Quantifying packaging material complexity to improve portfolio management

Abstract

Product portfolio complexity poses a significant challenge for many consumer packaged goods (CPG) manufacturers, resulting in higher costs, risks, and production time. This work aims to assist the sponsor company in managing and measuring its complexity and determining the financial impact of delisting complex SKUs. We used a four-phase methodology involving data collection and mapping, analytics, complexity analysis, and financial analysis to achieve this. The complexity analysis was applied to the primary and secondary packaging for a variety of product SKUs using the commonality index metric, which indicates the frequency of components present in an SKU. We then connected this metric with aggregated and granular financial metrics to identify the relationships between complexity and costs. Our results showed that SKUs with a low commonality index exhibit an average total cost 40.8% higher than those with a high commonality index. Additionally, our results found that SKUs with a low commonality index had a packaging materials cost that was 105% greater than SKUs with a high commonality index. Therefore, modifying specific SKU components with low commonality makes cost savings possible. We suggest using the commonality index and aggregated and granular financial metrics as a guideline for delisting and introducing new products to effectively manage and reduce supply chain complexity in the CPG industry.