The Role of SKU Management in Product Variety Reduction Projects

To address customers’ increasing demands for specialized products, manufacturers are offering an increasing amount of standard and customized products. For many manufacturers, this has resulted in uncontrollable product proliferation and a struggle to manage their product variety. To address this problem, many manufacturers have initiated product variety reduction (PVR) programs. Unfortunately, many such initiatives do not achieve the intended financial benefits. While the existing literature provides numerous studies and methods for product variety reduction (PVR), research investigating the link between PVR projects and SKU (stock keeping unit) management is scant. However, there are reasons to believe that this link could partially explain why some PVR projects fail. This assumption was investigated by studying an unsuccessful PVR project at an international world-leading hearing healthcare company. In the case studied, initially, the project appeared to provide significant reductions in inventories. However, a deeper analysis revealed that these stock reduction potentials appeared significantly larger than they were because of untransparent SKU management. Specifically, the analyses found that approximately 20% of the hearing devices in the product portfolio were associated with multiple SKUs and that the inventory-related benefits from the PVR would be minimal. On this basis, a model describing three levels of experienced product variety and two types of product variety discrepancies is developed.