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How To: Cope With SKU Proliferation BEVBEAT Search READ THE DIGITAL EDITION NOW!
How To: Cope With SKU Proliferation - Beverage World
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How To: Cope With SKU Proliferation
Written by John Karolefski
Sunday, 22 June 2008
BOTTLED WATER
CSD
ENERGY DRINKS
NEW AGE
Enhanced waters, healthful juice drinks and other New Age beverages are providing a
plethora of creative choices for consumers looking to quench their thirst. Meanwhile,
these new brands are combining with traditional carbonated soft drinks (CSDs) to put
stress on the production line of bottlers.
That’s no surprise to Coca-Cola Bottling Co. Consolidated. Five years ago, the firm was
dealing with 200 SKUs and now there are more than 530.
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“We saw this coming and the
complexities it would cause
throughout the supply chain,”
says Lauren Steele,
spokesperson for the Charlotte,
N.C., USA-based bottler. “So we
started to do some things
differently a few years ago.
Thank goodness we did. SKU
proliferation is a dramatic issue
for everybody.”
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Other executives agree, and
also are confident of finding
solutions. “Bottlers are dealing
with a magnitude of SKUs that is
not going away. That puts a lot of stress on production and distribution. It drives a lot of
complexity,” reports Jim Stollberg, an executive with HK Systems, an automated
materials handling company providing consulting services and solutions to corporate
clients.
“There are certainly ways for everyone to come together and combat this problem,” says
Francis Burns, vice president of operations for Pepsi-Cola Bottling Co. of Central
Virginia.
How are bottlers coping nowadays? Here are five ways:
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Quick Changeover: Bottlers have to look into driving flexibility in the production line with
a quick changeover, according to Stollberg of HK Systems. “It’s not about setting up the
lines and running them en masse now,” he says. “Given the volume changes, there has
to be various package sizes that are run on a continual basis.”
He explains that production is very capital intensive, so the ability to drive more flexibility
on those capital investments is important. In other words, what is needed is the ability to
run more products off the same capital investments.
SKU proliferation also has signicant implications for warehousing and distribution,
according to Stollberg. “Even if you kept your inventory levels, storing a magnitude of
different shapes and sizes has a direct impact on the ability to fill orders,” he says. “One
customer we worked with had an order magnitude about tenfold over a five-year period
of time. So they had to come up with creative ways to improve in their ability to fill orders
from stock. That gets into a lot of technicalities with forecasting. How do you forecast
where the inventory should be? What kind of safety stock levels should be held? In
simplistic cases, it’s figuring out where to find space to store that type of inventory to fill
orders.
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“Or maybe you have to change the size of the facility in order to improve fill rates,” he
continues. “Another thing you have to look at is how to increase the density of your
warehouse or distribution center to store more SKUs. By creating mixed SKU cases or
by using some sort of repackaging, bottlers and distributors will have to get creative on
how to solve these problems because it is not a passing fad.”
Pick and Choose SKUs: Pepsi-Cola Bottling Co. of Central Virginia operates one
production line for CSDs. With the rapid growth of new products, the Charlottesville, Va.,
USA-based firm has to “pick and choose” which brands to produce.
Red Bull GmbH: Running of the
Bull
After pioneering the energy drink
category more than 10 years ago in the
US, Red Bull is looking to expand the
beverage segment in a big way.
“As you increase the number of SKUs you are producing in a day’s time, you are
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7/14/2009
How To: Cope With SKU Proliferation - Beverage World
Page 2 of 2
constantly stopping and starting, losing efficiency in the line,” says Burns. “For us, every
time we change a flavor—let’s say we go from Pepsi to Diet Pepsi or Pepsi to Mountain
Dew—we have a sanitation process we go through. So we’re losing between 12 and 15
minutes of downtime when we’re doing this. Over a day’s time, if we run eight different
flavors, we’re losing two hours of production time.”
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As a result, the bottler has decided to pick and choose only those items that are selling
well. Those brands earn time on the production line and are run as long as they can to
increase efficiency.
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“We have to determine what products are selling well enough that we can generate
some line efficiency, and stick with those first.”
Burns explains what can happen with beverages that are gaining traction in the
marketplace. The company buys them at first to see the direction of sales. If everything
looks good, a decision is made to produce the beverage.
“Unfortunately, in the past we’ve been in situations where we thought we had a new item
that looked really good at the start. We decided to go ahead with it. We’ve got to commit
to bottles and labels and everything else. All of a sudden after an initial spike when
everyone tries it, sales just go down dramatically. In some cases, we’re stuck with
bottles and labels that we’ve committed to. It’s very costly,” he says.
Automated Case Handling: Beverage officials say that automated applications are
nothing new to the industry. But more companies are investing in such systems to
reduce labor costs and downtime, while increasing accuracy and efficiency.
Coca-Cola Bottling Co. Consolidated has installed an automated case handling system
called Vertique in its Charlotte facility. “We’re not making a lot of these new SKUs,” says
Steele. “Much of the SKU proliferation is adding complexities at the manufacturing
facility—maybe not in the actual manufacturing, but in the staging. Often you do that
adjacent to the manufacturing line. The Vertique system has helped us dramatically. It’s
helping us deal with this issue.”
Another help for the bottler is implementing a CooLift delivery system. This “intelligent
racking system” stacks and stages all of the SKUs for truck delivery. The system
involves pre-building orders in the warehouse on a small pallet that can roll off a truck
directly into a customer’s location.
Increase Production Runs: SKU proliferation has prompted G&J Pepsi-Cola Bottlers to
carry more inventory to deal with the fact that it takes more time to get each individual
item back on the production line.
“You run them less frequently, so you run more of them. It puts a lot of strain on your
inventory,” explains Steven Kaplan, senior vice president of operations and planning for
the Cin-cinnati, Ohio, USA-based company. “So that means you’ve got more of each
item on the floor. There’s a delicate balance there because a lot of them are slowmoving items. If you have too much, that gets to be a problem in itself. Having more
SKUs is hard on your warehouse space to begin with. It puts a lot of stress on your
inventory.”
G&J has increased space modestly in one of its 12 facilities. However, the space has
remained essentially the same during the increase in SKU proliferation in recent years.
“It’s challenging and takes careful management,” says Kaplan.
Better Use of Manpower: The CSD business lags behind other industries in terms of
applying automation, according to Stollberg of HK Systems. In many ways, this is a
disadvantage when dealing with more demanding customers.
“For example, how do you drive mixed SKU pallets rather than shipping out a full
pallet?” he asks. “Stores want mixed SKUs and sometimes within the case they want
mixed flavors. In one instance we talked to a bottler that does it all by hand. They are
basically palletizing at a single SKU level, putting that in the warehouse, then going back
manually and tearing it all apart and de-palletizing by hand.”
Old-fashioned manpower has obvious drawbacks: expensive, less than fully reliable and
prone to error and workman’s compensation claims. But even sophisticated beverage
production plants and distribution facilities sometimes rely on manual pallet-sizing,
depalletizing and case handling applications.
From Beverage World June 15, 2008
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