SKU Reduction and SKU Rationalization

Choice for customers can be a good thing, but those choices need to be strategically thought through.

Do the SKUs (Stock Keeping Units) complement each other in a product family or are they simply competing against each other and not growing the family?  Are there SKUs that simply have no demand yet they are residing in stock and are ultimately cleared to alternate channels or disposed of?

Consumer choice comes with a cost.

We sometimes find that companies are good at launching new products but not so good at clearing out or shutting down non-moving products.

Every product has a lifecycle which can be described as:

  • Introduction
  • Growth
  • Maturity
  • Decline

To proceed with an SKU reduction or rationalization, we first work to establish product families and product classes.

We then extract sales history by your sales stratification attributes. These could be by Channel, Customer, Region, etc. 

We join this sales history to the SKU product attributes.  This action will provide a basis for a sales history pivot or cube that can be used to understand the product ladders. 

Next, we work to establish costs per unit of each SKU and use this to establish P&Ls along all of the attributes (dimensions).  With this information in hand, we proceed with a cross-functional discussion to understand the relationships between the SKUs. 

Be careful about just stratifying based on revenue or profit because there can be interplay between SKUs. For example, to be in a particular customer perhaps you need to provide both your brand and your private label your customers brand.  These will obviously have different sales and profits but are a requirement.

Adroit can help you to get your history in a form to do the analysis and can facilitate the rationalization process.


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