In retailing stock management, SKU proliferation seems like a good response to a customer’s changing demands. However, the extra SKUs that get tacked onto the inventory management system makes it harder to track, control and forecast the pipeline.
In this post, we’ll dive into what SKU proliferation is, its pros and cons, what causes it and when is enough really enough!
What is SKU Proliferation?
SKU proliferation is the process of expanding your inventory by adding more products in response to buyer preferences and evolving demands. For example, an eCommerce seller selling beauty products might assign 4 different SKUs for face cream. These could differ by usage whilst originating from the same brand. Over time the seller would come to know that customers prefer a certain cream manufactured by competing brands which will lead to them adding cream varieties, raising the total SKUs from 4 to say, 14. The customer in question may later want something travel-friendly or for a particular occasion, which would mean a further diversification of the product line to accommodate these preferences.
SKU proliferation occurs when
- Demand for variety goes up, spurring sellers to introduce more goods to their line.
- Expectations for quicker deliveries exist, forcing distributors to stock up adequately to avoid running out, especially for shoppers subscribing to same day or express deliveries.
- Technological advances drive development and new launches, thus altering your inventory.
- Reluctance to write off slow-moving or seasonal inventory even when it’s not performing in your favor.
When is SKU Proliferation a bad idea?
On the whole, SKU proliferation isn’t a bad idea especially if the retailer is expanding their presence on more sales channels. However, if it is introduced to the eCommerce supply chain without proper inventory management, it winds up being mismanaged, leading to increased costs, lowered profitability and fulfillment inaccuracies.
The added inventory promises more footfall and sales volume. But the real question here is this;
Can it face off against costs associated with slow-moving inventory, customer service (complaint resolution and feedback engines), floor space and labor?
SKU proliferation lets eCommerce businesses capture and fulfill demand, thereby maintaining their market relevance. Even if newer products deviate from the usual offering, the business retains its reputation so long as the product provides value and meets the expectation. In other words, customers have a comparative experience that gives them more freedom to choose. In fact, most eCommerce retailers intentionally keep those choices to ‘good’, ‘better’ and ‘the best’.
What problems do SKU proliferation cause?
Trends are seasonal, and impacts by SKU proliferation by increasing the volume of (and risks associated with) unsellable inventory. Inventory eventually becomes slow-moving, and invites surplus costs in the time it takes to be offloaded.
Besides this, proliferation
- Creates complex picking practices prevents order fulfillment from being streamlined.
- Increases floor space and warehousing costs.
- Complicates inventory management due to the lack of demand planning.
- Amplifies inventory counting, storage and order processing errors.
- Increases the order cycle time, i.e. the time for orders to be picked, packed and shipped.
It makes sense to implement a proliferation strategy with automated inventory management. You can then track the inventory in real-time, update all sales channels uniformly, optimize storage capacity and get unconditional inventory visibility.
How to Keep SKU Proliferation Under Control
eCommerce companies can remedy SKU proliferation by
- Identifying and moving dead stock
Before a new SKU is added, make a game plan for aging inventory. You can use the inventory aging report on omnichannel ecommerce solutions like EasyEcom to get a list of the number of units available at a particular warehouse for the time duration you specify. For example, products sitting idle beyond 90 days can be pushed out through aggressive discounts and combo deals. You can even donate inventory or reshuffle it across other warehouse locations. liquidating deadstock can free up floor space for newer SKUs. Additionally, reports on warehouse-wise inventory reports and SKU performance can identify slow-moving inventory that risks becoming dead stock. The SKU performance report in particular lets sellers track performance of items sold within the time duration specified, which is an indicator of how these products are likely to perform in the future.
- Forecasting demand to keep the inventory lean.
Demands can come up or go down according to market volatilities. Inventory planning is the smart way to keep up by maintaining stock adequacy and availability. The inventory planning by days reports, for example, lets you identify the number of products that you’ll need to reorder. On EasyEcom, you can set the number of days for the system to display orders received for that particular time period. You can compare this against your current inventory to forecast the exact quantities to place orders for from the manufacturer or vendor. This optimizes your procurement costs.
Let’s say you received one order for a Dell model laptop and the inventory shows three pieces as available. You can then determine your ability to fulfill the order with the current inventory rather than stockpile unnecessarily. Similarly the planning by days coverage report gives suggestions for how long (in days) your current inventory suffices to fulfill orders. These forecasts allow you to estimate inventory quickness within the specified timeframe.
- Switching to automated inventory management
An AI-driven inventory management system lets you keep track of inventory levels and movement in and out of the warehouse in real-time. Before you add new SKUs, you will need an idea of how much to order to counter inventory seasonality, stockouts and over-ordering. It can also help you identify slow-moving inventory to decide what to do next.
- Conduct SKU rationalization
SKU rationalization, a.k.a inventory optimization, is the process of deciding if on-shelf products should continue (with or without adjustments) or discontinue based on their profitability. eCommerce merchants need to factor in inventory, space costs, supplier and courier fees to determine those SKUs that are hurting their business. Consequently they’ll be able to curate their catalog and bring down operational costs. Rationalization brings up SKUs that have a strong margin, high inventory turnover rate and low order fulfillment costs.
- Optimized warehousing
Optimizing the warehouse is the only way to prevent SKUs from proliferating. Although your stock shouldn’t exceed warehouse capacity, how pallets are arranged determine the number of SKUs that can be reasonably accommodated. Mobile racks are a good idea to increase the capacity while making the SKUs more accessible and visible. You can store smaller products using a metal point boltless shelving system optimized warehousing can not only give you visibility on the entire stock but can also assign goods to the locations to speed up order fulfillment.
The take-home lesson
As mentioned earlier, SKU proliferation isn’t all bad; it’s an indicator of a customer’s brand preference (choosing you over the rest). With a proper inventory and warehouse management solution, SKU proliferation increases revenue and delivers customer satisfaction by guaranteeing availability, diversity and sufficiency.
However, if left unchecked, eCommerce businesses find themselves trapped in a never-ending cycle of adding extra SKUs which increases maintenance and operating costs. Eventually sellers may get saddled with dead stock that doesn’t go out despite being promoted on clearance sales. This is why you need to perform a routine SKU analysis using reporting tools and metrics to assess if the time is right to expand your inventory or hold back.