Combatting SKU Proliferation: Effectively Streamlining your Product Line 

Companies have been including new things to their inventory for a long time now. In fact, according to Harvard Business School professor Clayton Christensen, over 30,000 products are launched every year. Consumers have new demands that change with seasons and the evolution of trends. And companies want to fulfill them — albeit with the intention of increasing profits. 

However, like most things in the world, the introduction of new products and the subsequent re-evaluation of the logistics chain – also known as SKU proliferation – can have an adverse effect on the overall business. 

Nevertheless, it is a crucial part of business expansion and is often termed extremely important by most. So, how can a firm use this process to their advantage? Read along as we explore the concept in depth, while exploring the different SKU proliferation solutions.

What is SKU Proliferation?

In essence, SKU or Stock Keeping Unit Proliferation is the practice of adding several new products to the inventory. This practice is generally adopted once businesses learn of the demands and industry trends within their area of operations. 

For instance, a clothing brand may have t-shirts in five different colors. However, on conducting some market research, they may find that competitors are offering similar shirts in more than five colors. In order to keep up with this demand, the brand introduces five more colors to the stock of t-shirts. This increases the total number of t-shirts from 5 to 10.

While this can encourage an influx of new customers and increased sales, companies may also run into certain issues. This can include reduced inventory visibility and a rise in carrying costs and ultimately affect profitability adversely. 

Key Causes of SKU Proliferation

Now that we’ve covered the question of “what does SKU proliferation mean,” it further begs the question of what causes SKU proliferation. This process is the result of a whole range of factors that may be internal or external. 

Nevertheless, it is a natural part of business expansion and therefore, unavoidable. Hence, the goal remains to manage it efficiently rather than to prevent it entirely. 

Here are some of the most common causes businesses might be experiencing an uptick in SKU proliferation.

CAUSES OF SKU PROLIFERATION

1. Customer expectation for choice and flexibility
2. Pressure to keep up with industry trends
3. Not measuring the SKU speed or turnover

1. Customer expectations for choice or flexibility

Customers often demand a variety of products from a business. This is often the driving factor for businesses to introduce new products to the market for the business to stock. Furthermore, the customer’s expectations towards delivery speed can also prompt a business to stock more than usual to facilitate same-day and two-day express delivery. 

However, this can also mean stocking items that are less popular owing to the possibility that a customer might order that as well.

2. Pressure to keep up with industry trends

In the age of rapid technological advances, people often want newer things every other day. To put it into perspective, according to infonewt’s report of Apple product release patterns, the first iPhones starting in 2011 were released only yearly. However, beginning in 2020, this pattern changed, with Apple holding two new iPhone launches – one minor one in spring and a major one in fall – every year.

The need to keep up is insane and SMEs with smaller customer bases often bear the brunt of it more than the conglomerates. 

3. Not measuring the SKU speed or turnover

The operations team’s poor inventory lifecycle management means that the company lacks a plan or procedure to eliminate underperforming SKUs from its supply chain. Additionally, even when the physical inventory is non-performing, decision-makers at the operations level are occasionally reluctant to dispose of it. Due to the needless accumulation of inventory, there are then more losses than profits.

Negatives of SKU Proliferation

While adding new products to the inventory sounds like an incredibly good opportunity to drive profit, it can pose great problems to the supply chain. SKU proliferation can cause massive disruptions if not managed efficiently.

Stated below are some of the different ways that can happen to your business. 

1. Increase in storage costs

Adding more SKUs brings with it the massive task of minimizing logistics costs. An increase in inventory, however, is directly linked to an increased need for storage, warehousing and fulfillment. All of these processes cost a lot of money. 

Of course, you can always rent additional storage space. However, that will compel you to hire more labor and management staff. In turn, this will increase your supply chain management and storage costs dramatically.

2. Inefficient cash flow

It is obvious that with SKU proliferation, a lot of your cash gets caught in the production of inventory that isn’t selling particularly well. And when this happens, you end up having to cut costs in other areas of the supply chain and business, therefore, preventing some form of business growth.

Essentially, the SKU proliferation cycle also obstructs your ability to acquire new technology, market products that actually sell, and even produce better-selling products.

3. Increase in order fulfillment times

A constant addition of SKUs or SKU numbers can also cause you to face issues with fulfillment. The increase in inventory can have a direct impact on how you handle inventory, particularly in the field of picking, packing, and shipping. 

This slowdown in the efficiency of the shipping process can result in slower deliveries and retail fulfillment. If you’re not selling things fast enough, the inventory collects over time, causing you to remain trapped in the vicious circle of warehousing challenges.

Moreover, it can cause your entire inventory forecasting system to collapse. Ultimately, it has a direct effect on your supply chain efficiency if you do not have the correct processes in place. 

How to Keep SKU Proliferation in Check?

SKU proliferation is not a curse entirely. It is a natural route of progression, especially for D2C brands that wish to appeal to their customer base and bring in new patrons. The key is to install the correct supply chain management tactics and perform efficient inventory planning. This can help scale back on the possibility of encountering all of the perils of SKU proliferation mentioned above.

Moreover, keep these best practices in mind while expanding your business, to keep SKU proliferation in check:

• Forecast demand: This is crucial to keeping track of inventory and avoiding proliferation of SKUs. Along with real-time inventory tracking, forecasting demand can help keep inventory at an optimal level.
• Move out dead or slow moving stock: Dealing with older inventory is crucial so consider bundling slow-moving products bestsellers, offer bulk discounts, and promote a flash sale to move dead stock and save on production cost.
• Install a better system for inventory management: If the current inventory management system doesn’t offer you key metrics such as real-time tracking with accuracy, consider replacing it. Instead invest in inventory management software across the supply chain.

Most importantly, consider dipping your toes into the area of SKU rationalization to audit and understand what SKUs need to stay and what needs to go. Read along as we explore this concept a little more.

When is it time to rationalize your SKUs?

SKU rationalization is the process that allows businesses to decide if they should retain certain SKUs or get rid of them if they aren’t bringing in profits. This can include studying a whole range of factors such as:

• Demand consistency
• Return rate
• Cost of fulfillment

However, it isn’t particularly easy to figure out when to start the SKU rationalization process. So here are some telltale signs that you may need to consider rationalizing your SKUs. 

Rationalize your SKUs

1. Investigate factors such as: 
   1. fulfillment cost
   2. demand consistency
   3. return rate
2. Identify tell-tale signs such as:
   1. Abundance of date preventing analysis
   2. Increased fulfillment costs
   3. Buildup of dead stock
3. Employ expert help from 3PLs like Locad to store your excess SKUs

1. An over influx of data preventing effective analysis

An increase in SKUs also means that a business will experience an increase in data to wade through to figure out the inventory. And if the SKUs have proliferated and grown to the point where the people at the center of this data analysis are struggling to effectively analyze this data and move forward, accurate sales forecasting can become a huge hurdle. This is a pointed sign that a business may need to reduce their inventory.

2. An uptick in fulfillment costs

Inventory growth often poses bigger implications for the fulfillment operations of a business. An increase in inventory and SKU counts implies the requirement for increased storage capacity, Furthermore, having to store inventory in multiple locations can complicate fulfillment even more. So now the business not only needs to deal with increased costs, but also inventory management across locations. 

In addition to these issues, there is also staffing and inventory automation to offset the risk of inaccurate fulfillment. An escalation in these expenses demands that you take a look at your inventory.

3. Dead stock is becoming a bigger issue

An escalation in the number of SKUs that does not see any movement is often a burden to the business. It costs the business space and lost revenue. When consumers are offered multiple choices of the same as a result of SKU proliferation, growth in dead stock becomes an issue. This causes stock to move slower and slower and even come to a halt altogether. 

If your business is facing such an ordeal with any products, it is time to re-evaluate your inventory and consider rationalizing SKUs.

Partner with Locad for Your Warehousing Requirements

Anybody can be faced with the problems of SKU proliferation. But it is not the end of the world. With the appropriate plan in place, any business can deal with it. Especially if they act quickly and use the right tech while implementing their course correction methods.

The most commonly encountered problem with SKU proliferation is the accumulation of inventory and therefore its storage. With Locad, you will have access to its many warehouses spread across several different regions. 

Moreover, you will never have to worry about hiring additional workforce to manage the inventory. Furthermore, Locad utilizes advanced tracking technology eliminating the need to invest more on inventory tracking and management.

If SKU proliferation has plagued your business, you do not need to bear the consequences. The experts at Locad will remain at your service and help you navigate it just right.

So what’s the hold? Join hands with us now and find the quickest route out!

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