22 Aug 2018

Customer-specific SKUs vs Virtual warehouse

Customer-specific SKUs vs Virtual warehouse

Should we create Customer-specific SKUs to reserve inventory for our best customers? I hear this client question often                                

Our best customers who give us great demand visibility often get shorted because another customer who provides erratic forecasts comes in and wipes out the inventory.

What should we do?

Smart customers have moved in the direction of requiring manufacturers to slightly alter the design of the product or just change the packaging so that a customer-specific SKU is created. If this happens, then inventory made for this customer cannot be “taken” by someone else.

Alternatively, you can create a virtual location to store this inventory for your preferred customers.

Should you do any of the above? What are the challenges?

They lead to SKU proliferation and higher waste and inventory levels.

What can you do to resolve the issue of Rob Peter to pay Paul?

Better Customer Demand Visibility

We all know that forecast accuracy at SKU-customer level is much lower than at SKU level. But customers insist on Customer-specific SKUs that are exclusive to them, and many a time it may be because they indirectly want to reserve inventory. If the supply chain is smart, then it needs to adopt postponement to produce the products and keep them in inventory and pack or finish when the customer actually places the order.

The strategy traditionally employed measures risks vs rewards with cost vs benefit. Collaborative planning and budgeting lead to committed volumes and reciprocal commitment as to guaranteeing fill rates and inventories for the customer who commits to a specific volume. However, here the customer with a monopoly brand or market may actually dictate terms to the supplier. Like Apple dictating terms to their suppliers… Elon Musk asking for refunds from their suppliers…

You can see related Blog entries:

What to measure for Forecast Accuracy- SKU/DC, SKU/National, SKU/Plant? 

Target Supply Chain Initiatives – Managing Suppliers

Bull-whipping or driving the demand?

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