Kitchen & Bath
Hospitality
Interiors Group
Power Group
Four Diverse Business Groups
Armstrong, BC Bristol, PA Brownwood, TX Chicago, IL Hattiesburg, MS High Point, NC Hildebran, NC Huntsville, AL Kohler, WI
Mexico City, Mexico Monterrey, Mexico Mosel, WI
Portland, OR Reynosa, Mexico San Francisco, CA Saukville, WI Sheboygan, WI Sheridan, AK Spartanburg, SC Union City, TN
Belvoye, France Berkshire, England Brest, France
Champagnole, France Cheltenham, England Cholet, France Dubai, UAE Hull, England Martin, Slovakia Moscow, Russia
Oer-Erkenschwick, Germany Paris, France
Passel, France Reims, France Reiti, Italy San Paolo, Brazil St Andrews, Scotland Tangier, Morocco Troyes, France Wallasey, England Zaragoza, Spain
Auckland, New Zealand Aurangabad, India Bangkok, Thailand Beijing, China Cebu, Philippines Changshu, China Changzhou, China Chongqing, China Foshan, China Jhagadia, India
Jurong, Singapore Medan, Indonesia Nanchang, China Saraburi, Thailand Semarang, Indonesia Seoul, South Korea Shanghai, China Sydney, Australia Zhongshan, China Zhuhai, China
Kohler, WI
The World Of Kohler
Innovation Changes Everything
We are in the inspiration business.
JETBLUE
An integrated experience from kiosk to blue snacks
TARGET
Where designers go to shop – and sell
APPLE
Proving that style, specs, and sophistication can work as one
NIKE
The Swoosh is worldwide, bringing art and fashion to sport
STARBUCKS
Making Italian-Inspired coffee culture safe for America – and the world
BURTON
Capturing the snowboard lifestyle – with cutting-edge tech
KOHLER
Fixtures that make the loo worth a visit
VIKING
Cooking like a pro, with unquestioned good taste
OXO
Ergonomic, affordable kitchen tools with curves like museum pieces
HERMAN MILLER
Furniture that inspires – and solves problems
Thirty Companies That Get It
ICONS
FASTCOMPANY
... exploding number of combinations in styles, colors,
finishes and configurations.
Boosting Profitability through
Product Segmentation
and Supply Chain Alignment
“AND SERVICE”
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cu m %
Un its S old V olume
SKUs
43% More
Than
Expected
15% More Than
Expected
Product Velocity Profile Is Highly Accentuated: Small % of
SKUs Constitute Over 80% of Unit Volume…. 2x Expected
Values
% of SKUs
% of Volume
SKU DEMAND PROFILE
Consistent
Mean /
Std. Dev.
# SKUs Net Revenue EBITDA
# SKUs Net Revenue EBITDA
Faster, Consistent
Inconsistent
Slower, Consistent
Key Focus
Area
Velocity versus Consistency
Units Shipped
Fastest Slowest
Faster, Inconsistent
# SKUs Net Revenue EBITDA
# SKUs Net Revenue EBITDA
Slower, Inconsistent
SKU PROFITABILITY PROFILE
Quintile Profile
Quintiles
1 2 3 4 5
Net Sales ($)
SKU Count
Gross Margin
Net Income
Op. Income
Avg. Op. Income/SKU
SKUs (descending order of Operating Income $)
Cu mula tiv e Op. I nc ome % Cu mula tiv e Net S a le s %
Cum Op Income%
Cum Net Sales%
Higher Volume
Products
— Profitable
Few Products
Eroding Margin
High Quantity of Low Volume Products
— Minimal Profits
… IT COMES WITH A PRICE
and higher than necessary
inventory levels
Inconsistent On-time
Delivery
Expected Level
AS-CONFIGURED “ENTITLEMENT” SOLUTION
Past LOTIF: 92% but highly variable
In ve nt or y ($ )
LOTIF 82
102 122 142 162 182
90% 91% 92% 93% 94% 95% 96% 97% 98% 99%
68%
Current Inventory 30%
additional inventory
45%
SEGMENTATION FOR SUCCESS
1. Service Level Alignment
Size = Annual Revenue
High Red = Shrinking Share
Green = Growing Share Yellow – Constant Share
Gross Margin
Worst than market Better than market Service Level (Lead Time, LOTIF) Significant, strategic
volume Over Serving
Under Serving Sustain Success
Low
MTO to
Previous Range New Range
2. Manufacturing Strategy Alignment
Inventory
LOTIF
MTS Ratio
SKU SEGMENTATION AND PRODUCTIVITY
IMPROVEMENT PROCESS
Marketing
SC Finance
SKU Demand
Segmentation
SKU
Profitability
Segmentation
SKU Segmentation based on
Customer Value Proposition and
Market Expectations
1. Portfolio Analysis
3. Alignment of Service Levels
and Manufacturing Strategies
2. SKU Productivity
Improvement “Trimming the tail”
SKU SEGMENTATION BASED ON
CUSTOMER VALUE PROPOSITION
Role of SKU and SKU relationships
SKU and Customer/Channel specific service level expectations
• Standard finish 7 days
• Custom finish 28 days
• Custom product 6-8 weeks
Customer/Channel specific shopping behaviors
Competitive consideration
• Profit Generator: Core SKU expected to generate volume and healthy OI margins
• Competitive / Market Share: SKU required to compete at potentially lower price point to keep or gain market share
• Line Fill: SKU availability required to get Profit Generators on the shelf (e.g. uncommon colors)
• Excitement: SKU expected to create the “buzz” in the market to drive demand / brand awareness
• New Product: SKU in first year of introduction where volumes / margins may not yet be acceptable
• Vintage: A classical finish SKU that is highly profitable and/or has a high strategic value
SKU Productivity Improvement – “Trimming the Tail”
High Level Decision Tree For Determining Appropriate SKU Actions
New product <3 Years Gather all SKU
data by category, family, sales, cont margin and operating
income
Do Nothing yes
no
Determine Financial Value Based On Adjusted OI and Payback Period Against
Thresholds / Expectations Adj. SKU P&L
Determine Strategic Value Based On SKU Role, Customer, Competitor, Color/Finish, Accessory
High Profit &
Payback Do Nothing
yes
High Strategic Value no
High Volume yes
Spec Change Feasible Change Specs
Procurement Savings Make Procurement
Changes
Lower Cost Mfg Location Make Mfg. Location
Changes
Price-Channel Changes
MTO / ATO
High Volume
Discontinue
no
yes yes
yes
no yes no
no
no no
Make Pricing Changes
yes
yes
no
Potential To Be Automated Quarterly Review (Suggested)
Define SKU Role and
Targets
Are Stranded Costs High
no
Evaluate If Other SKUs Can Be Made At The
Plant
yes Absorption
Feasible no Do Nothing
yes
