Mastering Inventory Efficiency: A Complete Guide to SKU Rationalization

31 May, 2024 •

sku rationalization

Optimizing Your Inventory: A Comprehensive Guide to SKU Rationalization

SKU rationalization is a critical process for retailers and merchandisers, enabling them to streamline their inventory and enhance profitability. In an industry where relying on gut decisions can be costly, leveraging data to make informed choices about stock-keeping units (SKUs) is essential. With the advent of AI-powered analytics, retailers can now gain detailed insights to quickly identify and act on low-performing SKUs. This blog post will guide you through the importance of SKU rationalization and how to implement an effective process.

What is SKU Rationalization?

SKU rationalization is the systematic process of evaluating the SKUs in a product portfolio to determine which ones to retain and which to eliminate. The goal is to optimize product offerings by removing underperforming or redundant items, striking a balance between product variety and operational efficiency. This process combines detailed data analysis with the insights of experienced retail professionals to ensure a well-rounded approach to inventory management.

Benefits of SKU Rationalization

A robust SKU rationalization process offers several key benefits:

  1. Improved Inventory Management: By regularly reviewing sales data, retailers can proactively eliminate underperforming SKUs, reducing overstocking and freeing up budget for high-demand items.
  2. Reduced Inventory Costs: Removing low-demand items minimizes storage needs and associated carrying costs, such as insurance and handling expenses.
  3. Increased Profitability: Prioritizing high-performing SKUs means better use of shelf space and increased sales, leading to higher overall profits.
  4. Enhanced Customer Experience: Streamlining inventory based on data-driven decisions ensures that customers find the products they want, fostering brand loyalty and satisfaction.

Case Study: Fabuwood

Fabuwood, a Newark-based cabinet manufacturer, illustrates the power of data-driven SKU rationalization. David Samet, Fabuwood’s Director of Technology, highlighted a shift from intuition-based inventory planning to data-driven decision-making. Implementing ThoughtSpot allowed Fabuwood’s team to access detailed SKU data, enabling them to make informed decisions quickly. This shift improved their inventory management and validated their sales forecasts more accurately, demonstrating the value of data accessibility.

Implementing an SKU Rationalization Process in 6 Steps

  1. Data Collection and Analysis:
    Collect detailed sales data at the most granular level, such as per store per day, to understand which SKUs are selling. Use advanced analytics tools like DvSum to surface insights about SKU performance.
  2. Identify Low-Performing SKUs:
    Define what constitutes a low-performing SKU based on sales numbers, customer satisfaction ratings, or regional performance. Use in-depth data analysis to make these determinations accurately.
  3. Evaluate Market Demand:
    Combine data analysis with market insights to spot trends and refine your inventory strategy. Visual data representations can aid in sharing and collaborating on these insights within your team.
  4. Assess Inventory Holding Costs:
    Evaluate the costs associated with each SKU, including storage, risk of obsolescence, and supply chain efficiency. Use historical sales data and comparable SKU behavior to inform these assessments.
  5. Consider Product Variants and Bundling:
    Analyze the performance of different product variants and consider bundling options to enhance sales. Detailed data on product attributes will support these decisions.
  6. Communicate and Execute Changes:
    Once decisions are made, communicate the rationale behind SKU changes clearly. Use data visualizations to illustrate the benefits and take a phased approach to implement changes smoothly.

How ThoughtSpot and DvSum Facilitates SKU Rationalization

Access to granular SKU data is transformative for inventory optimization. DvSum’s AI-powered analytics provide instant insights into sales and inventory levels across thousands of SKUs, enabling retailers to make informed decisions. This real-time data access helps avoid costly mistakes and adapt quickly to market changes.

By utilizing advanced analytics tools, retailers can effectively streamline their inventory, reduce costs, and boost profitability. To see how DvSum can enhance your SKU rationalization process, consider setting up a free trial and experience the benefits firsthand.

Explore the dynamic capabilities of AI-powered data intelligence with DvSum. Join our demo to unlock the full potential of your data, gaining instant insights into your operations and driving informed decision-making.

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