1. Eighty–Twenty Rule Rocks
Operations experts have long promoted that 80% of sales come from 20% of the
products. However, suppliers continue to create more styles, colors, sizes, and models
to presumably serve more customers and their varying needs. There is even a book that
promotes the concept of “The Long Tail” theorizing that the internet provides an
opportunity to offer consumers almost unlimited variety and flexibility.
The flexibility rule is a myth. The 80-20 rule truly runs business,marketing, and our
personal lives. A Harvard Business Review article analyzed numerous business
examples and found that products seldom increased profits by increasing offerings. We
waste time, money, inventory dollars, and frequently add confusion by adding
complexity.
The tough economy has produced a great opportunity to reduce proliferation of products
that just aren’t selling. The selection of brands, products, and colors in cosmetics is
simply overwhelming--confusing the customer more than anything. It took a crisis for
GM to realize that most of their efforts were going into duplicating Buick, Pontiac, and
Oldsmobile products, models, dealers, and advertising to basically sell the same car.
Much of the success Costco has experienced is by focusing on the best price for the
things that sell rather than proliferating SKU’s.
There are various ways to reduce SKU’sand increase sales. All of these strategies
center on the premise of havingkey items in-stock while maintaining low inventory levels
on low-volume items. While this applies to most organizations, it is not applicable to
businesses that are based on serving diverse needs like parts suppliers or retailers
featuring selection or niche markets. Some examples are below:
 As the head of a leading moderate price dress shirt company, we were looking to
streamline our supply chain. We implemented a strategyto halve our SKU’s by
consolidating sleeve lengths. For example we used to make separate 33 and 34
inch sleeve lengths and consolidated them into a 33/34 length which was actually
a 34 inch length. The results were spectacular. Returns went down because
people didn’t really know their size and were buying them too small. Sales went

2. up because the retailers were better stocked. Retailers also used some of the
inventory reduction to buy more styles and colors--further increasing sales.
 Nordstrom’s has taken this one step further by consolidating their entire on-line
and in-store inventory in one system. The stores stock all the key items,sizes, and
colors, but they allow customers to order online or from other stores with 1-2 day
delivery if they are out of stock of any item they might want.
 The highest priority is to be in stock on what sells most frequently and then to
feature those items. This means better merchandising by size, color, price, and
features. Many times this can improve sales by reducing consumer confusion and
simplifying the decision process.
The best solution to mostsales problems may simply be to get rid of many of the poor
efforts and capitalize on the best existing products. Providing excellence in what we do
best is simply a better strategy than diverting our time, money, and energy in projects
that won’t work.