Businesses constantly introduce new products or different versions of existing ones to stay competitive. However, adding new items requires rethinking logistics, such as increasing storage, updating restocking procedures, or improving order fulfillment. This process often leads to SKU proliferation where the number of product variations (SKUs) offered becomes difficult to manage.

Why Managing SKU Proliferations is Crucial?

SKU Proliferation occurs when a manufacturer, retailer, or distributor increases the number of products (SKUs) it offers to customers to a level that becomes difficult to manage. This industry-wide problem typically arises when a company introduces too many variations of a product.

The consequences of SKU proliferation include increased difficulty in managing numerous product configurations leading to management complexities. These complexities reduce the efficiency of supply chain, resulting in higher inventory carrying costs and associated overheads. Consequently, the sales cycle becomes longer, and overall profitability is reduced. Ultimately this chain of issues impairs the customer experience.

SKU proliferation often occurs when a company decides to offer a product in multiple colors thereby assigning a new SKU for each color. Another common scenario is when a company offers a product in a larger size or as a multi-pack resulting in similar or virtually identical products being associated with different SKUs.

For some markets, the company may decide to manufacture a product in a more price-sensitive package with a new SKU. This may need an alternate packaging in another language leading to the creation of a new SKU.

For businesses that sell configured bundles, it’s quite common to have different SKUs for the front office and back office to cover production, fulfillment, and logistics.

The potential for SKU proliferation is vast and can easily spiral out of control without proper management.

Pitfalls and Impacts of SKU Proliferation

If a company constantly adds new SKUs, it can lead to an accumulation of excessive inventory, particularly of the slow-moving products. This requires more storage space, resulting in warehousing challenges, and higher inventory carrying cost and overhead. Additionally, it is also harder to pick, pack and fulfill shipments efficiently.

Moreover, with a higher number of SKUs, it is challenging to forecast sales, production, and inventory accurately unless there are right systems to handle such a scenario. Inventory obsolescence is becoming another significant issue manufacturers need to deal with.

With many product variants, the sales team requires more expertise than ever, which will slow down the sales process and negatively impact customer service levels.

All these issues collectively create challenges with capital allocation and ultimately impact the overall profitability of the company.

To analyze the impact of SKU proliferation, the following points must be kept in mind to strike a balance between the pitfalls of unmanageable number of SKUs and ability to respond to market demand:

• Ability to anticipate evolving customer demand(s) and allow innovation-led broader product offerings with wider reach and faster cycle time.

• Capability to expand into new markets and geographies to attract new prospects.

• Ability to provide more options to existing customer base and to ensure improved customer service.

Simplified SKU Management

There must be a multi-pronged approach to manage and govern SKU proliferation. This is called SKU rationalization and includes the following initiatives:

• Analyze existing product catalog cleanliness needs - from minor improvements to complete overhaul.

• Perform product lifecycle analysis and understand the origin, frequency, actors and for product catalog and price book additions and/or changes.

• Identify and eliminate obsolete SKUs

• Devise and adopt an appropriate S&OP (Sales and Operation Planning) strategy for the product and pricing catalog process and the related governance.

• Forecast demand accurately to prevent SKU proliferation and accumulation of dead stock.

• Leverage technology solutions like cloud based CPQ (Configure-Price-Quote) software.

To address the challenges of SKU proliferation, Salesforce CPQ offers a comprehensive solution that simplifies product configuration and pricing processes.

Salesforce CPQ helps achieve product catalog simplification and eliminate or limit SKU proliferation by streamlining the product configuration and pricing process. Instead of creating a new SKU for every variation, companies can use Salesforce CPQ to manage a single SKU with multiple configurations. This significantly reduces the complexity and improves the sales process and customer experience.

Breaking Down the Solution with Salesforce CPQ

Salesforce CPQ, or Configure, Price, Quote Software by Salesforce is a sales tool for companies that provide accurate pricing with any given product configuration scenario. It allows sales representatives to quote prices quickly and accurately offering easy-to-use software that is accessible on any device due to its cloud-based platform. CPQ is a part of the solutions offered in Sales Cloud.

Built on #1 AI CRM, Salesforce CPQ solution transforms the quote-to-cash cycle with greater efficiency, shortening cycle time, ensuring accurate product selection, quoting and pricing. It helps companies achieve higher win rates and increase revenue growth options, while also reducing waste and improving profitability. Above all, Salesforce CPQ enhances the customer experience.

Here are some key features of Salesforce CPQ that mitigate SKU proliferation challenges:

• Technical Accuracy: Salesforce CPQ ensures that sales representatives can create accurate quotes with minimal errors using tools like filtering and Guided Selling. Correct product configuration helps to avoid or minimize sales order and contract errors. Enhanced approval workflows add an extra layer of verification, ensuring the correct quote is created for the customer.

• Dynamic Bundling: Features like bundling and dynamic bundling allow for valid product combinations and automated discount updates, reducing the need for multiple SKUs. By applying pricing logic and rules at the customer, product, or account level, the necessity for additional SKUs is eliminated.

• Automated Processes: The automated creation of sales orders and contracts from quotes speeds up the process and minimizes errors, enhancing customer satisfaction. Automatic renewal processes ensure that the process is error-free, quick, and efficient, contributing to customer satisfaction.

• Insightful Reporting: Salesforce CPQ includes robust reporting and dashboards to help identify and eliminate seldom-sold SKUs. Reports and dashboards provide insights into product variants that are seldom sold, helping to identify and eliminate obsolete SKUs.

• Demand Forecasting: Salesforce forecasting aligns operational capabilities with market predictions, ensuring optimal product performance and revenue tracking. This ensures improved product performance evaluation

With these features, Salesforce CPQ goes beyond reducing the complexity associated with SKU proliferation to also effectively managing their product catalog.

Enhanced Efficiency and Cost Savings

Salesforce CPQ gives companies control and visibility over what's being offered and what's being sold. By simplifying the product catalog and price books, CPQ enhances the user experience for sales team, enabling them to deliver what their customers need, faster than ever. The companies will be able to reign in SKU proliferation to only include products with a smart value-cost ratio, based on demand forecasting.

Sales reps’ time is properly utilized by saving them from having to manually search a huge product catalog to price and quote a sale.

Conclusion

SKU proliferation presents significant challenges for companies by complicating product management, increasing inventory costs, and reducing overall efficiency. Salesforce CPQ offers a robust solution to these challenges by simplifying the product catalog, pricing, and discounting processes. With features like dynamic bundling, automated sales order creation, and insightful reporting, Salesforce CPQ reduces the need for multiple SKUs. This integrated approach ensures that businesses can manage their product offerings more effectively while maintaining a competitive edge in the market.