Nothing slows a business quite like excess inventory. Underperforming products clog your supply chain, bloat overhead costs, and prevent you from updating your product lines to meet current trade trends. 

Businesses address this by auditing every distribute keeping unit (SKU) they carry and analyzing product act across sales channels. If SKU data reveals minimal trade demand for specific items, the corporation may discontinue them; if it shows high-performing products within the target trade, the business will boost distribute. This analysis, called SKU rationalization, is a ordinary inventory management procedure used by thriving ecommerce businesses. 

Implementing a SKU schedule can assist you maximize profits, reduce overhead outgoings, and remain aligned with trade demands. Here’s how the procedure works.

What is SKU rationalization?

The SKU rationalization procedure is an inventory optimization operation where you ensure that each SKU contributes effectively to your business’s profitability, efficiency, and overall goals. Because of this, the procedure is sometimes known as SKU optimization. It involves studying sales data to view if each distribute keeping unit is generating enough turnover to cover its carrying costs. 

If the data collected shows, hypothetically, that a product generated $80,000 in sales last year, but production costs and unusually high storage costs totaled $73,000, you’d be making only $7,000 per year carrying that product. You might inquire, in the name of expense-effectiveness and business act, whether it’s worth stocking that SKU for a yield of $7,000 per year.

On the other hand, your SKU analysis might reveal low storage costs and impressive SKU act, giving you a rationale to keep stocking that product line. In many ways, you won’t have a factual portrait of sales act versus inventory holding costs unless you perform the SKU rationalization procedure. Many business owners regard SKU rationalization as an essential facet of an inventory efficiency assignment. Stocking fewer SKUs can enhance your profits margins by helping you focus on the products with legitimate customer demand. On the other hand, stocking more SKUs can assist you expand your target spectators.

3 benefits of SKU rationalization for ecommerce

1. chance to reduce inventory costs
2. Improved customer encounter
3. Enhanced expense-effectiveness

Here are three key benefits of SKU rationalization that apply to businesses of all sizes:

1. chance to reduce inventory costs

To enhance your inventory processes and reduce costs, it’s sensible to put most of your resources into your most profitable distribute. In a SKU analysis, you’ll study historical sales data to identify low-performing SKUs that haven’t sustained a sufficient sales volume. You can then eliminate those SKUs from your product catalog, cutting down on storage costs, labor costs, and other factors that may eat into your profits margins.

2. Improved customer encounter

A more concentrated product catalog helps you explain your brand identity and enhance customer satisfaction. Online customers have an easier period navigating your ecommerce store, finding items, and purchasing them. A joyful, well-served customer base potentially means more funds flow for your business, making this a triumph-triumph proposition.

3. Enhanced expense-effectiveness

Streamlined SKUs enhance inventory management and supply chain efficiency. You can simplify your supplier relationships by eliminating low-performing or redundant SKUs. You can speed up inventory turnover by stocking only high-demand products. And you can debt inventory act data to enhance your upcoming sales projections. All of these merge to boost your expense-effectiveness.

How to implement SKU rationalization

1. Gather relevant data
2. assess customer preferences
3. Assess in terms of product lifecycle management
4. compute the profitability and worth of each SKU
5. approximate upcoming demand
6. receive action and monitor results

The SKU rationalization procedure is designed to derive actionable insights that assist to make the optimal product assortment for your business. Here’s how to get there:

1. Gather relevant data

commence by collecting data relevant to the act of each SKU. This includes current distribute levels, reorder points, historic sales act, and customer feedback from surveys if applicable. All sorts of businesses do this type of data collection, from grocery stores to boutique clothing shops. 

2. assess customer preferences

Once you’ve amassed your SKU data, analyze it to gather actionable insights about what your customers do and do not desire. Some of your data analysis may align with the intuitive observations you’ve made while running the business. However, some data may shock you, whether that means greater customer demand than you expected or less.

3. Assess in terms of product lifecycle management

Next, it’s period to consider each SKU one by one and assess where it currently exists within its product lifecycle—from introduction to maturity and potential decline. This assessment will aid you in forecasting demand and anticipating when to phase out underperforming SKUs. 

For example, during a product’s introduction, initial trade response can navigator your stocking decisions. As the product matures, you can forecast steady demand, which informs your inventory. Dwindling sales signal a decline stage, spurring you to receive proactive steps like reducing the product’s inventory or discontinuing the SKU.

4. compute the profitability and worth of each SKU

In this step, you’ll compute each SKU’s profits margins, storage costs, and contribution to your overall sales. This helps you prioritize high-performing SKUs and eliminate those with a high product expense, declining sales, and low returns.

5. approximate upcoming demand

Use demand forecasting tools—including those powered by artificial intelligence (AI) and machine learning (ML)—to forecast the impact of removing or retaining specific SKUs. This helps you avoid supply gaps and ensures that SKU rationalization won’t factor customer confusion or dissatisfaction. Beyond deciding which SKUs to keep or discontinue, you can also adjust order sizes to prevent stockouts or oversupply.

6. receive action and monitor results

You’ve now collected, analyzed, and applied your data. It’s period to receive action by phasing out low-performing SKUs while increasing your commitment to popular SKUs that are boosting your net income. In most cases, you’ll still desire to propose a diverse product mix that serves your longtime customers while properly adjusting to meet your evolving business goals.