Managing SKU Complexity and Driving Lifecycle Traceability of Consumer Packaged Goods

This blog is the second in a five-part series by guest blogger Lionel Grealou, consultant and founder of Xlifecycle Ltd. and author of the virtual+digital blog. In part 1, Lionel discussed the pivotal role of PLM data in enhancing the reliability and insights of R&D and supply chain decisions. Today’s post discusses why PLM capabilities are essential for manufacturers to accelerate time-to-market and launch products “right the first time.”

PLM is about end-to-end traceability and right-first-time launches

Leveraging Product Lifecycle Management (PLM) capabilities is essential for manufacturers and innovators to accelerate time-to-market, achieve the right-first-time launches, build long-term asset strategies—and in turn, drive growth and innovation, build customer loyalty, develop a brand image, and ultimately enhance brand equity. The CPG industry is no exception. Most organizations face the combined challenge of managing the innovation portfolio variability and minimizing Stock Keeping Unit (SKU) complexity while ensuring strict product compliance. With an ever-expanding array of CPG products tailored to diverse consumer preferences, the stakes are high. Effective PLM emerges as a strategic practice, streamlining new product development processes, accelerating market introduction while ensuring successful product launches, and minimizing development and inventory write-offs.

Consider a leading beverage company that implemented a PLM system to manage its extensive product portfolio. By centralizing all product data and automating workflows, the company reduced its time-to-market by 25% while maintaining 100% OTIF (On-Time In-Full) on regulatory compliance with full end-to-end traceability. Formula/recipe management capabilities ensured that each new product met regulatory standards on the first attempt, significantly reducing development iterations and associated costs. Additionally, enhanced collaboration across global teams and downstream supply chains resulted in more innovative products tailored to local markets.

In this post, I expand on why PLM is essential for enabling CPG product innovation, from SKU optimization to end-to-end traceability with Digital Product Passports (DPPs) and right-first-time (RFT) launches.

Consumer packaged goods: the SKU conundrum

Gartner defined a SKU as “A unique identification number that defines an item at the identifiable inventory level; for example, in retail applications, the SKU may designate style, size, and color. A more detailed level would be at the serial number or unique identifier level.” In some industries, managing product packaging is complicated as it relates to managing product variability, partly due to traceability complexity, brand identity, regulatory compliance, and legal requirements. Consumers and regulators demand accurate product and production information, including details on recyclability and sustainability. For CPG manufacturers, real-time inventory traceability is essential to remain compliant and drive timely new product introduction. SKU reference gets assigned to each product batch, driving product variability traceability, demand forecast, sales performance, stock levels, and delisting implications.

Among other things, SKU management facilitates product categorization, pricing tracking, and optimization across unstructured data, high volatility, and master data fluctuation. Effective SKU management often relates to stock control, supply chain optimization, loss prevention, demand forecast, quality, and customer feedback. Each product batch is associated with a given SKU reference for identification, whereas each product variant is specified with a given Bill of Material (BOM), which helps identify all elements and activities related to its composition, assembly, blend, etc. In short, a SKU represents a specific variation of a product, which is characterized by a multi-level BOM and components.

While SKUs are primarily used internally for inventory management, they also serve important customer-facing roles by providing clear and precise product identification. In most cases, a SKU code is designed to be customer-facing, aiding both consumers and customers (including retail and e-commerce platforms) to identify and track items. SKUs can be managed quite dynamically to accommodate product variations and marketing and distribution strategies.

Digital Product Passports for lifecycle transparency

SKU optimization is often associated with reducing SKU numbers to drive portfolio prioritization and remove the admin burden; it is also about effectively tracking SKU-BOM interdependencies, including parent/child, predecessor/successor, alternates/substitutes, and other critical portfolio-related relationships. For instance, companies can improve their inventory control, reduce costs, and enhance service levels by focusing on the most critical and strategic items. Regular reviews and adjustments are essential to ensure the categorization remains relevant and accurate in a dynamic business environment.

While SKUs are essential for inventory management and operational efficiency, DPPs provide a broader and more detailed view of a product’s lifecycle, emphasizing transparency, sustainability, and compliance. Per EU’s framework for eco-design requirements, DPPs will be introduced to register information such as a product’s origin, raw materials, manufacturing processes, sustainability data, and end-of-life handling (recycle/disposal)—sharing product-related information amongst supply chains, authorities, and consumers. This is expected to increase transparency, both for supply chains and the public and increase efficiency in information transfer.

PLM is crucial for maintaining compliance, driving time to market, and ensuring RFT product launches. Ultimately, a PLM strategy must be a catalyst to drive repeatable profitability and growth. It helps manage stock keeping unit (SKU) complexity, optimize ingredient and raw material usage, drive effective inventory control, provide insightful data analytics, and enable cross-functional collaboration.

Sustainable right-first-time launches

As defined by Total Quality Management (TQM) practices, RFT is about tracking defect-free products or services delivered correctly on the first attempt. It makes perfect sense from a manufacturing execution perspective: implementing automated quality control systems can detect defects early in the production line, ensuring that each product meets specifications from the start, reducing waste, lowering costs, and increasing customer satisfaction. Independent of the industry, a successful product launch is crucial for maximizing the novelty effect, ensuring market penetration, and eventually driving growth. Determining the right timing for a product launch is critical to drive competitive advantage. Marketers often say that “timing is everything when it comes to launching a product,” though it is also essential to ensure continuous compliance and brand sustainability. More specifically, RFT refers to successful customer adoption without the need for major modifications or post-launch corrections. It is also about driving profitable growth.

In the automotive industry, RFT innovation ensures that production processes yield high-quality vehicles without the need for rework. By implementing automated quality control systems, automakers can detect and address defects early in the production line, ensuring that each vehicle meets stringent safety and performance standards from the start. This reduces waste, lowers costs, and increases customer satisfaction, ultimately leading to higher brand loyalty and market share.

In the CPG industry, RFT is integral to ensuring that product SKUs are manufactured to the highest quality standards from the outset. This approach minimizes waste reduces costs associated with rework and ensures that products meet regulatory standards and consumer expectations on the first attempt. High RFT rates in the CPG sector are indicative of robust quality control processes and effective collaboration across the supply chain, from raw material procurement to final product delivery. This is crucial in an industry where consumer preferences can shift rapidly, and the ability to launch defect-free products swiftly can be a key competitive advantage. In PLM terms, sustainable RFT launches imply a robust product development framework with clear deliverable and SKU maturity management, robust market introduction sign-off criteria, end-to-end sustainability, and DPP compliance traceability.