What is SKU rationalization?
A Holder ( Item Code ) is a unique identifier assigned to each product and service available for sale. SKU rationalization is the process of evaluating all SKUs to identify those that are not profitable or contribute significantly to total revenue. Retailers often use SKU rationalization to streamline inventory management and improve profitability.
What is SKU rationalization?
What is SKU rationalization?
The SKU rationalization formula involves analyzing sales data and comparing it to inventory carrying costs. The formula is:
((Revenue – Cost of Goods Sold)/Total Revenue) x 100
This formula helps retailers determine the profitability of each SKU and make informed decisions about which products to discard.
The benefits of streamlining SKU
There are several benefits to implementing SKU streamlining in your business.
Cut the cost
By eliminating underperforming products, retailers can reduce inventory costs, improve cash flow, and increase profit margins. This also frees up storage space and reduces the need for additional warehouse staff.
Increase quality
A smaller product offering can simplify inventory management and make demand forecasting easier. This can lead to fewer out-of-stocks, reduced lead times and a more efficient supply chain.
Increase productivity
With fewer SKUs, employees can focus on selling and promoting the most profitable products. This can lead to increased productivity and higher sales.
Better customer experience
When retailers focus only on selling the best performing products, customers are more likely to have a positive experience. This can improve brand loyalty and lead to increased sales over time.
The benefits of streamlining SKU
How to Implement SKU Streamline
Implementing SKU rationalization is crucial in streamlining inventory and improving business performance. By following a systematic approach, you can optimize your product portfolio and make informed decisions about which SKUs to keep and which to discard. The following steps outline the actual implementation process to streamline SKUs:
Step 1: Analyze sales data
Start by thoroughly examining your sales data. Look for patterns, trends, and insights that can help you identify underperforming SKUs. Analysis of sales volume, profitability and customer demand will provide valuable information for the streamlining process.
Step 2: Identify underperforming SKUs
Based on analysis of sales data, identify SKUs that are consistently underperforming. These can be products with low sales, reduced demand, or low profitability. It is essential to focus on objective criteria to ensure unbiased decision making.
Step 3: Evaluate SKU
After identifying underperforming SKUs, evaluate each SKU individually. Consider product uniqueness, market needs, competitive landscape, and strategic alignment. Evaluate the relevance and value of each SKU to your overall business goals.
Step 4: Determine which SKUs to remove
Based on reviews, decide which SKUs to remove from your product portfolio. Consider eliminating redundant or overlapping products, slow-selling items, or products that no longer fit your business strategy. Prioritize the SKUs that have the least impact on revenue and profit.
Step 5: Communicate the changes
Clear and effective communication is critical when implementing SKU streamlining. Notify your stakeholders, including the sales team, distributors, and customers of changes to the product portfolio. Give them adequate notice and explanations to minimize any potential disruptions.
Following these steps, you can successfully implement your SKU rationalization and inventory optimization. This process will improve business performance by reducing costs, driving sales, improving operational efficiency, and focusing on key products that drive growth.
How to Implement SKU Streamline
Pros and cons of rationalizing SKU
Before implementing SKU streamlining, it is essential to consider both the advantages and disadvantages of this process.
Pros
- Profits increase
- Proper inventory management
- More efficient supply chain
- Improve customer experience
- Increase productivity
Defect
- Potential loss of revenue if popular products are removed
- Potential negative impact on supplier relationships
- Discounts on a variety of products are available to customers
Replies to This Discussion