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Number of SKUs and Business Complexity

Written by: Jon Hansen

Article Overview: Member Question: I am sure you all agree that more SKUs (finished goods) the company has in its portfolio the more complex (and more expensive) its business becomes. However I wonder how this relationship works exactly? Can anyone recommend formula (or link) that explains (shows impact of) number of SKUs on logistics / supply chain costs (handling, warehousing, transportation), forecast accuracy, level of stocks, etc?

Number of SKUs and Business Complexity

From a broader perspective, I have included a link to a recent article I wrote titled Similarity Heuristics, Iterative Methodologies and the Emergence of the Modern Supply Chain.

Specifically, you have multiple stakeholder streams (i.e. suppliers, warehousing, couriers etc.) each of which have unique operational attributes that impact collective performance and determine optimum results.

Far too often the methodologies that are employed to address these "complexities" attempt to establish what I call a static model in which a single stream of atributes are analyzed and a resulting standardized (nee SCOR or Six Sigma) model is established. From that point on, the real-world business, usually through a change management strategy, is "bent" to fit or adapt to the model.

Unfortunately, attributes within an individual stakeholder stream are rarely static. The problems are then multipled or made more complex by the introduction of multiple stakeholder streams in which a different standard has been establsihed.

This as well as the other articles I have written on this subject over the years refer to this approach as an equation-based methodology. It is also the main factor in the high rate of ERP/eProcurement initiative failures world wide. (Note: industry studies estimate the rate of failure, which is based on a projects inability to deliver the expected results, to be approximately 85%.)

Once again, this is a broader view of your question. But it is nonetheless a solid starting point.

In terms of the specific elements associated with the SKU creation/maintenance question, including the parent-child SKU dilemma, I can provide you with case studies involving high demand projects. While these examples deal with high volume, Indirect MRO materials, methodologies such as the development of Strategic Geographic Suppliers (SGS) and the utilization of advance polling algorithms can provide a framework for similar results in the Direct Material arena. Refer to the third URL Link I have provided titled The Number 1 Question for one such example.

In the end, your ability to think outside of the framework of that with which you are most familiar and most comfortable will determine your ultimate success.

Links:

To obtain copies of the reference materials, please contact the author.

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Article Tags: atributes, change management strategy, collective performance, complexities, couriers, demand projects, emergence, maintenance question, methodologies, mro materials, operational attributes, optimum results, recent article, scor, sgs, sigma model, similarity, six sigma, static model, world business



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