Background and Challenge

L.E.K. Consulting's client, a leading industrial and mining explosives company with more than $1 billion in global revenue, asked us to analyze its SKU performance and develop recommendations to improve product profitability.

Over time, the company had seen a proliferation of its SKUs, causing unnecessary production costs and decreased profitability per SKU.

Approach and Recommendations

Database and opportunity sizing:

  • Estimated profitability by product, including validation of cost methodology
  • Identified underperforming SKUs (adjusting for indirect costs, capital cost)
  • Estimated opportunity size and need for further analysis

Product portfolio rationalization:

  • Determined which products need revised pricing, elimination, redesign or cost reduction
  • Collaborated with commercial team to understand potential customer and product pull through impacts


  • We identified more than $1 million in immediately actionable profitability improvements for  approximately 1-2% gross margin improvements
  • We also found potential for several million dollars in near-term profitability increases that required SKU re-pricing, elimination or small organizational changes
  • We demonstrated that SKU rationalization would have a small impact on the existing customer base
  • We also found that the top 25% of customers accounted for  approximately 90% of total gross margin in their respective channels, leading to better customer prioritization
  • Finally, we defined a number of implementation initiatives so the client could continue to investigate new opportunities and execute on recommended changes