SKU Proliferation: The Silent Saboteur of Supply Chain Performance

The Hidden Impact of SKU Proliferation on Supply Chain Performance

Are you drowning in inventory? For many manufacturers, SKU proliferation creating multiple stock-keeping units to represent a single product feels like a way to satisfy business requirements to track cost, source of supply, different quality grades, and more. But beneath the surface, this strategy can quietly sabotage supply chain performance and profitability, often manifesting through multiple MRP exception messages.

What begins as an attempt to track inventory variants quickly leads to bloated warehouses, rising operating costs, and decreased service levels that are difficult to manage in SAP. SKU proliferation is more than a planning nuisance it drives complexity, unnecessary capital investment, and degraded customer service that hurts retention.

The Hidden Costs of SKU Proliferation

When unmanaged, SKU proliferation creates inefficiencies across your supply chain:

• Elevated inventory carrying costs from maintaining unnecessary stock.
• Procurement orders that are missing, unnecessary, or tied to the wrong material.
• Added master data maintenance in an attempt to align demand with available inventory.
• Component consumption postings that lead to errors and incorrect inventory data.
• Warehouse clutter and slower picking as staff navigate redundant SKUs.
• Operational picking and staging inefficiencies from stockouts or misplaced items.
• Fragmented historical usage information.
• Forecasting errors that distort demand planning and complicate sales order processing.

The outcome? Higher operating expenses and strained profitability while customers experience inconsistent service and unreliable product availability.

Why Automated Planning Breaks Down

Automated planning systems like MRP rely on clean, accurate master data aligned with supply chain business rules. SKU proliferation overwhelms MRP logic, which was designed to subdivide multi-sourcing of a material not alternate among different materials.

Instead of responding to genuine exceptions, planners spend hours chasing phantom alerts, manually maintaining spreadsheets and SAP orders to reflect reality. Worse still, changes to demand (quantity or timing) provoke looming issues that often go unnoticed, hidden behind layers of noise.

This firefighting erodes trust in the system and prevents teams from focusing on strategic improvements.

A Real-World Example: Tackling SKU Proliferation

One global manufacturer faced growing challenges from SKU proliferation. Redundant materials led to inflated inventory costs, inaccurate forecasts, and fulfillment inefficiencies.

By addressing SKU proliferation directly in SAP, the company was able to:

• Rationalize and standardize SKUs, reducing duplication and waste.
• Improve demand forecasting using SAP tools, cutting down on excess safety stock.
• Streamline supplier management, consolidating vendors and simplifying procurement.

The results? Reduced costs, improved efficiency, and greater customer satisfaction—a leaner, more agile supply chain that supports growth instead of holding it back.

Why SKU Proliferation Matters in S/4HANA and Fiori

For companies migrating to or running SAP S/4HANA, SKU proliferation is more than a nuisance it’s a roadblock to realizing the platform’s benefits:

• ‍Migration overhead: Every unnecessary SKU inflates migration size, data cleansing work, and testing effort.
• ‍MRP inefficiency: Even with S/4HANA’s faster MRP Live, poor results follow if redundant or inaccurate SKUs remain.
• ‍Exception overload in Fiori apps: Role-based dashboards (e.g., Manage Material Shortages, MRP Cockpit) overwhelm planners with noise.
• ‍User adoption risks: If the “new system” produces the same confusing results as the old one, trust erodes and teams revert to spreadsheets.

Addressing SKU proliferation before or during an S/4HANA migration ensures a leaner data footprint, cleaner master data, and faster adoption. For companies already live, SKU rationalization unlocks the real benefits of Fiori dashboards clear, actionable insights instead of endless exception lists.

Strategies to Avoid the Trap

Instead of relying on SKU proliferation to meet business requirements, companies can achieve the same outcomes through smarter system use:

• ‍Standardization and rationalization: Eliminate redundant SKUs while maintaining customer requirements.‍
• Data-driven forecasting: Use SAP’s built-in tools to sharpen accuracy and reduce unnecessary safety stock.‍
• Valuation type management: Track product cost differences when financially significant.‍
• Product costing and quality management with batch control: Enable differentiation without SKU duplication.‍
• Quota arrangements: Source inventory from multiple vendors without multiplying SKUs.‍
• Supplier consolidation: Simplify purchasing and strengthen negotiating power.‍
• System-driven exception management: Let the system highlight real problems, freeing planners for strategic decisions.

The Payoff: Efficiency and Customer Loyalty

By addressing SKU proliferation at its root, organizations unlock measurable benefits:

• Accurate MRP planning and valid exception alerts.
• Elimination of dual spreadsheet/SAP maintenance.
• Master data aligned with business rules.
• Lower inventory costs from leaner product ranges.
• Faster picking and fulfillment in uncluttered warehouses.
• Improved forecast accuracy for better availability.
• Greater profitability through reduced waste and efficiency gains.

Most importantly, both operations and customers benefit from consistent service, stronger availability, and reliable delivery turning supply chain efficiency into a competitive advantage.

SKU proliferation isn’t just about too many products it’s about hidden complexity that undermines planning accuracy, increases costs, and frustrates both internal teams and customers. The solution lies in leveraging SAP’s built-in capabilities to streamline, standardize, and optimize.

For businesses on S/4HANA or preparing for migration, tackling SKU proliferation ensures old inefficiencies don’t follow you into the new system. Organizations that confront this challenge head-on discover that simplifying product structures doesn’t mean less choice it means more efficiency, profitability, and customer trust.