Supply Chain Professor Simon Croom Cited on Adverse Effect of Too Many SKUS in Supply Chain

University of San Diego School of Business Professor of Supply Chain Management Simon Croom

In a recent Supply Chain Dive article, Simon Croom, professor of supply chain management at the University of San Diego School of Business, is cited saying that "the 'physics' of supply chains means that by adding SKUs, response times, inventories, and performance are all adversely affected." In response, major corporations including Mondelez, Procter & Gamble and Coca-Cola have been making moves to reduce the complexity of their supply chains which have been placed under pressure by consumer demands during the pandemic. 

Excerpt from article as it appears in Supply Chain Dive:

Coca-Cola, Mondelez Trim SKUs as CPGs Tackle Pandemic Stresses

Mondelez, Procter & Gamble and Coca-Cola are world-renowned for their immense supply chains — built to consistently deliver some of the most ubiquitous products in the world. They’ve also all made moves to reduce the complexity of their supply chains amid stressors presented by the pandemic.

"We’ve seen an increase in demand in developed markets, and we’ve met it by focusing on the most important SKUs," said Van de Put in late April — calling the reduction "significant" without putting a number on it. During the first quarter, Mondelez reduced its total SKU count in search of greater simplicity.

Coca-Cola CEO James Quincey said in late April the company was "ruthlessly prioritizing to deliver on core SKUs" to drive efficiency in its supply chains and streamline operations for retail customers.

Procter & Gamble too narrowed production focus on core SKUs to ensure supply flow despite an influx of demand. "We’re discovering daily lower-cost ways of working with fewer resources," said COO and CFO Jon Moeller on an April earnings call.

"The 'physics' of supply chains means that by adding SKUs, response times, inventories, and performance are all adversely affected," Simon Croom, professor of supply chain management at the University of San Diego, told Supply Chain Dive via email.

The business models of major CPG companies are built on supply chain efficiency, but the supply chain behind turning one product — for example, a single soft drink recipe — into multiple SKUs means variation in form factor and packaging materials. Even if the liquid inside six different SKUs of Diet Coke are identical, the various sizes and marketing efforts complicate the supply chain.

"If I reduce the variability, my manufacturing unit cost goes down, because...

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Renata Ramirez
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