By eliminating some products, AMKUS could focus exclusively on promoting and selling those that customers wanted most.
Kyle Smith
President and CEO, AMKUS
Make Room
For New Products &
Revenue Growth
AMKUS Rescue Systems develops and manufactures a wide range of hydraulic and battery-powered tools and accessories
for fire rescue teams.
28% Growth
They experienced 28% growth in year-over-year sales.
For more information on this story, contact
Kyle Smith, President and CEO, AMKUS: [email protected]
Goal
As AMKUS Rescue Systems introduced multiple new products, sales of legacy products quickly dropped. Maintaining the legacy product line created complexity for AMKUS’ operations and negatively impacted key metrics like customer on-time delivery and gross margins. It was time for product line simplification (PLS).
Process
First, AMKUS separated saleable finished good items (rescue tools) and aftermarket parts and accessories (service parts). The wide price spread and corresponding revenue between these categories would have skewed the 80/20 results if they were analyzed together. Next, AMKUS gathered the last three years of sales and margin data by product and customer. They used product quartiles, customer quartiles, and quads to assess which SKUs and customers were most important and which had little impact on company results. Not surprisingly, only a handful of products generated the majority of revenue and margin. The other SKUs were simply consuming precious resources (assembly time, support from indirect employees, working capital, etc.).
Multiple finished good items were discontinued. There were obvious replacements for some of the obsoleted products, but not for others. AMKUS decided to walk away from those sales. Fortunately, sales and margin data showed that the growth driven by new products would more than offset any lost revenue or margin. Additionally, maintaining both legacy and new products would have required additional direct labor. By discontinuing the legacy products, they could reallocate current direct labor resources to support growth.
Results
“By eliminating some products, the AMKUS sales team and dealer network could focus exclusively on promoting and selling the products that customers wanted most,” said Kyle Smith, President and CEO, AMKUS. “The resulting growth far outweighed any revenue lost due to PLS.”
In the first phase of PLS, AMKUS reduced saleable finished good items from 121 SKUs to 42 SKUs with an estimated negative revenue impact of 2%. Meanwhile, year-over-year sales grew 28%, and EBITDA grew 780 bps despite discontinuing multiple products!
Key Learnings
- Trust the data and use it to guide PLS decision-making. The decision to maintain low-volume products can become an emotional one if data doesn’t drive the decision-making process.
- Eliminating some products, the AMKUS sales team and dealer network focused their efforts exclusively on promoting and selling the products that customers wanted most and the resulting growth far outweighed any revenue that had been given up during PLS.