When It Comes To SKUs, Less Is More For Customer Service

Nortek Global HVAC’s parts business provides residential and light commercial customers with parts for repair, replacement, and warranty claims.

38% Increase

They reduced SKUs by 71% and estimate a 38% increase in gross margin.

For more information on this story, contact
Philip Windham, President and CEO, Nortek Global HVAC: [email protected]

Goal
Nortek Global HVAC (GHVAC) parts business needed to simplify its product line.

Process
The parts business simplification team completed a quad analysis on customer sales and product SKUs for residential and light commercial. On the residential side, the team found that 11% of their SKUs made up 75% of the gross margin dollars, while 48% accounted for only 2% of the gross margin dollars. On the light commercial side, 8% of their SKUs made up 73% of the gross margin dollars, while 47% accounted for only 4% of the gross margin dollars.

The parts team identified SKUs with no to minimal sales and without warranty claims. Additionally, the team identified products that are not key to Nortek Global HVAC’s business and mission, including washers, screws, and PVC pipes that are not required for installation or that can be purchased from wholesale distribution partners. These were marked as excess/obsolete and removed from the parts offering.

They also reviewed order policies and fees to reduce the number of individual orders received. With residential and light commercial parts combined, they found that 85% of orders accounted for only 20% of revenue.

Results
The parts segment SKU reduction and subsequent terms and conditions exercise resulted in fewer orders, higher dollars, higher margins, less complexity, and a higher key ratio with less internal effort for its teams. Overall, the parts team eliminated 9,913 SKUs and significantly increased prices on the remaining low-selling SKUs. Fewer SKUs helped eliminate unnecessary costs associated with buying, stocking, and selling these products and freed up time and resources to better serve top customers.

By applying 80/20, the Nortek Global HVAC parts team simplified their parts offering with a 71% reduction in SKU count. By eliminating these SKUs and raising prices on the remaining low-selling SKUs, the Nortek Global HVAC parts business estimated a 38% gain in gross margin dollars.

Key Learnings

Follow the data.
Be bold first on paper and then bold in action.
Don’t be constrained by what you’ve always done (e.g., selling washers, screws, and pipe that are not core to your business when they can be easily procured elsewhere).