SKU Rationalization: The process of evaluating and reducing the number of SKUs a business carries to optimize inventory management.
SKU (Stock Keeping Unit) rationalization is the process of analyzing and optimizing a company's product portfolio to determine which SKUs are profitable and which ones are not. This process involves evaluating the demand, profitability, and marketability of each SKU in a company's inventory to identify opportunities to reduce costs, increase efficiency, and improve customer satisfaction.
SKU rationalization typically involves three key steps:
- Analyzing SKU performance: This involves collecting and analyzing data on sales, margins, inventory levels, and customer demand for each SKU. Companies may use tools such as inventory management software, sales reports, and customer feedback to gain insights into SKU performance.
- Categorizing SKUs: Based on the analysis of SKU performance, companies can categorize SKUs as high-performing, low-performing, or non-performing. High-performing SKUs are those that generate significant sales revenue and profit margins, while low-performing and non-performing SKUs are those that have lower sales, margins, and demand.
- Streamlining the SKU portfolio: Based on the SKU performance analysis and categorization, companies can make informed decisions about which SKUs to keep, which ones to reduce, and which ones to eliminate entirely. This may involve reducing the number of product variants, consolidating product lines, or discontinuing SKUs that are no longer profitable or relevant to the market.
SKU rationalization can offer several benefits for a business, including:
- Reducing inventory costs: By eliminating slow-moving or obsolete SKUs, companies can reduce inventory carrying costs and free up warehouse space.
- Improving cash flow: Reducing excess inventory can improve cash flow by freeing up capital tied up in inventory.
- Enhancing customer satisfaction: By focusing on high-performing SKUs, companies can ensure that they have the right products in stock to meet customer demand and improve customer satisfaction.
- Simplifying operations: By reducing the number of SKUs, companies can simplify their operations and reduce complexity in their supply chain and inventory management processes.
Overall, SKU rationalization is an important process for businesses that want to optimize their inventory management, reduce costs, and improve profitability.