ProLogis (Denver), a global provider of distribution facilities and services, recently released the latest edition of the ProLogis Supply Chain Review entitled, “Product Proliferation -- The Scourge of Lean Supply Chains.”Authored by University of Denver logistics experts Paul Nuzum and Carl Johnson, the report explores the massive increase in individual consumer products, or SKUs, that has occurred globally in recent years.
"Product proliferation is an unavoidable--and in many respects laudable--byproduct of the global trend toward more efficient manufacturing and distribution," said Leonard Sahling, first vice president of research for ProLogis. "At the same time, it can wreak havoc on a smooth-running supply chain. This new report provides valuable insights into the downside impacts companies face when they maintain too many SKUs."
Findings in the report include:
- Product proliferation is in large part a result of the deep-seated trend toward so-called "mass customization," in which middle-class consumers are insisting on custom-designed, personalized products at affordable prices.
- The problem can also be blamed in part on the widespread failure by companies to effectively manage SKU life cycles. Many suppliers maintain individual products long after they have been displaced or rendered redundant by new offerings. In doing so, they introduce unintended cost and complexity into their logistics operations.
- Supply chain managers are often at odds with their sales and marketing departments when it comes to pruning product lines. Sales executives typically oppose eliminating SKUs, arguing that it's better to offer a broader range of choices to customers.
- "Postponement"--the practice of timing production of finished products to receipt of firm orders from customers--is the classic logistics strategy used by companies to neutralize the ill effects of product proliferation. Indeed, after having implemented effective postponement strategies, many companies have been able to expand their product-lines and SKUs without commensurate increases in their inventory levels.
The report is based on in-depth interviews conducted with supply chain executives at more than 30 major companies from a variety of industries.