Supply Chain Council of European Union | Scceu.org
Procurement

6 Decision Criteria for Developing a Customer-Centric SKU Management Plan | 2019-11-19

I have been a management consultant for several years, and I have great interest in the most challenging areas of a distributor’s business. Meeting customer expectations while dealing with a high volume of SKUs is high on that list. In the following example of a distributor that was able to rise to the challenge, the company is a distributor of complex replacement parts, test equipment and design/test/prototype automation components had an exceptionally large number of SKUs that had to be available on relatively short notice to a national market.  

Historically, the distributor maintained reserved, structured inventory locations throughout its primary warehouses. To support that effort, it employed an extremely large cadre of pickers and putaway staff, a complex carefully controlled inventory location program and a large breadth of materials handling resources (forklifts, belts, elevators, etc., and materials handling specialists). For most SKUs, popular identification processes were used to support putaway, location, picking and packing activities.  

Nonetheless, with the growth of SKUs and the expanding awareness of popular technology, customer requirements and expectations were outstripping capabilities. 

To address this issue, we recommended that the distributor play the role of a critical customer, focusing on availability, urgency, reliability, accuracy and individual SKU characteristics. Only after those priorities were fulfilled did they attack cost minimization. To their great surprise, following those priorities led to both happier customers and lower costs.   

Dealing with the priorities led to important decision criteria: 

  • AvailabilityIs the SKU regularly in inventory or easily substitutable? How predictable is the demand? 

  • Urgency: How quickly is the SKU required? How important is it to your customer relationship? 

  • ReliabilityHow easy is it to secure replacement parts? 

  • AccuracyHow rigid are the specifications? How sensitive is the SKU to material handling, packaging and delivery? 

  • Individual SKU characteristics: How difficult is it to move, handle, transport and support the SKU and the transaction? 

  • Support resources: How ready are the required packaging, transportation, installation, training and information resources? 

The practical answers to these questions provide a clear range of options for the logistics activities of a distributor.  

For example, for a largevolume distributor dealing with a very large number of small SKUs, a good strategy was to minimize the movement of human beings, while focusing on moving appropriate inventory (often via robot) throughout the distribution center. SKUs were stored randomly — but with computer-identified locations  upon receipt, and from that point each item was moved from function to appropriate function via robot, until finally being consolidated, packaged for shipment and loaded into outbound trucks. Reliability and responsiveness improved greatly, as cost dropped. 

In comparison, a smaller distributor recognized that its reputation and primary strength was its knowledge base and experience in installing and interfacing its products and providing advice and application support services to its customers. In order to expand the customer base, it was critical that the distributor coordinate a targeted promotional program — including many howto articles, publicized case studies and relationship-building efforts with specialized engineers and contractors. Simultaneously, the distributor’s focused advertising, regular targeted communications and access to its key resources in order to follow through with its desired image. As a result, relationships and sales improved significantly. 

All Customers Are Not Equal 

These examples demonstrate that for a distributor, there is no such thing as one-size-fits-all. The most successful distributors are those that make every important customer feel that they are, in fact, the distributor’s most important customer.  

The challenge is not in saying these words, but rather recognizing that, first of all, it is not at all possible to have every customer be important. No distributor has the resources to achieve that, and not every customer is willing to participate in the relationship.  

It is possible, however, to be thoughtful, to do your best, to listen and respond, to try to find a solution to every customer’s issues, but, as will be discussed in a future post, if all customers are treated equally, that simply means that your best customers are not treated well enough. 

Author’s note: I share practical examples and real experiences that reflect on the challenges and opportunities that distributors encounter. It is my intent to try to be as concrete and specific as client confidentiality will allow, but I will be pleased to respond to any comments or questions any reader may have. 

Robert Sabath

Robert Sabath is distributor practice head at Transportation and Logistics Advisors, LLC. Reach him at [email protected]. 

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