Yesterday evening, close to midnight, someone sent me a screenshot and wanted to discuss whether these figures were accurate.
My intuitive answer was that the order of magnitude of the numbers was reliable, but accurate data needs to be calculated based on information published on the official website. Today, I found that car enthusiasts in the comment section are interested in and have controversies on this topic, so let’s talk about how to calculate SKU.
SKU is a concept commonly used in e-commerce. Actually, I didn’t use this word much in my previous job. We called it complexity, which is one of our daily tasks as a senior product manager.
SKU, or complexity, is actually a combination concept in mathematics, that is, the maximum value that customers can freely combine when selecting a car. Assume that a certain car model version provides 4 different optional items, which means that as a customer, the possible choices are:
- Choose none of them, C(0,4)=1
- Choose one of four, C(1,4)=4
- Choose two of four, C(2,4)=6
- Choose three of four, C(3,4)=4
- Choose all four, C(4,4)=1
The sum of all combinations from 1 to 5 = 16. When you get tired of mental arithmetic, please remember the formula C(0,n)+C(1,n)+C(2,n)+…C(n,n)=2^n. Offering a few optional items is 2 to the power of a few.
So this version can have up to 16 different configuration choices. If 5 different exterior colors and 2 different interior colors are provided, there are 5 x 2 = 10 possible combinations.
The total SKU is 16 x 10 = 160.
One car model version can have 160 SKUs. If five versions are provided, there are 800 theoretically possible combinations. Currently, electric vehicle models with monthly sales exceeding 10,000 are rare. In the case of sales of only 2,000+ per month, if 800 allowable combinations are provided, it can be called a disaster for supply chain management and inventory management under non-direct dealership model.
I now enter the XPeng website and simulate the selection of all versions. “S” represents that it has been equipped as standard in that version, and “O” represents optional.
The standard version offers four colors and two interior styles, which can be freely combined into 4 x 2=8. The special edition specified that the color is green with 2 interior styles, which is a combination of 2.
The total number of XPeng’s SKUs is 13 x 8 + 1 x 2 = 106.Going back to the image at the beginning, let me add that my intuition tells me that ES6’s tens of thousands of SKUs could also be applicable, as European exported models commonly come with a plethora of optional features and selecting them in orders of ten thousand units is not uncommon. The fact that ET5 has fewer options suggests that lessons were learned and combinations were strictly limited.
Suddenly, I recalled my previous career where we held global meetings to simplify things. European markets usually started at 20,000 units. When it was my turn, I would smile and say, “China-only 48!” It was truly a hidden gem.
Have you learned anything from this? Why not try to calculate it and give us your thoughts in the comments section? If you get it right, there might even be a reward!
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.