Introducing and implementing the SKU system to your eCommerce business can be exciting and challenging at the same time. If not done correctly, it could damage the whole inventory management system. You may be wondering how a bunch of codes and IDs could create such huge complications.
One of the biggest challenges faced by eCommerce businesses is SKU proliferation. When you are planning your business expansion, the first thought that comes to you is to add a wide range of products that would broaden your target audience. The idea is simple—the more products you have, the wider your target audience would be. But as the inventory grows, the risk of having slow-moving inventory or even dead stock grows too. When you add more products, you are spending money on creating more SKUs, managing them and holding them in inventory, thus leading to SKU proliferation.
What Is SKU Proliferation?
So what exactly does it mean? SKU proliferation is nothing but adding more products or SKUs to your existing product line. Almost every business does it at one point to meet the growing customer demands and changing needs. Let’s discuss this in detail with an example.
You are a 100% organic fruit juice manufacturer focusing only on Mango juices. You have five different size varieties which are all doing great in the market and you’ve created yourself a brand name. You realize that your customers are looking for different flavor varieties so you decide to add five more flavors to your 100% fruit juice products, increasing your SKUs from 5 to 10.
Six months later, you come across another customer trend that they want travel sized cans of these fruit juices, so you add those for every flavor, raising the SKUs to 20. This could go on and on depending on the demand and changing customer needs. But sooner or later, you would be overloaded with SKUs and an overwhelming inventory system that cannot be easily managed.
Sure, having more products gives you a competitive advantage over your competitors. But if the products are not added carefully and strategically, you would end up with consequences than benefits.
Increased Inventory Storage Costs
Whether you have your own warehousing facility or you are renting out storage space, you need to be careful with how you utilize it. As you add more products to your inventory, you are increasing your inventory carrying cost with the influx of new goods. You are not only adding more products, but you are also holding on to the old products for longer period of time. You might even end up having to rent out more storage space, or even discard some of your old inventory that has high potential to sell.
Inaccurate Order Fulfillment
More inventory means more SKUs. Even if you have enough staff to manage the inventory, it can get daunting sometimes and lead to incorrect order fulfillment. When you have more SKUs, some of these might end up looking similar, resulting in confusions that could ruin the customer experience.
Inefficient Supply Chain
Inefficiency in supply chain management and inaccurate order fulfillment go hand-in-hand. If either one happens, the other gets affected increasing your costs and creating delays and returns of orders. The picking and packing also slows down with the surge in SKUs and would take a lot of time to optimize the workflow and bring efficiency back on track.
Inefficient Allocation of Resources
Adding more products itself is a huge cost. Along with that, you are spending more money on generating SKUs, using more warehouse space, and managing the inventory. This would also require more help from the staff to maintain efficient inventory management and order fulfillment.
Perhaps what your business needs at that time is a new inventory management software or better logistics strategies or even marketing. The resources that could have been used for other purposes gets tangled up on the new products and SKUs.
Here are some ways you can track your SKUs and prevent SKU proliferation from taking a toll on your business.
SKU Rationalization
Before you add a number of new products to your inventory, you should analyze your existing inventory to see which products are performing well and which ones should be discontinued. SKU rationalization can help in reducing the inventory holding costs and help in creating more warehouse space for your new products.
Efficient Demand Forecasting
Customer needs and perceptions are changing constantly and it’s important to keep up with them. To prevent dead stock and SKU proliferation, you need efficient demand forecasting to understand how you can improve your inventory and efficiently manage them without additional costs. The first step to accurate demand forecasting is to track your inventory real time with an efficient inventory management software.
Identify and Dispose of Dead Stock
If you haven't already started, this is your sign to start identifying dead stock and the factors contributing to it as well as blacklisting old SKUs. Most of the dead stock comes from holiday and seasonal products. If you can identify which are the slow-moving or outdated products, you can dispose them at a discounted rate or as complimentary products or package deals with the fast-moving ones.
If implemented correctly, a SKU system can greatly benefit your business. When you partner with a 3PL fulfillment center like ShipBots, you do not have to worry about your inventory management, SKU generation, or other warehouse management needs.
With our state-of-the-art warehousing facilities across multiple locations and efficient inventory management software and technology, we can make your order fulfillment seamless and hassle-free. Get in touch with us today to discuss how you can target more customers with new products without having to deal with the consequences of SKU proliferation.
