How To: Cope With SKU Proliferation - Beverage World HOME SUBSCRIBE Search BEVBEAT BEER LINKS & RESOURCES ABOUT US CONTACT US SITE MAP Page 1 of 2 MEDIA KIT GO READ THE DIGITAL EDITION NOW! 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. RTD TEA WINE/SPIRITS BEVSOLUTIONS DISTRIBUTION PACKAGING PRODUCTION R&D “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.” SALES & MARKETING SUPPLY CHAIN 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: Fleet Report State of the Industry R&D Report Supply Chain Report 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. z Top 50 North American Companies z Global 100 z Contract Packers z Top 25 Beer Wholesalers z Top 25 Bottlers “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 http://www.beverageworld.com/content/view/34925/ 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.” ALSO: z Boulevard Brewing Co.: Beyond the Boulevard z Spaten North America: Prost! Modern z Freeman Beverage Co., Inc.: On the March 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. z O&W Inc.: A Family Affair z More company profiles “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 < Prev Home R&D Subscribe Production Water Next > Links & Resources About Us Contact Us Packaging Sales & Marketing Distribution CSD Energy Drinks New Age RTD Tea Site Map Supply Chain Wine/Spirits Media Kit Beer Bottled © Beverage World Publications Group - All rights reserved. Beverage World is published by Ideal Media. Privacy Policy | Terms of Use http://www.beverageworld.com/content/view/34925/ 7/14/2009