MINNEAPOLIS -- In an effort to corral costs associated with the increasing number of items, Supervalu, Eden Prairie, Minn., is charging retailer customers for the costs involved in handling slow-moving items, said Don Vetger, vice president of the company's Northern Region.
The company's warehousing executives also are working with buyers and category managers to set goals to reduce the number of stockkeeping units, he said during the recent Productivity Convention and Exposition of Food Distributors International, Falls Church, Va.
"SKUs are not, in and of themselves, inherently evil. In our opinion, it's misguided, over-enthusiastic, irrational behavior that compels a segment of our business to add every item known to man, woman and beast -- that is the evil that we battle. It's the aggregation of items that is the killer," Vetger said.
The number of stockkeeping units carried by Supervalu has doubled since 1983, from 5,274 to 10,552. "Our studies have shown that adding items does not proportionately increase sales. We are spreading the sales over more items, not necessarily gaining more sales -- at least not enough to cover the carrying costs," he said.
Wholesalers like Supervalu face a greater challenge in controlling the number of SKUs than self-distributing chains because they have to supply the needs of a wide variety of retailers. For example, he noted that one of Supervalu's distribution centers carries 182 SKUs of toothbrushes. By comparison, Wal-Mart carries around 60 toothbrush SKUs, he said. "Well-managed chains present a controlled, consistent variety in all their stores, concentrating on the fastest-moving national brands," he said.
"Variety growth over the last five to 20 years has added significant cost to our operation," such as inventory carrying and storage, as well as for product handling, he said. "Failure to find a solution for economically handling variety will eventually cause a distribution operation to price itself out of the market."
Supervalu is attacking the problem of controlling these costs on a number of fronts, focusing on the retailer customers and the buyers and category managers.
Based on studies of movement and inventory activity, Supervalu has set up different cost structures for fast- and slow-moving items. "We are charging our retailers based on activity-based selling. When a retailer orders from us, there is a product cost and an operating cost, and the operating cost is passed on to the retailers. So the more efficient we are at operating, the less cost there is to retailers," Vetger said.
In some of its locations, Supervalu has set up a warehouse for fast-moving items and a separate warehouse for slow-moving SKUs. While retailers might get seven deliveries a week of the fast movers, they might get only three deliveries of the slower-moving products. If they want more frequent deliveries of the slower movers, they are charged for that service. "So the retailers can control their destiny. We will provide a service to them, but the service is based on cost. The more efficient operators who embrace the opportunities of ordering in pallet quantities, without the full variety, will get the benefit of less cost of service," Vetger said.
"We need to help the independent retailers to be successful. To help them to be successful, we need to help them compete against the large chains -- the Wal-Marts, the Costcos, the Sam's Clubs. By utilizing this activity-based costing and making sure that they understand the cost of handling all of these items, that is going to help them stay competitive in the marketplace and drive sales," he said.
The Supervalu warehousing executives also are working internally to educate buyers and category managers of the costs involved in carrying slow-moving items. "Because most of these people do not report to logistics, we have to do a selling job to get them to see our side of the picture and to get them to understand what we are up against," he said. "Buyers do not think and behave in a manner that looks at the whole picture," Vetger said. At best, they deal with items at a category or vendor level, and at their worst, they look at the world on an item-by-item basis. "Reducing item counts is an arduous battle with the category managers," he said.
Supervalu warehousing executives have set up meetings with category managers and buyers to review item counts and slow-moving items, and to remove unproductive items.