COVER STORY: PLM
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development – just to compete with themselves.
The Traditional Approach Currently companies are under intense cost pressures - warehouses are busting at the seams as the number of SKUs goes up, causing inventory turns to go down and swamping the supply chain. Only now are supply chain professionals focusing on this problem. Their leaders are stepping up and winning the SKU proliferation battle, cutting SKUs to make supply chains more efficient. For most companies this means adopting some form of SKU rationalization effort – where analysts try to weed out poor performing SKUs. However, the damage has already been done – huge investments in product development, marketing and product launch costs have already occurred. Putting energy into SKU rationalization alone is a poor approach. The truth is that flooding products into the market causes substantial strains upon
LOGISTICS TIMES November 2010
all divisions of the company, particularly the supply chain. And once the product launches all these strains become sunk costs. Indeed as more and more products are introduced, organization complexity increases exponentially which means that every company in the supply chain will feel a portion of the growing pains. Every product line that a company creates requires product roll-outs, more SKUs, employees to work the product line, and future rationalizations (performance analysis) of the line as the products become obsolete or fail, as most do.
satisfies consumer needs and wants while delivering value. To do this, we outline three proactive approaches which can help rationalize SKU introduction. This calls for a change in mentality of the organization, from one where products are rushed to market into one where products are verified as actually contributing to corporate vision and profitability and that the product is truly satisfying customer needs and wants while delivering value. We outline three proactive approaches that companies can use to help rationalize SKU introduction.
A Change in Attitude
Market Testing
To move forward, companies need to solve the real cause – doing a better job introducing new SKUs. This will enable them to get ahead of the curve and nip the need for SKU rationalization in the bud. The organization will have to move from being one that rushes products to market to one where products are verified as contributing to corporate vision, profitability, and that the product truly
Marketing testing involves a trial production of a product to determine market capabilities before a companywide roll out. Testing gives a company the ability to obtain better ideas, determine if the product will succeed in the market and see if the product will meet its purpose – to deliver profits, increase company market share and add to brand image. In addition, it offers the added bonus of