing
“Waypost gave us the clarity to move from gut feel to data-backed action, reshaping our product strategy for profit and performance.”