Deloitte Insights and our research centers deliver proprietary research designed to help organizations turn their aspirations into action.

DELOITTE INSIGHTS

  • Home
  • Spotlight
    • Weekly Global Economic Outlook
    • Top 10 Reading Guide
    • Future of Sports
    • Technology Management
    • Growth & Competitive Advantage
  • Topics
    • Economics
    • Environmental, Social, & Governance
    • Operations
    • Strategy
    • Technology
    • Workforce
    • Industries
  • More
    • About
    • Deloitte Insights Magazine
    • Press Room Podcasts

DELOITTE RESEARCH CENTERS

  • Cross-Industry
    • Home
    • Workforce Trends
    • Enterprise Growth & Innovation
    • Technology & Transformation
    • Environmental & Social Issues
  • Economics
    • Home
    • Consumer Spending
    • Housing
    • Business Investment
    • Globalization & International Trade
    • Fiscal & Monetary Policy
    • Sustainability, Equity & Climate
    • Labor Markets
    • Prices & Inflation
  • Consumer
    • Home
    • Automotive
    • Consumer Products
    • Food
    • Retail, Wholesale & Distribution
    • Hospitality
    • Airlines & Transportation
  • Energy & Industrials
    • Home
    • Aerospace & Defense
    • Chemicals & Specialty Materials
    • Engineering & Construction
    • Mining & Metals
    • Oil & Gas
    • Power & Utilities
    • Renewable Energy
  • Financial Services
    • Home
    • Banking & Capital Markets
    • Commercial Real Estate
    • Insurance
    • Investment Management
    • Cross Financial Services
  • Government & Public Services
    • Home
    • Defense, Security & Justice
    • Government Health
    • State & Local Government
    • Whole of Government
    • Transportation & Infrastructure
    • Human Services
    • Higher Education
  • Life Sciences & Health Care
    • Home
    • Hospitals, Health Systems & Providers​
    • Pharmaceutical Manufacturers​
    • Health Plans & Payers​
    • Medtech & Health Tech Organizations
  • Tech, Media & Telecom
    • Home
    • Technology
    • Media & Entertainment
    • Telecommunications
    • Semiconductor
    • Sports
Deloitte.com
Deloitte Insights logo
  • SPOTLIGHT
    • Weekly Global Economic Outlook
    • Top 10 Reading Guide
    • Future of Sports
    • Technology Management
    • Growth & Competitive Advantage
  • TOPICS
    • Economics
    • Environmental, Social, & Governance
    • Operations
    • Strategy
    • Technology
    • Workforce
    • Industries
  • MORE
    • About
    • Deloitte Insights Magazine
    • Press Room Podcasts
    • Research Centers
  • Welcome!

    For personalized content and settings, go to your My Deloitte Dashboard

    Latest Insights

    Creating opportunity at the intersection of climate disruption and regulatory change

    Article
     • 
    7-min read

    Better questions about generative AI

    Article
     • 
    2-min read

    Recommendations

    Tech Trends 2025

    Article

    TMT Predictions 2025

    Article

    About Deloitte Insights

    About Deloitte Insights

    Deloitte Insights Magazine, issue 33

    Magazine

    Topics for you

    • Business Strategy & Growth
    • Leadership
    • Operations
    • Marketing & Sales
    • Diversity, Equity, & Inclusion
    • Emerging Technologies
    • Economy

    Watch & Listen

    Dbriefs

    Stay informed on the issues impacting your business with Deloitte's live webcast series. Gain valuable insights and practical knowledge from our specialists while earning CPE credits.

    Deloitte Insights Podcasts

    Join host Tanya Ott as she interviews influential voices discussing the business trends and challenges that matter most to your business today. 

    Subscribe

    Deloitte Insights Newsletters

    Looking to stay on top of the latest news and trends? With MyDeloitte you'll never miss out on the information you need to lead. Simply link your email or social profile and select the newsletters and alerts that matter most to you.

Welcome back

To join via SSO please click on the key button below
Still not a member? Join My Deloitte

SKU proliferation: Too much or not enough?

by Mark Cotteleer
  • Save for later
  • Share
    • Share on Facebook
    • Share on Twitter
    • Share on Linkedin
    • Share by email
20 December 2012

SKU proliferation: Too much or not enough?

21 December 2012
  • Mark Cotteleer United States
  • Save for later
  • Share
    • Share on Facebook
    • Share on Twitter
    • Share on Linkedin
    • Share by email

Xiang Wan and his team were trying to find out if managerial intuition about the pros and cons of SKU proliferation is correct—in effect, whether it is good or bad, or if there is a middle ground.

My twelve-year-old daughter filled her cup with cherry cola at our traditional Saturday lunch spot.  In a revelatory tone she exclaimed, “Someone should make banana flavored soda!  I would buy that.”

The operations manager inside me cringed. "Sure," I asked, "but who else would? What about the inventory, the spoilage, and the transport?"

I explained that her idea had more fundamental implications than it might seem. She was invoking an important debate pertaining to SKU proliferation: When examining a product portfolio, when is more variety needed, and how much is too much?

I told her about an article published in the Journal of Operations Management called “Too much of a good thing: The impact of product variety on operations and sales performance.” In it, Xiang Wan and his colleagues examine the sales and operational performance of a major US soft drink bottler that distributed 328 SKUs from a network of 108 distribution centers.

Wan and his team were trying to find out whether managerial intuition about the pros and cons of proliferation is correct, and if so, which force is more dominant. In effect, he asks whether proliferation is good or bad, or if there is a middle ground.

The theoretical pros and cons of SKU proliferation are pretty straightforward. Proponents argue that the more you segment demand, the better you become at matching the needs of your customers. Customers like this, so sales increase.

Alternatively, SKU-proliferation skeptics suggest that it is costly to manage product variety. Forecasts are less accurate, more administration is required, and warehouse management becomes more complex. As a result, SKU proliferation can compromise operational performance. The study measures operational performance using “fill rate,” which is the percentage of product orders that are actually fulfilled (as opposed to stocking out of the product).

My daughter silently adjusted her straw, so I continued. The impact of increased SKU proliferation on operational performance (i.e., fill rates) is pretty clear—it hurts. Wan finds the costs associated with managing more things are as predicted. The good news, as I explained, is that the degradation of operational performance occurs at a decreasing rate. The worst of it occurs at the lowest levels of SKU proliferation when sales improvements are more likely to offset compromised operational performance. Nonetheless, fill rates continue to fall as product variety increases.

The sales impact of SKU proliferation is where things get interesting. The logic is that sales increase with product variety as a company better serves the needs of unique customer segments. The data support this view. However, as with operational performance, the rate of improvement decreases as proliferation increases. Research suggests this is because new products eventually cannibalize demand for existing products. In other words, if you go to buy regular cola and end up buying it with a “hint of lime” instead, then overall sales have not increased; instead, sales merely shift from one product to another.

“So, sales would increase (but at a decreasing rate) if a company decided to add banana cola,” she said. “It’s all good.”

“Not really,” I responded. We also have to deal with the indirect impact of operational performance on sales. Remember, you cannot sell what you do not have in stock, and the soft drink market is highly substitutable. You might have a preferred brand, but if it is out of stock, you are more likely to choose the other brand than to choose nothing. Therefore, a decreasing fill rate—our measure of operational performance—can have an indirect and negative impact on sales.

Pulling this all together, the critical finding of Wan’s study is that SKU proliferation requires a delicate balance. Variety can be good, but it is possible to have too much of a good thing. In the context of one major soft drink bottler, where the range of SKUs ran between eight and 114, the researchers determined that the optimal number of SKUs was 84. Below that number, the bottler could improve its position by better serving customer niches; above that number, the damage caused by lower operational performance overwhelms those benefits.

My daughter continued to play with her straw, so I continued my explanation.  At this point, I introduced a second critical insight to come from the study: optimal SKU proliferation is something that can be effectively estimated. Wan’s study uses data acquired from a real company. Other companies have the opportunity to use their data to perform similar analyses. Understanding the tradeoffs involved in SKU proliferation can provide critical insight to managers, and this insight is within their reach. “It’s just a math problem.” I concluded, “and you love math!”

She raised her eyes in response. “You’re such a geek, Dad,” she concluded. “All I said was a banana cola would be good.”

“Indeed,” I replied. “Nonetheless, successful companies look for ways to use the data they have to understand the tradeoffs between top-line and operational performance to maximize their most important metric—the bottom line.”

And with that, our impending feast of chicken fingers and fries led us to other distractions.

Credits

Written by: Mark Cotteleer

Topics in this article

Consumer Products , Consumer Industry Center , Industrial Manufacturing , Center for Energy & Industrials

Deloitte Consulting

Learn more
Download Subscribe

Related

img Trending

Interactive 3 days ago

Mark Cotteleer

Mark Cotteleer

Managing Director | Center for Integrated Research

Mark is a managing director in Deloitte Consulting LLP’s Supply Chain and Network Operations practice with a specialization in Digital Supply Networks and Industry 4.0. He has 25 years of consulting experience leading teams in technology-enabled reengineering, supply chain strategy, business analytics, and process design. Mark’s experience with clients includes manufacturing, supply chain, business analytics, healthcare, and service industries.

  • mcotteleer@deloitte.com
  • +1 414 977 2359

Share article highlights

See something interesting? Simply select text and choose how to share it:

Email a customized link that shows your highlighted text.
Copy a customized link that shows your highlighted text.
Copy your highlighted text.

SKU proliferation: Too much or not enough? has been saved

SKU proliferation: Too much or not enough? has been removed

An Article Titled SKU proliferation: Too much or not enough? already exists in Saved items

Invalid special characters found 
Forgot password

To stay logged in, change your functional cookie settings.

OR

Social login not available on Microsoft Edge browser at this time.

Connect Accounts

Connect your social accounts

This is the first time you have logged in with a social network.

You have previously logged in with a different account. To link your accounts, please re-authenticate.

Log in with an existing social network:

To connect with your existing account, please enter your password:

OR

Log in with an existing site account:

To connect with your existing account, please enter your password:

Forgot password

Subscribe

to receive more business insights, analysis, and perspectives from Deloitte Insights
✓ Link copied to clipboard

Deloitte Insights and our research centers deliver proprietary research designed to help organizations turn their aspirations into action.

Deloitte Insights

  • Home
  • Topics
  • Industries
  • About Deloitte Insights

DELOITTE RESEARCH CENTERS

  • Cross-Industry
  • Economics
  • Consumer
  • Energy & Industrials
  • Financial Services
  • Government & Public Services
  • Life Sciences & Health Care
  • Tech, Media & Telecom
Deloitte logo

Learn about Deloitte’s offerings, people, and culture as a global provider of audit, assurance, consulting, financial advisory, risk advisory, tax, and related services.

© 2025. See Terms of Use for more information.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.

  • About Deloitte
  • Terms of Use
  • Privacy
  • Data Privacy Framework
  • Cookies
  • Cookie Settings
  • Legal Information for Job Seekers
  • Labor Condition Applications
  • Do Not Sell My Personal Information