SKU Proliferation Is Killing Your OEE — Here's What to Do About It

What Is SKU Proliferation?

SKU proliferation is the result of manufacturers rapidly adding new products — aka stock-keeping units (SKUs) — to the catalog.  It's a common issue, since product teams grow revenue by launching new SKUs. But unmanaged, it can create problems on the frontline, especially when too many SKUs run through manufacturing lines built for fewer products.

For example, imagine you start the day with an achievable-looking production schedule. Then a changeover to an infrequent SKU runs 40 minutes over and fails its first quality check. Operators are frustrated, and the shift ends before reaching its goal.

When manufacturers study the effects of fast product-line growth, they tend to focus on enterprise resource planning (ERP), demand planning, or supply chain management. But SKU proliferation is initially a frontline issue, because successful operations teams must be able to deliver any product in the catalog while maintaining throughput, quality, and margin. The more products in the catalog, the more challenging that becomes.

{{callout1}}

What Causes SKU Proliferation in Manufacturing?

SKU proliferation is usually a sign of business growth, but unchecked, it can strain frontline operations, tie up cash, produce excess inventory, and increase warehousing costs. 

Here's how: Imagine a sales rep closes a deal by promising a custom variant, but it turns out to be a low-volume, infrequently run product. Making things harder, changeovers take 40 minutes and it uses a unique material (stored in the warehouse between runs). Every time the product runs, frontline operators have to review the custom standard operating procedure (SOP) and pick the materials before they can start setting up the line.

Common SKU proliferation causes include:

• Growing the business with new products or variations, such as new flavors, colors, or materials, or seasonal variations.
• Upgrading products with advanced technology features.
• Meeting regulatory requirements for entering new geographical markets.
• Inaccurately forecasting market demand for existing or new SKUs.
• Poor communications between sales, manufacturing, R&D, logistics, and other departments creating a complex product mix.
• Making promises to customers before consulting with other departments on manufacturing feasibility.

How Unchecked SKU Proliferation Hurts OEE

SKU proliferation increases manufacturing complexity, costs, and waste while decreasing profitability. For example, SKU proliferation costs food and beverage manufacturers up to $50 billion in lost profits in the US market alone, according to McKinsey.

Changeovers — switching from one product or variation to another — are a significant cost of SKU proliferation. The more products you offer, the more likely you'll have a changeover during a shift.

However, changeovers have significant operational costs, including cleaning equipment, pulling new materials, calibrating machines, and doing test runs to evaluate quality. Every minute spent on a changeover is a minute the line is not productive and earning money. 

The resulting downtime and waste reduces overall equipment effectiveness (OEE). OEE is calculated by multiplying Availability x Performance x Quality. It measures what percentage of time a line is making sellable products, not sitting idle waiting for the next step. It is a powerful measure of efficiency, productivity, and profitability.

Here are some of the ways SKU proliferation hurts OEE:

• Slower changeovers: Operators may not be very familiar with infrequent SKUs, so implementing SOPs and achieving quality may take longer.
• Hidden capacity loss: Even when equipment is running, you may not be at full capacity. Some changeover processes, such as clean in place (CIP) or test runs, require running machines even though no usable product is manufactured. Don't inflate OEE by including changeover time in this calculation.
• Demand forecasting instability: Infrequent, unpredictable SKUs make it very hard to predict demand — which makes it difficult to plan material inventories, staffing, and manufacturing schedules.
• Quality risks: Increased product variety heightens the risk of errors, such as manufacturing mistakes or stored inventory becoming obsolete or stale.

Since most OEE dashboards report at the line or shift level rather than at the SKU level, they may mask specific product runs that lower performance.

How To Manage SKU Proliferation on the Factory Floor

Seeking healthy growth and profitability, today's manufacturers are under pressure to cut SKUs and increase operational efficiency. Ops leaders are focusing on three levers to reduce the impact of SKU proliferation on the frontline.

Lever 1: SKU Rationalization

SKU rationalization means eliminating underperforming SKUs from the catalog to focus on high-demand, high-margin products. It decreases complexity, reduces inventory (and associated warehousing costs), and improves frontline efficiency.

Here are some tips for SKU rationalization:

• Trust your ERP as a single source of truth for product orders and demand, return rates, inventory levels and turnover, and material planning. This data can guide decisions on keeping, consolidating, and cutting SKUs.
• Add SKUs judiciously based on accurate demand forecasting and business capabilities. Would creating a new variation on a top seller increase profitability? Would a new product increase complexity beyond what the business can handle? (Check with production, supply chain, sales, logistics, marketing, and other business stakeholders to explore this.) 
• Deploy AI and predictive analytics tools that integrate manufacturing, inventory, and sales data to uncover products with a low return on investment (ROI) and are good candidates for elimination.
• Eliminate excess inventory by discounting or writing it off, then discontinuing it.

Lever 2. Changeover Optimization

Changeovers are expensive — operationally and financially. Here are some ways to optimize changeover procedures to reduce the associated losses:

• Use single-minute exchange of die (SMED), a Lean method that aims to reduce equipment changeovers to 10 minutes or less. SMED focuses on converting "internal" tasks done while a machine is stopped to "external" tasks, which happen while the machine is running. For example, frontlines can stage materials, preheat equipment, or print labels for the next SKU while the previous line is finishing to cut changeover time.
• Build production schedules strategically by grouping similar products, colors, or formulations to reduce changeover complexity.
• Digitalize SOPs and other instructional materials, so information is available when and where operators need it.

Lever 3. Real-Time Visibility and Communications

A connected workforce platform (CWS) compliments ERP data with real-time visibility into what is happening on the shop floor. Here are some ways a CWS can help manage SKU proliferation:

• Communicate production schedule changes instantly, so frontline operators are prepared for changeovers and not scrambling for materials.
• Give operators immediate instructions to fix potential production defects before they affect quality.
• Use SKU-specific reporting to track real-world raw material use, then integrate automated procurement tools to support just-in-time manufacturing.
• Identify SKUs that lead to production problems, such as excessive changeover time, downtime, or waste, and take corrective action. 

‍

{{callout2}}
‍

The SKU Proliferation Scorecard

Use these scorecard metrics to evaluate whether SKU proliferation is affecting your plant.

Formula for Changeover Time per SKU

Changeover Time = T2 - T1
‍
Where T1 is the last "good" unit of the previous SKU, and T2 is the first "good" unit of the new SKU. (A "good" unit meets quality specs.)

Mature SMED programs average under 10 minutes for changeovers.

Example: Optimize or eliminate a changeover that takes 20 minutes.

Formula for Planned vs. Actual Changeover Variance

Changeover Variance % = [(Actual − Planned) ÷ Planned] × 100

Changeovers that regularly take longer than planned are good candidates for optimization or rationalization.

Example: A changeover takes 30 minutes but your average product changeover takes nine minutes.

Formula for Operator Compliance Rate on Changeover SOPs 

SOP Compliance Rate % = (Changeover steps completed per SOP ÷ Total required changeover steps) × 100

Skipped SOP steps might become quality or compliance problems. Digital work instructions and automated workflows checks evaluate SOP compliance, even on infrequently run SKUs. 

Example: An operator misses three of eight SOP steps; they should be retrained or counseled.

Formula for First-Run Quality Rate by SKU

First-Run Quality Rate % = (Units passing quality inspection ÷ Total units produced) × 100 

Also called "first-pass yield by SKU," this is the percentage of product units that meet quality standards on the first run. This metric reveals hidden costs of reworking, reprocessing, or scrapping low-quality items and changeover problems. 

Example: A SKU has a 52% first-run quality rate, compared to 82% for your top products.

Formula for OEE by SKU

OEE = Availability × Performance × Quality

SKU-specific reporting tools help pinpoint products that decrease OEE (and therefore efficiency, productivity, and profitability)..

To calculate OEE by SKU:

• Availability includes time spent on changeovers and any stoppages during the SKU's run.
• Performance accounts for any special factors that slow a SKU's production, such as difficult fill characteristics.
• Quality refers to the first-run quality rate for that SKU.

Example:  A SKU has a 47% OEE, compared to 84% for your top products.

The Bottom Line

SKU proliferation is a double-edged sword: It's necessary for growing companies, but unchecked, it can become an expensive drag on OEE. The difference between plants that absorb SKU complexity and those that are overwhelmed often comes down to visibility — whether leaders can see what's happening on the floor by SKU, by shift, and in real time. A frontline-focused CWS platform's real-time OEE dashboards, automated compliance checks, learning tools, and communications that facilitate collaboration enables visibility that makes SKU proliferation manageable.

See how Redzone helps manufacturers track OEE, changeover time, SOP compliance, and more by booking a demo today.

‍