CEO.CA Chairman's Briefing

Imagine that your country is hosting the FIFA world cup. There would be fans flying in from all over the world, supporting their own countries. You wish to manufacture jerseys for a number of teams, and before importing them from your supplier you would like to carry out a pre-shipment inspection to make sure that everything is in order and the quality is up to mark. However, you also wish to minimize the inspection costs so that you maintain a cost advantage over all your competitors. The question here arises is whether merging SKUs for product inspection a good idea here or should you keep them separate?

Merging SKUs for product inspection by ATIHongKong is rather common methods employed by importers all over the world to simply quality control inspection, and therefore lower costs. Let’s cover some of the basics before we move onto details.

First things first, what exactly do we mean by an SKU? It’s commonly defined as a ‘stock keeping unit’ which is a term related to inventory management of a business. When it comes to manufacturing industry, particularly quality control industry, SKUs are referred to simply as items; codes used by suppliers and buyers that help them keep track of and easily identify products that are present in the inventory currently or previously. SKUs need not always represent tangible products- they can be used for services such as average repair time or other billable activities.

For example, you might be in the market to purchase three different glass jars to keep kitchen items- one large, one medium and one small- all of which will be packaged and retailed separately from one another. When you issue the PO to your supplier, you will mention these different sized jars as three different SKUs or items, each corresponding to a particular size. However, if you want these three jars to be packaged as a single set of three, you would mention them as one SKU visible on the PO.

SKUs essential help you and your supplier track your product from manufacturing to shipment. Attributes that define an SKU could include:

1.  Description
2.  Material
3.  Size
4.  Color
5.  Packaging
6.  Brand
7.  Item number

SKUs are vital during product inspection to ensure that product inspectors know precisely the criteria for each product category; some SKUs may differ by size or color only, whereas other SKUs may be entirely different products such as candles and shoes. A single PO may have multiple SKUs included in it.

By knowing the SKUs that match particular products, a product inspector is able to do his job more efficiently; this includes determining the appropriate sample size required to effectively inspect the products to gain statistically significant results, as well as to determine which inspection criteria will apply to each SKU depending upon the type of product and specific requirements or specifications related to each. One or more of the following could happen if an inspector isn’t able to connect SKUs to the products he’s inspecting:

The wrong number of units are pulled during random sampling. This could mean a larger or smaller scope of inspection than what you want for a particular SKU.

The wrong specification or checklist is applied to a SKU. This is more likely to occur during product inspection of similar SKUs but can be serious if the wrong standards are applied to the wrong product.

You receive an inaccurate inspection report due to mixing up SKUs during the inspection. Potential errors are numerous and range from misreporting the number of total units finished to declaring a result of “PASS” instead of “FAIL” for an SKU.

The end result would be that you would have wasted a significant amount of time, money and resources on an inspection that delivered invalid results. The consequence of which may be that you need to have the order inspected again, or perhaps even worse, mistakenly approve goods that do not meet your quality standards.

It is quite typical to inspect SKUs for different products separately. This implies that even if the different SKUs are inspected on the same day, two distinct samples would be drawn out of this product category to conduct the inspection. If SKUs in an order are similar enough, an inspector will often pull a larger random sample of two or more similar SKUs and inspect them together.

One obvious risk of combining different SKUs is that you potentially lower the average number of units inspected in each SKU- this means that by combining SKUs you inspect fewer units from each sample than you would have if they were inspected as separate SKUs. This increases the risk of potential defects or other issues going unnoticed in the sample.

Now coming back to the example mentioned in the beginning, should you combine SKUs for different football jerseys? You have four different SKUs for four different teams, is it practical to combine SKUs during the product inspection for this order?

Since the jerseys only vary in color and logo of the shirts, it is safe to say that combining SKUs will be beneficial for you. Combining SKUs, in this case, will save your inspector time, which will lower your inspection cost.

However, the situation would not be as simple if there were a major difference in the how the logo is attached to the short; for example, for one team it may be screen-printed, but for another would want to order hand sewn logos. As there are two distinct production processes involved here, it is very likely that the inspection criteria required for each shirt would be different, such as testing the adhesion on the screen-printed shirt compared to the strength of the hand-sewn logo.

Combining SKUs during product inspection is especially discouraged if you’re encountering issues with one particular SKU or another. Let’s say you’ve seen a lot of product returns from customers that bought the Chicago Cubs caps from. This particular cap is affected by a quality defect – poor stitching – much more than other SKUs. So you probably do NOT want to combine this SKU with the others but inspect a random sample of it independently instead.

If you wish to lower your inspection costs, combining SKUs for very similar products is one potential technique that you can make use of; however, this does not imply that combining your SKUs is always a viable option for you when it comes to reducing inspection costs- think of it as a tradeoff between lower costs and lower quality standards. There is always the risk that the gain you receive from combining SKUs may be very well offset by the lowered product standards that you receive.