SKU Management Best Practices: SKU Profiling

When it comes to managing inventory, there’s never a one size fits all solution. Putting all inventory into one material handling technology limits your ability to effectively manage inventory. For the most efficient inventory management strategy, you should mix and match the material handling storage and retrieval technologies with the characteristics of the SKUs.  

So, how do you actually do that?  Don’t worry, I’m here to help.

Start With SKU Profiling

Kind of like drafting a little league team, you want your strong players on your A team, the average players on the B team, the mediocre players on the C team and the uninterested players that you have to play once and a while because it’s an “everyone participates” league on your D team. It’s up to you as the coach to determine how you define an “A player” – are they the fastest players, the biggest players, the players that are always on time to practice?

At the highest level, classify inventory based on picking size (by pallet, case or piece) and by frequency of picking/velocity of movement (fast, medium, slow or very slow). Then by cross-referencing the time associated with picking each of these parts against their order frequency, a cost-to-pick graph can be created.

SKU Size vs Velocity

 

 

Apply The 80/20 Rule

The most dramatic improvements in order fulfillment optimization will come from applying solutions to entire categories of products, as opposed to improving the movement of just a few SKUs. That’s because of the 80/20 rule which when applied tells us that 80 percent of your picks frequently come from 20 percent of your inventory. So, just focus on this 20 percent and you’re all set right?  Not so fast big guy.

The cost of order picking is estimated to be as much as 55% of the total warehouse and DC operating expense. That’s because travel time to pick the SKU accounts for over half of a facility’s direct labor activities. So if you focus your picking optimization efforts solely on the fast movers—your A Team —20 percent of your inventory – you ignore 80 percent of your facilities floor space and picking labor demands. (don’t make this mistake!)
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Then Mix & Match Technologies

Now that your inventory is classified into categories, think about how to handle them. Most often operations benefit most from a combination of material handling technologies. Match the requirements of the inventory category to the best technology using criteria such as storage density, flexibility, throughput, productivity, accuracy, inventory control and ergonomics. Here is how I would rate the technologies on these criteria:

StepTwoTechnologyRankings

By correlating the specific benefits of each type of technology with the inventory classified in Step 1, it should be relatively easy for you to determine which technologies will meet the picking needs of each category. For example, if you use pick velocity (fast, medium, slow and very slow) and pick size (pallet, case or piece) the storage methods typically breaks down as follows:

StepTwoStorageMethods

Again, remember the 80/20 rule here and don’t make the mistake here of skipping or dismissing medium to slow moving SKU profiles. It’s very likely your “A” moving SKUs are already in the right technology and the picking process is optimized. You might get a bigger bang for your buck by optimizing the slow to medium moving SKUs than you would the fast movers.

Lastly, Review The Fulfillment Process

Once you’ve successfully determined which inventory goes into which storage technology, consider the minor enhancements you can make within each category. This includes but is not limited to adding pick to light technology, upgrading the inventory management software, adding bar code scanning, integrating a hoist for heavy lifting, etc.

Focus here specifically on how each inventory category will be received, inventoried, stored and retrieved from the selected technology. Are there small adjustments you can make to make the process better?  Sometimes a small investment will go a long way toward overall operations efficiency.

  • Productivity – what manual steps can be cut to make the order picker faster?
  • Space Savings – can storage locations within the storage technology be better utilized?
  • Throughput – how can product be delivered faster, or located faster by the order picker?
  • Accuracy – is there an opportunity for a technology addition that can increase accuracy?
  • Ergonomics – is inventory available to the picker at an ergonomic position?

And when all is said and done, don’t forget about slotting and re-slotting SKUs. It’s critical to review inventory on a regular basis to maintain efficiencies. Read more about slotting here.

SKU Profiling Case Study

Kubota’s parts distribution center in Ontario, Canada implemented a zone picking strategy with six horizontal carousels, four Shuttle XP VLMs and racking to double productivity and recover 83% floor space.
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