Frequently Asked Questions
What is SKU optimization?
The term SKU optimization describes the process of examining your existing products and eliminating any SKUs that are underperforming or unneeded within your catalog. This process essentially determines whether an item should be retained or removed from your inventory as a means to reduce inventory costs and bring your inventory management into balance.
Is product rationalization the same as SKU rationalization?
Product rationalization and SKU rationalization are one and the same, as both terms refer to the process of measuring the profitability of a product. This is done by conducting a careful analysis of consumer demand and historical sales data, which then indicates if a product is better off being discontinued or maintained with a few adjustments in place.
What percentage of SKUs are used?
A general guideline for SKU usage is called the 80/20 rule, which states that just 20% of your SKU catalog accounts for 80% of your total sales. With those numbers in mind, it’s easy to see how much room there is for improvement within SKU management. Processes like SKU rationalization can help you identify slow-moving items that are tying up valuable capital.
How do I optimize SKUs?
To properly optimize your SKUs, you can follow a simple four-step process: (1) identify customer demand through market research, (2) analyze your current SKUs and archived sales data, (3) organize your product catalog based on this analysis, and (4) use your inventory data to drive better decision making and to cut costs across the board.