Because of the economic boom happening across the continent, it is unsurprising to come across businesses and supply chains with SKU proliferation.
In many cases, these SKUs have helped businesses remain profitable. But there are many more cases of supply chains being saddled with inventory that they have no idea what to do with it.
This is what makes proper management of SKU proliferation a necessary issue. It has proven helpful when done right, but you are navigating tricky waters.
In this article, we will explore how African supply chains can better manage SKU proliferation.
What is SKU Proliferation?
SKU simply means adding items to your inventory list and increasing your stock-keeping unit.
For example, an e-commerce business specializing in beauty products may add variations to each product to serve more customers. In other cases, the business may add a whole new line of products.
SKU proliferation seems like a logical approach, and in many cases, it is. However, left unchecked, it can spell problems for African businesses and supply chains.
In the example we just referenced, as the business adds new SKUs, it is important to ensure or monitor other products to identify those that are no longer selling.
Why is SKU Proliferation Beneficial to Supply Chains?
The primary purpose of SKU generation is to generate revenue, but how can these businesses and supply chains go about it?
1. Taking More Market Share
The business can serve more customers when multiple products are in the supply chain. For example, having different product variations can help it serve different levels of customers.
This helps the business keep its customers while enlarging market share.
For example, it is unsurprising to see a milk brand selling milk products in large containers and small sachets in Africa. This way, the brand can target different types of customers.
2. Variety of Options
They say variety is the spice of life, and in Africa, businesses seem to take it literally. A typical business wants to provide its customers several options to ensure they hit all their pain points.
The idea here is that customers may not always know what they want. Providing multiple options gives the customer more flexibility and room to explore and find items to solve the need.
The risk with this is that it can confuse the customer, and there are cases where the customer will not buy anything. However, when it works, the business stands to gain more.
3. Cross-Selling and Upselling
Okay, so a customer is browsing for a coffee brand in your store, but the customer likes coffee with milk. In this case, selling milk will help the business because it can sell two items instead of just one.
In another case, the customer picks a moderately priced coffee. However, after a brief chat, the salesperson believes a more expensive brand with better quality will serve the customer and encourage the customer to buy it.
These two concepts are known as cross-selling and upselling. Businesses tend to make quite a lot of money from them, encouraging SKU Proliferation.
The Pain of Unchecked SKU Proliferation
A business may want to practise the SKU proliferation model to boost revenue, but it becomes counter-productive if left unchecked.
1. Increase Holding Cost:
The more SKU proliferation a supply chain has, the more holding costs that supply chain will incur. Holding cost applies to the cost of storage, security, insurance, and operations.
2. Delays Order Fulfilment:
When too many SKUs are not managed properly, order fulfilment is difficult because it limits access and movement within the warehouse.
Sorting through a huge amount of inventory to process and order will cause delays and potential breakdowns.
3. Obsolete Inventory:
In a bid to keep up with the trends and serve more customers, a business or supply chain can risk neglecting to promote or offload some of its inventory, which leads to deadstock.
Deadstock no longer serves the market and would be difficult to offload. It can cost the business a lot of money in lost capital.
4. Forecasting Complexity:
When there are too many demands to predict, it introduces much complexity, complicating the forecasting efforts.
Demand forecasting for one product is not the same as demand forecasting for one product is not the same as demand forecasting for multiple products.
There is always an added layer of complexity, especially if the appropriate system is not in place.
How to Manage SKU Proliferation in the African Market
Some strategies can help get the most out of SKU proliferation. In this section, we will explore three of them.
1. Eliminate DeadStock
Dead stock can be quite painful for a business, but it is important for its supply chain to offload it as soon as possible. This way, the supply chain holds more inventory and makes space for more items.
When eliminating deadstock, the business can sell off the items using promotional campaigns, breaking down the products, and reusing parts to make other items. It can also be donated.
There is no shortage of ways to eliminate deadstock, but identifying and eliminating it from the supply chain gives the business more room to serve its customers.
2. Market Research
Extensive market research gives a supply chain an idea of the new trends in the market. This is not the same as forecasting.
Market research allows the business to avoid taking the wrong approach or investment into products the market will not want.
When done properly, the business and its supply chain have insight into what type of product to pursue or produce and how to go about it.
3. SKU Rationalization
This is a form of inventory audit whereby the supply chain analyzes the available inventory by sales and profitability and then determines which ones to keep on hand.
During an SKU rationalization, the ultimate goal is profitability. However, it shouldn’t be the only criterion. For instance, some products could have slim margins but help cross-selling or upselling other products with better turnover and margins.
4. Invest in Forecasting
Forecasting helps identify the exact number of products to buy or produce depending on the customer’s demand for products.
It helps prevent overstocking or understocking, which could contribute to loss of revenue.
We mentioned earlier that when there are too many SKUs, it can complicate the forecasting process.
However, investing in a robust demand forecasting and planning system can help mitigate these. But, the cost might be an issue for small businesses.
FAQ on SKU Proliferation in the African Market
Q1: What part does technology play in controlling the spread of SKUs in Africa?
Businesses may increase SKU management, inventory turnover, and supply chain efficiency using technology solutions, including inventory management software, demand forecasting tools, and sophisticated analytics.
Q2. Are some African industries, in particular, more prone to SKU proliferation?
Due to the requirement to provide a broad selection of products to satisfy various consumer tastes, in Africa, which focuses on consumer goods, retail and e-commerce are frequently more vulnerable to SKU multiplication.
Q3: How can companies in the African market strike a balance between managing SKUs and product variety?
Regular SKU simplification operations, continuous monitoring of product performance, and matching product offerings to market demand are all necessary to achieve a balance.
Obinabo Tochukwu Tabansi is a supply chain mastro and writer with a decade of experience working in different facets of the supply chain. Today he is living his passion for writing on all things supply chain. His blog, Supply Chain Nuggets, is Africa’s fastest-rising supply chain blog, helping professionals, business owners, and curious minds navigate the supply chain complexities on the continent.
