Stock keeping unit rationalization: a cross-functional, cross-firm perspective

AuthorMatias G. Enz, Matthew A. Schwieterman, Douglas M. Lambert
DOIhttps://doi.org/10.1108/IJLM-06-2018-0150
Pages994-1015
Publication Date11 Nov 2019
Stock keeping unit
rationalization: a cross-functional,
cross-firm perspective
Matias G. Enz
Department of Supply Chain Management and Analytics,
University of Missouri St Louis, Saint Louis, Missouri, USA
Matthew A. Schwieterman
Department of Management, Miami University, Oxford, Ohio, USA, and
Douglas M. Lambert
Department of Marketing and Logistics,
The Ohio State University, Columbus, Ohio, USA
Abstract
Purpose Although managers hav e struggled with SKU prol iferation for decades, research has
provided inconsiste nt guidance, and the cro ss-functional and cros s-firm aspects of the p roblem were not
considered. The purpo se of this paper is to exp lore the factors that fa vor successful and sus tainable
SKU rationalization.
Design/methodology/approach A single case study was used to investigate the implementation of an
SKU rationalization project by a national restaurant chain in collaboration with its food distributor.
Qualitative data analysis techniques were used to understand managersperceptions about the SKU
rationalization problem and the financial results that were achieved.
Findings The findings include seven propositions that begin to formalize theory for SKU rationalization.
Cross-functional involvement was both a challenge and a critical success factor, and the supplier was an
important resource for managing product variety and complexity.
Research limitations/implications Seven propositions are provided that increase the likelihood of
successfully dealing with SKU proliferation.
Practical implications SKU proliferation increases supply chain complexity and leads to higher costs.
The research reports on an SKU rationalization project that saved a company and its supplier $6.7m.
Originality/value A previously unexplored theoretical perspective on SKU rationalization was employed
that emphasizes cross-functional alignment, buyersupplier relationships and the impact on financial
performance of a firm.
Keywords North America, Case study, Supply chain integration, Buyersupplier relationships,
Sourcing and supply
Paper type Research paper
Introduction
As a consequence of customersincreased demand for innovation and customization, new
products have been developed and introduced without careful consideration of the
associated supply chain management challenges and costs (Thompson et al., 2005; Berman
and Korsten, 2010). In one study, executives reported that an average of 1.7 products were
introduced for each product that was withdrawn (Hoole, 2006). SKU proliferation can
increase the costs of a firms operations by 1530 percent and lead to situations where only
2030 percent of products actually contribute to profitability (Wilson and Perumal, 2009).
Moreover, the complexity of holding excessive product variations can lead to reduced
service levels for customers (Closs et al., 2010; Wan et al., 2012). The need to abandon
unprofitable SKUs has been recognized in the literature for more than 50 years (Kotler, 1965;
Hamelman and Mazze, 1972; Lambert, 1985) and publications by consultants have brought
renewed attention to the issue (Byrne, 2007; Wilson and Perumal, 2009). However, managers
The International Journal of
Logistics Management
Vol. 30 No. 4, 2019
pp. 994-1015
© Emerald PublishingLimited
0957-4093
DOI 10.1108/IJLM-06-2018-0150
Received 15 June 2018
Revised 6 December 2018
11 April 2019
31 July 2019
Accepted 5 September 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0957-4093.htm
994
IJLM
30,4
still struggle with SKU rationalization and measuring the cost of complexity caused by SKU
proliferation (Berman and Korsten, 2010).
SKU rationalization is a complex problem because of its implications for multiple
organizational functions and relationships with customers and suppliers (Olavson and Fry,
2006; Enz and Lambert, 2012). The importance of a specific SKU is likely to be viewed
differently by marketing, sales, R&D, manufacturing, procurement and finance which
usually have conflicting goals that affect and are affected by the decision to add or eliminate
SKUs. The cross-functional, decision-making perspectives of the problem have not been
covered in previous research which may explain why SKU rationalization continues to be a
dilemma for managers (Gottfredson and Aspinall, 2005; Jacobs and Swink, 2011).
While much of the literature treats SKU rationalization as a concern internal to a firm
(Closs et al., 2010), product complexity has been shown to impact supply chain relationships
(Eckerd and Girth, 2017). As such, a strictly internal view of SKU rationalization is a
limitation that must be addressed. Also, relationships with customers and suppliers may
impact the success of SKU rationalization projects. Research is needed to understand the
cross-functional and cross-firm characteristics that enable successful SKU rationalization.
In this research, we used a case study approach (Eisenhardt, 1989; Ellram, 1996; Yin,
2013) to explore the key factors that favor the success of SKU rationalization projects. The
research question was:
RQ. How can managers achieve successful and sustainable SKU rationalization?
The remainder of the paper is structured as follows. First, the literature related to SKU
rationalization is reviewed. Next, the methodology is explained, and the findings and
implications are presented. The limitations and opportunities for further research are
described and conclusions are provided.
Literature review
Although SKU rationalization has been recognized as a business problem for more than five
decades, there is a paucity of literature on the topic and no established theoretical
framework. Consequently, we focus our literature review on the causes and challenges of
product variety and three themes in the literature that appear to be most informative:
product abandonment, cross-functional integration and supply chain relationships.
Causes and challenges of product variety
The main causes of SKU proliferation include an overuse of customer segmentation, an
excessive number of products tailored to each segment, end customers expecting greater
variety, multiple price points for product categories and competition based on variety as a
differentiation strategy (Quelch and Kenny, 1994). The proliferation of SKUs means that
customersdemand is spread over more products, thereby increasing the overall uncertainty
and variability of demand (Fisher et al., 1994). Many times, the market is divided into
smaller, less profitable segments. Product variations may proliferate until they exceed the
market benefits of diversification, which implies that it is the effective management of
complexity that poses the difficulty( Jacobs and Swink, 2011, p. 677).
The consequences of SKU proliferation include higher demand variability (Christopher,
2000), the need to invest in operational flexibility to cope with the proliferation (Soman et al.,
2004), end customersdifficulty in differentiating products within a firms product offerings,
lower brand loyalty, stagnation of category demand and increased costs (Quelch and Kenny,
1994). The literature on product variety is primarily focused on identifying the amount of
variety required to enhance revenues and avoid operational inefficiencies (Ramdas, 2003).
Variety is typically assumed to increase sales (Ton and Raman, 2010), to enhance market
share (Lindsley et al., 1991) and to lead customers to perceive the brand as being of higher
995
Stock keeping
unit
rationalization

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