What is SKU Rationalization?
SKU rationalization is the process of evaluating and optimizing the number of stock-keeping units (SKUs) in a company’s product portfolio. SKUs are individual items that a company sells, such as different sizes or colors of a particular product. Rationalizing SKUs involves determining which products are the most profitable, which are the most popular, and which are the costliest to produce or maintain. By analyzing this data, companies can make informed decisions about which SKUs to keep and which to discontinue.
The SKU Rationalization Process
Gather data
The first step in SKU rationalization analysis is to gather data on each SKU in the company’s product portfolio. This data can include sales volume, revenue, profit margin, production costs, and inventory levels. This data should be broken down by individual SKU, as well as by product line, brand, and category.
Analyze
Once the data has been gathered, the company can begin analyzing it to identify trends and patterns. For example, the company may find that certain SKUs are consistently low-performing, or that certain product lines are much more profitable than others. By identifying these trends, the company can make informed decisions about which SKUs to keep and which to discontinue.
Develop evaluation criteria
The next step is to develop criteria for evaluating SKUs. This can include factors such as profitability, sales volume, customer demand, and production costs. Companies should also consider the impact that discontinuing certain SKUs will have on other products in the portfolio. For example, discontinuing a product that is a popular companion to another product may have a negative impact on sales of the companion product.
Once the evaluation criteria have been established, firms can begin evaluating each SKU against these criteria. SKUs that do not meet the criteria can be flagged for potential discontinuation. Also, consider alternatives to discontinuation, such as bundling low-performing SKUs with more popular products or modifying the SKUs to make them more profitable.
Take action and monitor performance
Finally, companies should implement the changes identified through the SKU rationalization analysis. This may involve discontinuing certain SKUs, modifying others, or introducing new products to the portfolio. After, monitor the impact of these changes on sales, profitability, and customer satisfaction, and adjust the product portfolio as necessary.
Key benefits of SKU rationalization
- Cost savings: By eliminating slow-moving or redundant SKUs, firms an reduce their inventory holding costs, transportation costs, and warehousing costs. This can result in significant cost savings.
- Improved profitability: SKU rationalization can improve profitability by increasing sales of high-performing products and reducing the costs associated with low-performing products.
- Better inventory management: By reducing the number of SKUs, firms can better manage their inventory and reduce the risk of overstocking or understocking.
- Increased efficiency: SKU rationalization can streamline a company’s operations by reducing the number of SKUs that need to be managed, which can lead to increased efficiency in the supply chain.
- Improved customer satisfaction: By focusing on high-performing products, firms can improve their product offerings and better meet the needs of their customers.
- Enhanced data analysis: With fewer SKUs to track, firms can more easily analyze sales data and make informed decisions about product offerings.
Leverage WarehouseQuote’s for SKU rationalization analysis
WarehouseQuote has helped businesses of all sizes drive clarity into their supply chain decision-making through data analysis and technology platform capabilities. With WarehouseQuote’s integrated technology platform, clients can quickly review fast- and slow-moving inventory to make proactive supply chain decisions. Reach out to our team today to learn more about how we can help your business maximize operational efficiency.