Of late, an increasing number of companies are taking a hard look at the so-called "Long Tail" - a term popularized by Wired magazine editor Chris Anderson in a 2004 article and later book. His premise is that the Internet had enabled companies like Amazon.com and NetFlix to profit from carrying and selling large numbers of slow moving items.

The concept is now being applied to many industries, as an increasing number of them are finding the Pareto Principal no longer applies. The top 20 percent of SKUs are not driving 80% of revenues, as it typically did in the past. SKU proliferation, micro-marketing, etc., now means a much higher percent of revenues - and potentially profits - is coming from the Long Tail.

The chart below, taken from a recent web seminar sponsored by ToolsGroup and moderated by SCDigest's Dan Gilmore, shows an analysis of optimized inventory levels for one consumer goods company by individual SKU, and plotted by level of SKU activity.

Source: ToolsGroup

As can be seen from the graph, this company, like many, carries too much inventory on many of the Tail items, but is also understocking and missing profit opportunities through out-of-stocks in many others.

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