Supply Chain Blog

SKU Proliferation and its’ effect on your FMCG Customer Service

Posted by Dave Jordan on Tue, Jun 22, 2010
Sku's sneak onto price lists when nobody is looking. Sales & Marketing colleagues like launches with lengthy lists of skus; different flavours, different sizes, different colours. How many shelf facings do they want? How do these decisions get through S&OP meetings?

Do you know how this proliferation might be affecting your customer service? Rather than delighting more and more customers you are likely to be disappointing them and wasting countless Euros at the same time.

Factory complexity. Time is money in factories as they try and make their assets sweat and get as much out of the gate as fast as possible and as cheaply as possible. Each colour or perfume change or label or pack size adjustment stops the production line and steals valuable time.

Distribution centreWarehousing. Each individual sku requires a dedicated pallet or rack location. The more sku's you have the more money you are paying for space. When you have 16 variants of the same shampoo pack size you can understand why picking errors occur and lower your customer service level.

Cost per sku. Have you ever sat down and calculated how much it costs to have an sku on your price list? Sales staff will bemoan the rising listing fees but in reality the cost of an sku is much, much more. Including, e.g.

  • An employee has to buy the different label, dyestuff, cap, box etc.
  • The new raw material/packaging has to be stored in a warehouse.
  • Someone has to call it off at the factory.
  • The factory has to make the sku.
  • The finished product is stored in a warehouse.
  • Someone at the operating company has to plan the sku.
  • Transport ex factory.
  • Storage at operating company warehouse.
  • Transport to Distributor or Retailer.

All of these activities and more ensure that the cost of having an sku on the books is significant. In a very rough calculation the cost of having 1 sku on your books is typically 30,000 Euros.

Sku rationalisation. Ok, so you are drowning under sku complexity. Far too many organisations launch a new sku and then fail to revisit the data assumptions on which it was launched. Firstly, if a new sku is not even planned to deliver at least 30,000 Euros (or whatever your in-house figure may be) profit then DON'T LAUNCH IT! For all sku's on your price list you must carry out an sku rationalization exercise at least quarterly. Sku's that do not meet profit and/or margin criteria should be placed on watch. If they remain below your cut off points then it is time to propose a delisting.

Of course, there will always be special cases like sku's that constitute a range or a niche regional product. As long as these are the exceptions then you have a chance of a fast flowing, efficient supply chain.

Introducing an sku is a cross business decision, or should be! When considering new sku introduction at your next Board or S&OP meeting then the supply chain people should ask some testing questions.

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Photo Credit: Nick Saltmarsh


Tagss: Customer service, SKU, FMCG, Dave Jordan, S&OP