Scott Foster
Founder & CEO, Shape Executive · 16 Feb 2026
If you want to quantify the margin you are carrying on unprofitable customers, use the Quantify margin leakage.
Enterprise Value Chain
Product and inventory rationalisation sits at the inventory stage of the enterprise value chain — the point at which accumulated commercial decisions either improve working capital efficiency or create structural cash drag that compounds forward.
View System Diagram →Most leadership teams underestimate this because they don't measure it properly. You can run this diagnostic in 2 minutes using the Quantify margin leakage.
If you wouldn't approve it today, the question is why you'd keep it. Every business carries decisions made in different circumstances, by different people, under different assumptions. A supplier contract negotiated when volume was twice what it is today. A warehouse lease that made sense when the distribution network looked different. A product line kept alive because the person who championed it is still in the building. The question worth asking — regularly, and without sentiment — is simple: if this came across your desk today, would you approve it?
The Accumulation Problem
Businesses accumulate commitments the way houses accumulate possessions. Gradually, through a series of individually reasonable decisions, until the cumulative weight becomes a constraint on the business rather than a foundation for it. The accumulation is not the result of poor judgment. Most of the decisions that built up over time were sensible when they were made. The market has changed. The strategy has evolved. The problem is not the original decision. It is the failure to review it.
What Gets Left on the Books
In most industrial businesses, a structured review of the balance sheet and operating commitments will surface several categories of decisions that would not be approved today. Inventory purchased for projects that are complete or stalled. Stock ordered on the assumption of customer demand that didn't materialise. Contracts — with suppliers, with logistics providers, with landlords — negotiated in different market conditions that now represent above-market costs. Often renewed automatically because no one flagged the renewal date. Headcount and organisational structures that reflect a strategy that has since changed. The same discipline that drives that review — structured visibility into margin by customer and product — is the foundation of pricing governance.
Why the Review Doesn't Happen
The reason most businesses don't conduct this review regularly is a combination of inertia, relationship protection, and the genuine difficulty of unwinding decisions that have created dependencies. No one wants to be the person who writes off the inventory that their predecessor bought. These concerns are legitimate. They are also, in most cases, less significant than the cost of carrying commitments the business would not make today.
The Capital Allocation Discipline
The most useful frame for this review is capital allocation. Every dollar deployed in the business — in inventory, in assets, in contracts, in headcount — is a capital allocation decision. The question is not whether the original decision was reasonable. It is whether the capital is earning an acceptable return today, and whether it would be better deployed elsewhere. Businesses that apply this discipline regularly are better at releasing capital from underperforming deployments and accumulate fewer of the historical decisions that constrain future flexibility.