Someone Hit the Reset Button

Consolidations could signal the beginning of major changes in supply chain execution.

The other day, I needed toothpaste but was running late for an appointment. This will be quick, I thought, since those helpful signs in the store will point me to the right aisle. When I got there, I realized there really was a toothpaste aisle — a whole aisle.

I had to stop and think. Do I want whitening, extreme whitening, tartar control, mint or extreme mint? Frustrated and pressed for time, I just grabbed a tube at random.

Apparently, I'm not alone in my frustration. As psychology professor Barry Schwartz pointed out in his 2004 book, The Paradox of Choice, too many SKUs make us nervous.

This is old news for material handling professionals, who have just learned to live with it. For years, they've been trying to tame out-of-control SKU proliferation. Product development creates concepts material handling executes, but details like manufacturing and distribution are often overlooked. I've heard stories about DC managers first learning about a new SKU when it arrives at the dock!

Too late, companies learn that an idea that was supposed to bring competitive advantage is actually eating away at the business from the inside. Think inventory stockpiles, high obsolescence, production changeover costs, more challenging handling and packaging requirements and so on — all of which are just accepted as necessarily evils.

Well, recent trends suggest we may see changes in that longstanding tradition.

“Consolidation” is the buzz word of the day, and we've seen it played out lately in the material handling equipment business — namely Intelligrated's acquisition of FKI Logistex in the Americas. Days later, two large rack suppliers, Boston Rack and Base Manufacturing, merged to form Elite Storage Solutions.

These notable deals mirror what's happening in other industries as rivals join operations, brands and specialties. In oil, there's Suncor's takeover of Petro-Canada; in pharma, Merck's acquisition of Schering-Plough and Pfizer's purchase of Wyeth; in technology, Oracle's acquisition of Sun Microsystems.

While in good times, acquisitions help companies venture into new markets, in a recession, they help fortify internal operations. The stronger player is able to cut costs, reduce waste and reconsider product portfolios, and the weaker of the two can leverage those efficiencies. Economists say these “strategic” mergers and acquisitions provide an opportunity to phase out less profitable lines and strengthen core brands.

For material handling professionals, a narrowing of product mix may lead to a slowdown in SKU proliferation, which might make inventory more manageable.

On the other hand, tried-and-true strategies like postponement and regional distribution may have to be reexamined in light of new circumstances.

For consumers like me who feel overwhelmed by too many choices, fewer brands might be a good thing.

Looking back, I now see even more pertinence in a conversation I had recently with John Nofsinger, CEO of MHIA. I asked for his thoughts about the economic downturn, and he acknowledged the trauma of the times. But he also said the chaos represents a “natural resetting of our capital economy.”

Consider the reset button pushed.

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