World Kitchen Methodology:
1. Calculate SEVA. The SEVA analysis is a derivative of Economic Value Add (EVA) methodology. The
financial team calculated the EVA by each stock keeping unit (SKU). (An item is a product sold at a
location.) The SEVA defined SKU profitability after adjustments for associated inventory, manufacturing,
distribution and financial assets used to make, deliver and distribute the item. While the team knew that
the analysis was directional, they did not let perfection stand in the way of progress.
2. Analyze. Plot the SEVA rating by Gross Sales for each item in the product line at a SKU level.
3. Categorize. Plot SEVA by the number of products and group the product line into three categories.
Category one products are high volume products, and the category three products are slow-moving
products.
Figure 13. Categorization of Items for Review
In the process, the cross-functional group assigns a SEVA value/item and then classifies products
into a nine-box model as shown in Figure 13. A decision to keep an item is easy if it scores six or five.
The group discussion in these product categories focuses on driving more sales. When products fall
into the "review" categories, the marketing teams were challenged to develop product action plans.
SKUs falling into the "kill categories" were either discontinued or the marketing team was given two
months to drive a turnaround in business performance.
The results were dramatic. The team reduced 42% of the poorly performing items in the product line.
In the process, a key lesson was learned. The team needs clear roles, and there needs to be a final
arbitrator of the process. In the World Kitchen case study, the Chief Marketing Officer was the
tiebreaker. Less than 5% of companies in any industry, have a disciplined process to rationalize
product complexity or product profitability. Product rationalization is essential to drive agility.
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