SKU consolidation in consumer goods logistics
How mathematical optimization reduces complexity and cuts costs
In the consumer goods industry, variety is a selling point - but it comes at a price. Thousands of SKUs (Stock Keeping Units) ensure full shelves, but also overfilled warehouses, complex supply chains and rising costs. What looks like customer orientation at first glance often turns out to be a logistical challenge in practice.
The larger the product portfolio, the more complex logistics planning becomes. The question is not only which SKUs should be available where, but also how they can be moved efficiently through the network - from suppliers to consolidation hubs to distribution centers (DCs).
This is precisely where SKU consolidation in logistics comes in: It aims to intelligently bundle flows of goods, lower transportation costs and reduce operational complexity.
Where companies stand today - and why that's not enough
In the logistics of consumer goods, technical wholesale and healthcare products, thousands of SKUs have to be managed daily through a tightly synchronized distribution network. The requirements are increasing: shorter delivery times, volatile demand, high minimum order quantities and rising costs.
In many companies, the flow of goods is managed according to fixed, historically established patterns - often regardless of current demand, delivery times or costs. These structures are often based on the hub-and-spoke model with central distribution points, which can be efficient but quickly reaches its limits when conditions change.
Planning is often done manually - with Excel spreadsheets, isolated ERP data and limited transparency. This leads to inefficient transport paths, overfilled warehouses and unnecessarily high transportation costs. Minimum order quantities from suppliers further exacerbate the situation, as they lead to overstocking in the distribution centers. Vehicle capacity utilization remains suboptimal and flexibility decreases as soon as the product portfolio or demand changes.
It becomes particularly critical with new product launches, seasonal fluctuations or short-term changes in the supply chain. Without an intelligent system for the dynamic management of SKU flows, planning remains reactive instead of proactive.
What makes mathematical optimization better
Traditional planning methods - whether manual or rule-based - are not able to take into account the multitude of influencing factors in modern distribution networks. They can neither resolve complex conflicts of objectives nor react dynamically to changes.
Mathematical optimization on the other hand, offers exactly that: It processes large amounts of data, takes into account Restrictions such as minimum order quantities, delivery times and capacities and calculates the best decisions based on defined targets - such as minimizing overall costs or increasing service levels. It enables the Simulation from Scenarios, The main focus is on the continuous improvement of the quality of goods, the evaluation of alternatives and the continuous adaptation of the flow of goods to current conditions.
This transforms a rigid logistics structure into a flexible, intelligent network that can be strategically controlled - in every S&OP cycle.
Further interesting content
SKU consolidation with OPTANO: dynamics instead of routine
The OPTANO solution for complex networks is a powerful software that enables companies to optimize their SKU flows strategically and operationally. The solution is based on mathematical optimization and can be fully integrated into the S&OP cycle. All relevant parameters are taken into account - from transportation costs, handling and storage costs to delivery times, service level requirements and network restrictions.
A key advantage is the ability to simulate different consolidation scenarios. Companies can analyze which SKUs should be consolidated via hubs and which can be routed directly to DCs - depending on volume, urgency, cost structure and capacities. The software solution enables decisions to be made not only on the basis of historical data, but also to incorporate future developments such as new product launches or changes in demand into planning in a targeted manner.
Optimization does not take place once, but continuously - for example in the monthly S&OP cycle. By seamlessly linking master data and forecasts from ERP and forecasting tools, decisions are always based on up-to-date information. This enables dynamic consolidation: in each cycle, a flexible decision can be made as to whether SKUs are bundled via hubs or delivered directly to the target market - for maximum efficiency and responsiveness.
OPTANO in practice:
Optimization of SKU flows in a multinational network
An international manufacturer with over 100k SKUs operates a complex distribution network with several DCs. The structure has grown historically - SKU allocation has so far been based primarily on storage costs, while transportation costs and operational complexity have hardly been taken into account.
The OPTANO software was used to implement an optimization model that maps various transport modes - such as FTL (full truck load) and LTL (partial truck load) - both via central distribution structures (hubs) and as direct deliveries from the factory warehouse. The aim was to control the SKU flows in such a way that storage and transport costs are minimized together. The analysis showed that considerable savings were possible through targeted redistribution and the partial bypassing of consolidation hubs.
Results at a glance:
- Reduction of total logistics costs by 12 %
- Improving vehicle utilization, especially for LTLs
- Reduction of stock levels through optimized SKU allocation
- Greater transparency regarding the cost and service level impact of individual SKU flows
- Strategic decision-making basis for future network planning
Intelligent consolidation is not a luxury - it is a necessity
Modern distribution networks are under increasing pressure: companies need to react faster, plan more efficiently and reduce costs at the same time. Traditional planning approaches are reaching their limits - they cannot reliably map minimum order quantities, volatile demand or supplier restrictions. Manual processes are error-prone and not scalable, fragmented data sources make it difficult to gain a holistic view, and without scenario simulations, decisions remain reactive.
This is exactly where the OPTANO solution for complex networks comes in: With automated decision-making at SKU level, integrated connection to ERP and forecasting systems and powerful scenario simulation, it transforms complex networks into strategically controllable structures. Continuous integration into the S&OP cycle enables data-based decisions and flexible consolidation in every planning cycle. This makes intelligent consolidation a prerequisite for efficiency, flexibility and sustainable performance.
Make your network smarter
Do you want to future-proof your logistics networks? A proof-of-concept project is a low-cost way to get started. Interested? Get in touch with us!