When a warehouse has to work with more and more SKUs, it can mean two things. On the one hand, the company has been successful and can afford to add more and more products to its inventory. On the other hand, it also means that all logistics processes become more complex as the acceptable minimum stock level is exceeded.
In such a situation it is important to keep a cool head by means of sophisticated inventory management. This, in turn, requires powerful and modern systems that can help you optimize and scale.
At Warehousing1, we have therefore provided you with an overview of the points you should consider when it comes to SKU proliferation in order to be prepared for all eventualities. SKU proliferation – The following table shows the SKUs that should be considered in order to be prepared for all eventualities.
SKU vs. EAN vs. UPC
To call an SKU a barcode is actually wrong. Stock Keeping Units are combinations of letters and numbers between 8 and 12 digits. These are usually assigned by the ERP (Enterprise Resource Planning) system and reflect product information such as colour, size or storage location. The SKUs are then in turn entered into the WMS (warehouse management system), which bases the planning of the warehousing processes on them. This enables efficient and, above all, time-saving handling of the goods.
In practice, however, SKU codes are often confused with regular barcodes such as EAN (European Article Number) or UPC (Universal Product Code). No wonder - because the warehouse clerk can scan all of these codes. Unlike EANs or UPCs, a SKU is a warehouse-specific, alphanumeric code. This means that the same product in another warehouse can also be labelled with a different SKU.
Learning to understand the value of SKUs
A simple rule of thumb - the so-called pareto-principle or the 80/20 rule - says that only 20% of your SKUs account for 80% of your sales. The 80% that remain on the shelves for a disproportionate amount of time have a direct impact on your company's performance. In addition to that, these “slow movers" among SKUs also demand more storage space, which effectively leads to higher storage costs. Another point is that more SKUs also result in a slower picking process.
Taking a closer look at your own in-store SKUs can first of all lead to a better understanding of your company's product situation. In an effective analysis, consider the following points:
- fast-moving vs. slow-moving vs. non-moving SKUs
- What is the financial impact of all these categories on your operating business?
- What is the relative share of each SKU category?
With all of the information collected, you can then determine which products or SKUs need to be eliminated or which you should push in other areas, such as marketing, due to high demand. With flexible partners you can scale directly and easily and adapt your warehouse processes to the product situation.
The downsides of a SKU proliferation
Since an increased number of SKUs also entails an increased need for action, an overview of all the potential problems that companies could be facing as a result of proliferation follows at this point. It is important to create an awareness of the points that could slow down your operations in order to be able to respond quickly to your customer’s needs. Simple scalability definitely is a keyword at this point.
- Increased order processing time: In general, order throughput times are kept as short as possible in the warehouse. This means that pick & pack and dispatch are handled as quickly as possible. However, when there is a rapid increase in SKUs, warehouse staff can often act less effectively, especially when there is still a lack of improved structure and arrangement of products. Therefore, an adapted warehousing slotting process should be introduced.
- Reduced picking accuracy: Of course, picking staff should work as accurately as possible. Any inaccuracies, such as an incorrect product in the package, have a very negative effect on your customer’s satisfaction. As a result, the customer may no longer place the order through your company, but may switch to one of your competitors. A verification step can be the remedy for incorrect allocations. The final step is to check whether the correct products have been picked or not.
- Increased basic costs in the storage facilities: With an increased number of SKUs that your warehouse needs to handle, there is also an increase in the total storage space required. The calculation is simple - more products also result in more storage space. Especially when your business is still in its infancy, too many SKUs can quickly overwhelm your operations. This will force you to quickly expand your warehouse or move directly to a new, larger and more expensive storage facility.
- Capital left on the shelves: If a large part of your inventory is considered a slow-mover this means that your capital is also moving slowly. At the same time, you could use this capital to drive your business forward, for example by increasing your personnel costs and recruiting qualified employees for your team. Because the products that remain in the warehouse naturally only make a profit when they are sold and leave the warehouse location. This is even more difficult with perishable goods - here you could lose all your capital if you cannot sell the product before the sell-by date is exceeded.
To be prepared for these downsides in advance, it is a good idea to have a storage service provider on your side, who can adapt to all these eventualities. A little food for thought for all those who have not yet thought about outsourcing in terms of fulfillment: If you use an external service provider to collaborate on warehouse logistics, scalability can be facilitated easily. So if there is a short-term SKU proliferation external logistics partners often have the necessary digital capacities at hand and could provide you with the necessary storage space.
Warehousing1 supports your company at exactly this point. We act as an interface between up-and-coming companies like you and the industry experts in warehouse logistics. So if your SKU numbers skyrocket, our innovative platform allows you to intervene immediately to optimize your processes and, if necessary, find a larger warehouse facility for your needs. With over 500 warehouse locations, we are in an excellent position to offer you the right solution within a short period of time. Make an appointment with one of our account managers via the contact form and take the first step towards easy scalability!