How SKU Rationalization Is Important For Your Business: Must Read Guide!

Your Business

If you answered “yes” to one of these questions, it may be time to consider the process of optimizing your SKU portfolio.

SKU optimization is a critical annual process that companies must continuously develop and implement. It is a combination of analysis of the reality of a competitive marketplace that is used to determine which items should be included and retained in a company’s product range.

It is simply a matter of analyzing, evaluating, and deciding how to better align your SKU portfolio with your organization’s overall strategy, goals, and objectives.

Retailers need to rationalize SKU to effectively deliver positive financial results for the company.

Needs of Target Customers for SKUs

Understanding the needs of their target customers for SKUs and warehouses is crucial for retailers to ensure that their assortment is consistent with their store and banner strategy while continuing to meet shoppers “expectations.

For example, a retailer targeting small, low-income families is likely to need a retail banner that appeals to large brands with loyal family shoppers.

For companies of all sizes, the rationalization process at SKU has become a clear trend, and the implementation of SKU at larger brands achieves better evaluation and performance.

For logistics and supply chain managers pursuing lean operations, SKUs have become critical, as they typically seek to eliminate additional WooCommerce inventory management and marketing and sales programs that often cause companies to increase the volume of products they hold in stock.

In this cost-conscious time, the drive to rationalize SKU is being scrutinized more than ever before, but it is by no means a new system. It requires operations to understand the performance of existing SKUs, a process known as “SKU profiling.”

Item numbers should be used for inventory and sales tracking, i.e. they help stores know which products are selling fast and when items need to be reordered.

Who is Supposed to use SKU Rationalization

Organizations use SKU product rationalization to decide whether to keep or order more items, reduce or remove them from inventory based on historical sales data, balancing production costs, and inventory against the benefits of product sales. Ultimately, the quality of the product mix and the number of SKUs in the inventory and sales mix will determine whether a product’s mix is good enough for business and where to rationalize SKU, and if so, how much.

Simple Definition: SKU optimization, also known as SKU rationalization, contributes to improving efficiency by determining what should be kept in stock, what should be thrown away, and what work is needed to function. In short, rationalization frees companies from having to spend time and money on products that work best for them. Profitability SKUs make it easier for you to identify opportunities so you can maximize profits and improve your product mix.

Some methods involve simple observation and analysis, while others follow the path of more complex formulas. Fact-based decision-making will use a combination of statistics, data, and a mix of qualitative and quantitative methods, as well as statistical analysis.

We understand that there is not a single – size – fit – solution available to us when it comes to SKU management. We are also aware that our rationalization decisions at SKU affect not only our customers but also our employees, suppliers, and other stakeholders in our business.

Instead, we describe evaluation techniques and employee behavior that can help companies improve their internal processes and performance in such a way that meaningful rationalization results can be achieved. Product line management, which operates in a vacuum and controls how effectively products are manufactured, is often the main cause of poor operational performance.

Consider the rationalization of products as the first point of departure if you are seeking operational improvements. If you do not carry out a formal review of your portfolio, you may run the risk of increasing the cost of goods sold (COGS), affecting production capacity, and encouraging a corresponding steady increase in inventory – the associated costs – while not carrying out a formal review of the portfolio.

Organizations that control the complexity and distribution of products usually lead to cost avoidance and better control of operations. Reducing the number of units in the product warehouse leads to a reduction in costs, as the number of products in the product portfolio as well as the costs of warehousing are reduced. These include products such as food, pharmaceuticals, electronics, and consumer electronics.


It is important to establish meaningful indicators that are not opposites but synergistic and can be used to measure performance towards common objectives. There are a number of operational performance metrics that you can use to gain an understanding of the effects of SKU reductions.

We suggest tradegecko inventory managemement plugin that includes inventory costs, sales forecasts, and premiums accelerated by suppliers. The sales performance indicator can be applied as well as operational indicators, which helps to gain a certain understanding of the effects of the SKU reduction.