As retailers adopt lean retailing practices, manufacturers are feeling the pinch. And as product proliferation increases, customer demand becomes harder to predict.
Most manufacturers apply one inventory policy for all stock-keeping units in a product line.
But the inventory demand for SKUs within the same product line can vary significantly. SKUs with high volume typically have little variation in weekly sales, while slow-selling SKUs can vary enormously in weekly sales. The greater the variation, the larger the inventory the manufacturer must hold relative to an SKU's expected weekly sales. SKU-level differentiation can also be applied to sourcing strategies. Instead of producing all the SKUs for a product line at a single location, either offshore at low cost or close to market at higher cost, manufacturers can typically do better by going for a mixed allocation.