SKU Rationalization: What It Is and Why It Matters

SKU Rationalization: What It Is and Why It Matters

October 23, 2023 | By HIVERY

CPG brands and retailers often balance catering to diverse customer tastes and maintaining operational efficiency. This challenge is especially pronounced in managing product assortments, where an overabundance of similar items—known as SKU proliferation—can lead to operational difficulties and impact profitability. Enter SKU rationalization, a strategic process that promises efficiency and optimized revenue. Let's dive into what SKU rationalization entails, its key benefits, and some practical strategies for implementation.

What Is SKU Rationalization?

A SKU, or stock-keeping unit, represents a unique item in a retailer’s inventory. SKU rationalization, or SKU optimization, is about pruning the product tree: meticulously reviewing and trimming down the variety to focus on the most profitable SKUs. This approach streamlines operations, cuts costs, and enhances profit margins.

The Critical Need for SKU Rationalization

While a broad SKU range can initially seem like a sales catalyst, excessive variety introduces needless complexity. The repercussions are felt throughout the supply chain—from forecasting woes to stocking headaches. Key reasons to embrace SKU rationalization include:

  • Slashing inventory costs by phasing out slower-selling items
  • Freeing up warehouse space for higher-margin products
  • Streamlining picking and restocking operations
  • Strengthening bargaining power by focusing on fewer, more profitable SKUs
  • Mitigating market saturation and reducing product cannibalization
  • Simplifying sales data analysis with a more streamlined product mix

By strategically reducing SKUs, retailers can elevate profits, streamline operations, and enhance the overall customer experience.

Effective SKU Rationalization Strategies

A successful SKU rationalization initiative typically involves:

  • Mining historical sales data to distinguish top performers from laggards
  • Removing redundancies, especially identically priced items with minimal differences
  • Setting clear rationalization criteria based on profitability, sales velocity, etc.
  • Taking a holistic view of product lines rather than isolating individual SKUs
  • Establishing a robust approval process to gain buy-in for the final SKU mix
  • Implementing the program in phases, learning and adapting as you go

The optimal path combines in-depth data analysis with a phased, collaborative approach, setting a foundation for impactful SKU rationalization across the organization.

The Bottom Line

By trimming down to the essentials in product assortments, SKU rationalization enables operational efficiency and profitability. A well-executed rationalization strategy enhances warehouse utilization, simplifies operations, and sharpens the customer focus. Employing the strategies discussed here empowers retailers to devise and execute effective SKU rationalization plans.

Leveraging Store-Level Data in SKU Rationalization

Understanding the granular details of each store's performance is pivotal in effective SKU rationalization. By leveraging store-level data, retailers can make informed decisions about which SKUs to keep, which to let go of, and how to adjust assortments based on local preferences, pricing dynamics, and pack size trends. This depth of insight enables more effective SKU assortment management, including brand and pricing considerations.

Introducing HIVERY Curate: Your Partner in Data-Driven SKU Rationalization

HIVERY Curate stands at the forefront of this revolution, offering AI-powered analytics tailor-made for hyper-local, retail-specific assortment insights. This advanced tool empowers GPG brands and retailers to simulate and optimize assortment strategies within real-world constraints, ensuring robust, data-driven insights back every decision. With HIVERY Curate, GPG brands and retailers can confidently navigate the complexities of SKU rationalization, driving locally relevant, efficiently merchandised, and operationally sound category plans. Whether maximizing existing space productivity or minimizing SKU churn, HIVERY Curate transforms data into actionable strategies for tangible growth.

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