Simplifying CPG Portfolios: How procurement helps reduce complexity and boost profit

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In recent years, many consumer-packaged goods (CPG) companies have expanded their product portfolios faster than their operations can reasonably support. This surge in SKUs strains everything from supplier networks and packaging teams to production schedules and overall margins. As a result, more leaders are recognizing the need to course‑correct.

Unilever, for example, publicly targeted more than a 20 percent reduction in SKUs and materials to reduce complexity and improve profitability. Their move reflects a broader trend across the industry: streamlining product lines, prioritizing higher‑volume items, and eliminating low‑margin variants that drain resources.

Industry research suggests that complexity costs CPG manufacturers up to $50 billion in gross profit each year. When done strategically, simplification helps companies unlock growth, stabilize margins, and refocus their operations. And procurement sits at the center of making that shift successful.

How Procurement Brings Visibility to Hidden Complexity Costs

SKU rationalization often begins with sales or marketing teams assessing product performance. But procurement adds the essential missing dimension: a clear understanding of the true cost and operational load each SKU creates.

Procurement can uncover and quantify the hidden drivers of inefficiency, including:

  • Excess material and packaging variations
  • Minimum‑order penalties and short‑run surcharges
  • Redundant or outdated specifications
  • Long‑tail SKUs that generate outsized operational effort
With this level of visibility, leaders gain a complete picture of each SKU’s real cost, not just its margin contribution, but the actual strain it places on the supply chain. That clarity empowers teams to make smarter, more durable decisions about which products to keep, streamline, or retire. To turn that insight into action, organizations can follow a four‑step procurement playbook for smarter SKU rationalization:

1. Build a More Complete Profitability Model

Traditional margin reports rarely capture the operational impact of SKU complexity. Procurement can fill that gap by building models that account for factors such as:
  • Supplier charges for small runs
  • Scrap and changeover time
  • Fragmented packaging components
  • Inventory costs tied to slow‑moving SKUs
By integrating commercial data with operational insights, companies can avoid mistakenly cutting SKUs that play important strategic roles, and make more informed, balanced decisions overall.

2. Partner With Suppliers to Design Simpler Solutions

Suppliers are often enthusiastic about simplification efforts. Many CPG companies, including Native and Kraft Heinz, are already consolidating packaging formats to streamline their operations. This approach reduces the number of components they need to manage, improves tier pricing, and creates more predictable production schedules. When procurement works closely with suppliers, the collaboration can unlock outsized efficiencies and become a powerful part of the broader solution for the business.

3. Embed Simplification into Contracts and Supplier Governance

Once the organization commits to reducing complexity, procurement plays a critical role in making those changes stick. This includes updating key levers such as:
  • Minimum order quantities
  • Lead times for standardized materials
  • Pricing structures that reward SKU consolidation
  • Clear rules for when exceptions are allowed
By aligning these procurement policies with the broader rationalization strategy, companies can reduce downtime, support smoother transitions, and improve overall operational efficiency throughout the portfolio optimization effort.

4. Strengthen Innovation Gatekeeping with a Data Driven “SKU Passport”

Procurement can also help prevent new SKUs from reintroducing the very complexity the organization just worked to eliminate. A structured evaluation process, often referred to as a “SKU passport”, ensures that any proposed item is vetted against clear operational and economic criteria, including:
  • Packaging compatibility with existing platforms
  • Use of components already in the system
  • Feasibility of efficient sourcing
  • Sufficient volume to justify any added complexity
This disciplined approach is further reinforced by a North Star Metric framework, which anchors portfolio decisions to a single guiding performance measure. By evaluating whether a new SKU enhances the overall economic health of the portfolio or introduces unnecessary operational burden, teams can stay focused on high‑value growth. It also helps leaders avoid incremental expansions driven by retailer requests, small‑batch innovations, or one‑off marketing ideas, protecting the simplicity they’ve worked hard to achieve.

The Business Impact Leaders Should Expect

When procurement leads SKU rationalization efforts, CPG organizations often report meaningful financial benefits. These include material scale savings, lower conversion cost from fewer changeovers, reductions in inventory tied to component simplification, and improved service levels as supply networks regain stability. Companies also experience fewer write-offs and a more predictable supply environment.

The strategic impact is equally important. Simpler portfolios help organizations allocate resources toward high-value SKUs and accelerate innovation cycles. The business becomes easier to plan, easier to supply, and more responsive to market signals.

A Strategic Question for Leadership Teams

Ask your teams to consider the following:
  1. Which SKUs impose the greatest complexity burden relative to their contribution, and what does procurement reveal about their true cost once supplier, packaging, and operational factors are fully incorporated? This question often highlights unnecessary variation, supplier fragmentation, and product families that have grown without alignment to current demand. It also surfaces opportunities to create more cohesive platforms that serve both growth and efficiency.
  2. How would the business benefit from a structured, procurement supported reduction in complexity across packaging, suppliers, and production lines? Leaders often identify capacity gains, stronger supplier partnerships, improved shelf productivity, and clearer pathways for future innovation.

The Role Procurement Can Play Going Forward

Procurement has the insight, the data, and the supplier relationships to help reshape CPG portfolios for both margin improvement and long‑term growth. As the industry continues moving toward simplification, involving procurement early ensures the benefits reach far beyond cutting low performers. It strengthens supplier partnerships, boosts operational health, and creates a foundation for sustainable, profitable innovation.

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