SKU proliferation refers to the process by which a retailer or merchant adds products to their inventory.The justification for adding SKUs to a product may seem logical; if customers seem to be purchasing certain types of products, increasing the variations of those products could increase sales. But SKU proliferation when left unchecked, grows into a revenue sucking tumor in a business disrupting every part of the supply chain.
For example, a retailer starts off by selling one brand of mouthwash in only one flavour. As time progresses, the retailer realises that customers also like a competing brand of mouthwash. The retailer then adds one flavour from the competing brand to the inventory. Down the road, the retailer adds more flavours in an attempt to increase the consumer pool. This process of increasing inventory in a bid to increase sales is known as SKU proliferation.
But at which point do you stop adding products to your inventory? Many businesses find themselves trapped in a never ending cycle of adding more and more products, complicating their supply chains, increasing operational costs and impacting their bottom lines.
SKU proliferation often causes more in costs and efficiencies than the items are worth. Simply adding products to an inventory causes problems such as;
Therefore SKU proliferation is a process that needs to be done with careful consideration of the costs and a data-driven strategy.
Many of these reasons lead to the common misconception that SKU proliferation is something to be avoided. However SKU proliferation is inevitable with a growing business. The key is to regulate SKU proliferation so that new products and product lines add the most value with the least cost, and are based on accurate demand forecasting.
SKU proliferation is part and parcel of a growing business, in fact it can be seen as an indicator of sustained demand and a customer base that is returning to your business.
When bolstered by robust inventory and warehouse management processes, SKU proliferation can be a good thing for your business as it can lead to increased sales and higher revenue margins. Leverage data driven reports to understand which of your SKUs are performing well and which are not. Use that data to turn SKU proliferation to your advantage.
SKU proliferation affects operation efficiency as well as your bottom line, therefore taking a proactive approach to manage it could save you money and time in the long run.
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