Product proliferation and lean supply chains dont mix

For too many companies, product proliferation -- the increase in the number of product SKUs (stock-keeping units) – has become the scourge of lean supply chain operations. The greater the number of SKUs, the harder and costlier it is for companies to sell, plan, track, manufacture, ship and deliver those units.

“Product proliferation is an unavoidable – and in many respects laudable – byproduct of the global trend toward more efficient manufacturing and distribution,” says Leonard Sahling, vice president of research for ProLogis, a provider of distribution facilities and services. “At the same time, it can wreak havoc on a smooth-running supply chain.”

A new report from ProLogis, authored by University of Denver logistics experts Paul Nuzum and Carl Johnson, explores the massive increase in individual consumer products that has occurred globally in recent years. The report, based on in-depth interviews conducted with supply chain executives at more than 30 major companies, outlines some of the strategies being used by supply chain executives to cope in the new environment.

Ø 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.

Ø 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.

Ø 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.

Ø “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.

Click here for a copy of the report.

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