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Can you Offer Too Many SKUs to Your Customers? The short answer is YES! A SKU, or Stock Keeping Unit, defines each different product version that you sell and keep inventory of.  There may be different SKUs of the same overall item based on size, color, capacity (think computer or cellphone memory), features, and many other parameters.  For build to forecast businesses, that number of variations can quickly explode and become difficult to manage. Your customers are busy and want ordering simplified. Of course, they may need (or want) more than one variation of a product. That is reasonable and a common aspect of business – one size does not fit all! But there is a point where too offering too many SKUs is not value added either for your customer or your business.  In his April 30, 2013 article “Successful Retailers Learn That Fewer Choices Trigger More Sales” in Forbes, Carmine Gallo discusses his experience and a study about “choice overload” by other authors. He writes about a retailer that “has discovered that giving a customer more than three choices at one time actually overwhelms customers and makes them frustrated…when the customer is faced with too many choices at once, it leaves the customer confused and less likely to buy from any of the choices!” Choice overload is well-documented in consumer studies but can apply in B2B as well. While customer satisfaction is important, another key concern is the often-hidden costs associated with a business offering and managing a large number of SKUs for a given product type. These costs include holding inventory, S&OP (Sales and Operations Planning) team time, small production runs, and scrapping inventory. Holding inventory takes up space, which may come with a cost or utilize racks that could be used for other products. Scheduled inventory counts take up employee time and may result in blackout periods when the warehouse is not shipping product.  The more SKUs there are, including extra SKUS, the greater the potential impact. The Sales team’s forecasting and the Operations team’s purchasing reviews that are part of the S&OP process can occupy more of their valuable time if they need to consider these times. If small orders or forecasts require a new production run, this could be costly and create excess inventory. Whether from this new production or past builds, eventually it will make sense to write off and scrap old inventory, another cost impact to the company. How do you know which SKUs to focus on if you wish to look at reducing your total number of SKUs? Start by examining SKUs that have: Low historic sales over a period of time Small variations between SKUs that customers do not value Older technology or model when newer option SKUs are available This requires a true partnership between Sales and Operations. It starts with educating both teams on the costs involved – neither group may be aware of the money and time impact to the company. Periodic (such as quarterly) reviews of SKUs that meet the above descriptions should become a fixed part of the calendar. A review of the data and other available for sale options should result in the identification of SKUs which may not be needed. At that point, it is helpful to have a customer friendly EOL (End of Life) Notice process by which you inform customers of last time buy requirements for this SKU and alternates available. It is usually best to provide some time for the last time buy in the interest of customer satisfaction, although that may not always be necessary. At a company that designed and sold electronics, a robust SKU rationalization process was implemented to help address these issues. A representative from the Operations team analyzed SKUs that met a version of the above criteria and suggested candidates for the EOL process. Next, a member of the Sales team reviewed them and, where appropriate, issued product change or EOL notices to customers, providing them time for last time buy orders when needed. These steps helped reduce the work involved in maintaining these SKUs while not leading to any customer complaints. A final note – sometimes it makes sense to continue offering low selling SKUs – to support customers buying other items (hopefully in larger quantities). It may be worthwhile to encourage them to keep coming back to you for all of their product needs and this may be a way to accomplish that. But it helps to understand that this is truly the case and not assume that this customer would not be equally happy with another, more popular, SKU.   Steven Lustig is founder and CEO of Lustig Global Consulting and an experienced Supply Chain Executive.  He is a recognized thought leader in supply chain and risk mitigation, and serves on the Boards of Directors for Loh Medical and Atlanta Technology Angels.

I wrote earlier about the value a closed loop employee suggestion program can provide. These do provide significant benefits, but there is no need to limit continuous improvement suggestions to those inside the company. Customer and supplier surveys can provide great insights into such opportunities while also enabling the company to collaborate better with key partners. However, like employee initiatives, if they are not managed well, they can leave you worse off than if you never asked your suppliers and customers for their help. Designing the survey is important – this is not the time to ask leading questions or pressure the recipients to provide high numerical scores because somebody’s annual performance review or bonus depends on it. If you want to obtain honest answers, understand what the customer or supplier values, and receive useful responses on what is working well and what is not, objective survey questions are needed. It is great to ask about their level of satisfaction with relationship-specific functions. For a customer survey, this could include asking about responsiveness, on-time delivery, quality, etc. For suppliers, this may involve questions about purchase order and other documentation accuracy, on-time payment and more. You may also wish to ask some higher-level questions, such as: What is one thing that we are doing that we should keep doing the same way? What is one thing that we are doing that we should improve? What is one thing that we are not doing that we should do? What is one thing that we are doing that we should not do at all? The quickest way to turn this into a negative experience is to ask customers (especially) and suppliers to spend time completing these surveys and then nothing is done with the results. They will have an expectation that their time and opinions are being valued. Failure to respond will create frustration – I have seen this firsthand. Similar to the best practice for employee suggestion programs, before you send out surveys to customers or suppliers, it is critical to commit the resources to: reading, evaluating, and consolidating the responses developing and executing improvement initiatives based on those comments promptly responding to the survey respondents on what actions are being taken based on their survey participation   Depending on the actual responses, it may be necessary to also diplomatically explain why certain requests are not being acted on – we can easily imagine a customer utilizing the survey answers to ask for unrealistic price decreases or other concessions. Surveys can be periodic (quarterly or annual) independent events or incorporated into Quarterly Business Reviews or other meetings. Some suppliers may be unfamiliar or uncomfortable with customers requesting their honest feedback. Their past experience with other customers (and even with your own company) may be limited to customers telling them what to do better and never asking for their insights. They may be afraid that if they provide honest continuous improvement feedback it will not be well-received and may even be held against them. It may take assurances and several iterations before they trust the process. It is essential that your company receive these suggestions as they would acknowledge ideas from the customer, demonstrate that they appreciate them, and act on them as appropriate. Once that level of trust is established, suppliers can be key partners in improving how you enable them to support you. I have had to work with suppliers to help them get comfortable with what to them was a novel request so don’t accept the response that everything your company is doing is great. I recall one occasion when I was responsible for combining the best New Product Introduction processes between two different divisions of the same firm. Aside from taking the time to understand each group’s steps, I found it valuable to ask the shared external manufacturing partner for their input on which of those differing steps best assist their ability to support our needs. Of course, showing where their advice was used to implement new standard processes or explaining why certain suggestions were not utilized was important to this closed-loop process. Your key customers and suppliers can be some of your strongest allies in your quest for continuous improvement. A robust closed-loop survey process can be an effective tool in this effort while simultaneously creating a stronger, more collaborative relationship with those external partners most critical to your company’s success. Steven Lustig is founder and CEO of Lustig Global Consulting and an experienced Supply Chain Executive.  He is a recognized thought leader in supply chain, manufacturing, and risk mitigation, and serves on the Boards of Directors for Loh Medical and Atlanta Technology Angels.  

During my first visit to one factory, I quickly noticed on a wall in the lobby a collection of cards with employee suggestions – normally a good sign of a facility’s commitment to continuous improvement and employee engagement. A closer look revealed the opposite – improvement ideas that were months and even quarters old without any response or follow up. While creating that program was a good idea, the lack of follow through likely discourages employees from contributing further suggestions. Unfortunately, that company is not alone. This all-too-common practice is highlighted in the article “Companies Often Solicit Employee Feedback but Seldom Act on It” (in the May-June 2024 issue of Harvard Business Review) which discusses a 2023 Gartner white paper “Employee Engagement: Close the Action Gap to Drive Business Outcomes” by Jen Priem. Employees want to help. In fact, “40% of survey respondents said they would rather have difficult processes fixed than receive more career development opportunities”. That interest is not always matched by a company’s efforts. Aside from the missed opportunities in quality, cost, efficiency, and safety improvements, this also negatively impacts employee engagement: “only 34% said they thought their companies would act on feedback they provide” so why would they take the time and effort to participate? Setting up an effective employee suggestion program is more than placing a box for suggestions or creating an internal software tool. To be successful, the company needs to dedicate management effort and commit to a timely, closed-loop initiative. A cross-functional management level team should be established to review the qualifying ideas. This does not need to be top management but should be leaders high enough such that they can approve and implement many ideas themselves and have ready access to higher level managers to discuss larger improvement suggestions.  A coordinator, perhaps someone from the quality department or in an administrative role, can be designated to facilitate the program – helping create the methods for employee suggestions, collecting the inputs, and maybe conducting a first level sort of ideas (the entire review team does not need to spend time on the suggestion to paint the bathroom a different color!) This team should meet frequently (perhaps monthly) to evaluate and prioritize the employee suggestions that were submitted since the last meeting. Plans to implement or investigate the most valuable ideas should be developed. Someone on the team should be designated as a sponsor of each such idea to obtain updates and ensure progress even if the responsibility for investigation or execution is handed over to a functional area leader. Often, a team of employees from the impacted area(s) will be created – this helps make use of their more detailed knowledge and improves buy-in to the solution. Whenever possible, the employee who suggested the improvement should be included on this implementation team. There are different ways to celebrate the improvement ideas that were selected for implementation – monetary and non-monetary awards, inclusion in the employee’s performance review, public recognition, plant competitions, etc. The choice will depend on the company’s and location’s culture. Communication is key to a successful employee suggestion program. Leadership should consistently share its enthusiasm for the improvement idea program and what type of ideas are desired (not that bathroom color suggestion!). Leaders can also show their support by attending events associated with this program. Regardless of whether a valid improvement suggestion was approved for further action or not, it is important that a member of the team (for example, the facilitator) always provides prompt feedback to the employee on the decision and why that was the determination. This closed loop aspect is essential if the firm wants to continue receiving, and benefit from, employee ideas. Are there other sources for great ideas beyond your employees? Stay tuned….   Steven Lustig is founder and CEO of Lustig Global Consulting and an experienced Supply Chain Executive.  He is a recognized thought leader in supply chain and risk mitigation, and serves on the Boards of Directors for Loh Medical and Atlanta Technology Angels.

In our first blog in this series, “Selling My Business, What Should I Expect,” we talked about what to expect in the sale process to a third party. If you haven’t read it, I’d suggest reading it to set the stage for this discussion on business valuation and how it fits into exit strategy. If you did read it, give it a quick reread: “A complimentary hour with David David Shavzin, Exit Strategist / M&A Advisor Value Creation, Exit Strategy, Business Sales Founder and President, Exit Planning Exchange Atlanta 770-329-5224 // david@GetOnTheValueTrack.com // 

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