Wholesale customers are demanding more product choices than ever before.
The answer why is simple. Buyers demand choice because they can.
Lower barriers to market entry for start-up distributors and accelerated global competition continue to expand supplier options for wholesale customers.
And choice is growing at the product level as well. Manufacturers aren’t just bringing all-new products to market. They’re also atomizing existing product offerings to target market niches. Single products are becoming product families, as new versions are spun off based on secondary product attributes or variations in packaging.
annual SKU proliferation rates of 30%+ within product categories.
To keep up and continue to satisfy customer demands, many distributors find themselves pulled into a continuous cycle of product catalog growth.
Incremental though the change may be, SKU proliferation comes at a cost. Every expansion in inventory creates additional complexity and deepens the threat to overall efficiency and profitability.
Management challenges associated with SKU proliferation include:
- Pressure on the efficiency and accuracy of warehouse operations. Stocking additional SKUs creates more complex picking operations, decreasing efficiency and increasing the probability of errors.
- Difficulty predicting demand and optimizing stock levels. As manufacturers divide products into individual variations and versions, the sample size of historical sales data shrinks on a per SKU level. With less data and more volatility in inventory movement, demand planning for optimal stock levels becomes increasingly difficult.
- Increased administrative work in the purchasing department. A shift toward more sales occurring further into the long tail of the product catalog means proportionally more resupply orders for the purchasing department to execute.
Failing to adequately address the challenges presented by SKU proliferation inevitably subtracts from the bottom line. Out-of-stock items, delayed deliveries, and back orders dent customer retention rates. Inventory oversupplies inflate warehouse expenses and lead to higher costs for the disposal of unsold product. Inefficiencies in the purchasing department and warehouse drive up labor costs.
The acceleration in the trend towards SKU proliferation is a challenge for any distributor. Small and mid-size distributors, though, often have further to go in addressing it.
At the enterprise distribution level, sophisticated warehouse management and supply chain software is part of the cost of admission to compete. Smaller distributors have traditionally had a bit more leeway with regard to investing in supply chain software. For some, it’s even been possible to forego the efficiencies associated with software automation in order to limit the capital expenditure required to acquire and maintain the technology.
SKU proliferation is changing the formula, though, by adding operational complexity in lower revenue volume distribution businesses. Additionally, the need to embrace online multi-channel sales is exerting a similar influence in terms of making every day operational and financial management more complex.
To profitably manage increased complexity, supply chain software automation is becoming—if it isn’t already—a necessity for distributors of all sizes. As a result, one of the primary factors determining the winners and losers in the distribution industry for the foreseeable future will be the willingness of individual organizations to adapt to and embrace technological change.
Warehouse optimization software
Software designed to streamline product movement activities can help lessen the strain on efficiency brought about by carrying a greater variety of SKUs.
Warehouse space planning and slotting features
Positioning high turn inventory for maximum accessibility is a foundation of sound warehouse management strategy. But SKU proliferation is making it more difficult in two significant ways.
First, as single products are repositioned as multiple product variations, products that were once top sellers are being split into multiple moderate or low selling alternatives. This phenomenon is exerting a flattening force across the inventory catalog and lessening the inventory turn differentiation between products.
Second, as more niche products are created and tested for market viability, product lifecycles are shortening. The result is faster product obsolecence and more variability in the warehouse.
Software designed to plan and monitor warehouse space usage provides the responsiveness required to keep up with dynamic product trends and the sensitivity to adapt to changes that might elude more manual attempts at optimization.
Pick and putaway path routing
Order pickers spend about 60 percent of their time walking or moving product. No matter how logical the initial decision-making on the warehouse locations of individual items, the sequencing of picking and putaway orders significantly impacts warehouse efficiency.
Supporting pick and putaway path routing is a complicated task. Beyond upfront licensing costs, gaining the advantage of software automation also requires investing in extensive software configuration and integration of data from applications providing the raw order information. For many distributors, though, cost savings generated by cutting the amount of warehouse labor required to handle inventory can far surpass the software investment costs.
Statistical demand planning
As SKUs proliferate, demand planning for optimal stock levels becomes more difficult. Software-based demand planning helps with the critical tasks of identifying non-performing inventory SKUs and avoid overstocking.
While it’s easy enough to recognize the benefits of statistical demand planning, it’s more difficult to pull together the disparate data sources required to put it into effect. Accurate demand planning involves establishing adequate system integration to gather historical data on order volumes and inventory turns, while combining it with continually updated forecasts from frontline sales personnel.
Software systems that encompass the order management, inventory control, and sales forecasting functionality necessary for data-driven demand planning in a single product can offer advantages in supportability and reduce the on-going IT software support costs related to maintaining these applications.
For distributors experiencing volatile purchasing patterns because of inventory profiles that are broader than they are deep, purchasing automation can help prevent supply chain disruptions.
Reorder automation and alerts
In advanced systems, integration between inventory control and purchasing enables the opportunity to automatically trigger purchase orders when stock deplenishment thresholds are met. Most software set-ups rely on custom alerts, where purchasing agents have final order submission authority, rather than 100% automated tactics. Regardless, the ability to automate much of the busy-work associated with order creation can create significant time savings.
Blanket purchase orders
In many situations, blanket POs help bypass time-consuming requisition and approvals processes, while providing a mechanism to accommodate unpredictable purchasing patterns.
Advanced supply chain software isn’t required, of course, to cut blanket purchase orders. But managing blanket purchase orders can be a major headache without adequate software to handle the data tracking and accounting irregularities that can result when relying on blanket POs.
The fundamental challenge related to gaining the cost saving advantages of a just-in-time inventory model is tightening the supply chain to avoid delays and out-of-stock occurrences. While many advance purchasing software features are designed to speed internal processes, EDI goes a step further and offers the ability to create external efficiencies in the supply chain by delivering orders to suppliers in a format that does not require them to manually submit them into their own fulfillment process.