SKU Proliferation: Understanding the Cause of Short-Run Orders

1/7/2015

From 2007 to 2012, the number and size of stores decreased and the overall volume of carton shipments (i.e., the number of units sold) grew only at an average annual rate of 3%. Even so, the average number of grocery store SKUs increased by a whopping 26%. If the volume of packaging has remained constant, how can there be so many new products on the store shelf? And what has driven this demand for smaller, more frequent folding carton orders that usually require shorter delivery times? Finally, how should converters position themselves to take advantage of this market trend?

A 2014 study conducted by Packaging World and Cal Poly provides insight. When asked to identify the top reason(s) for packaging SKU proliferation at their companies, 45% of CPG respondents indicated that it was due to the introduction of new product variations while 36% said that it was due to retailer demand for varying packaging sizes and configurations. In addition, about a quarter of all respondents agreed that SKU proliferation could be attributed to an increased emphasis in tailoring marketing messages to specific demographic groups as well as an increased demand for unique promotional packages and private labeling.

Thus, SKU proliferation does not correspond to an overall increase in the demand for goods (which would mean more work and more profit for converters), but instead to an increase in the demand for variety. In other words, converters’ order volumes are remaining constant while work becomes more complex.

For example, consider the growing private label business where CPGs manufacture one product that is then marketed and sold under a variety of brands. Instead of designing packaging for one retailer, a converter must instead design and produce packaging for as many as 50, each of with different requirements. Moreover, as brand owners become increasingly sophisticated, they are requiring that private label packaging styles and designs rival or even surpass those of the competing national brands.

Creating multiple designs for a single job places strain on all parts of the supply chain, from package and graphic designers to order entry, prepress, and manufacturing. Even the process for packaging approval, along with the steps taken prior to printing the first production piece, can be cumbersome and problematic when dealing with a short-run order.

Since consumers today desire more variety—and CPGs are responding by producing more SKUs—short-run jobs will only increase in the coming years. Yet before investing in any short-run printing solution—or making operational changes to accommodate growth in short-run work at one’s plant—converters should not only understand the market forces driving the new demand, but should also research the benefits and drawbacks of analog and digital short-run presses.

To begin this important research, start with PPC’s video series on short-run solutions for paperboard packaging: paperbox.org/shortrun. In the meantime, converters should pay close attention to changes in volume of short-run orders, and whenever possible, embrace this new demand: by transforming the challenges posed by short-run into lucrative opportunities, the paperboard packaging industry will be able to grow and thrive in the coming years. 

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sku proliferation
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