Definition: SKU Rationalisation

What is SKU rationalisation?

SKU rationalisation is the process by which a company analyses its product range and reduces the number of stock keeping units (SKUs) offered.

As the product range expands, the number of SKUs that need to be tracked and managed also increases enormously. Warehousing and logistics can be strained by storing slow-moving items that take up valuable space, and maintaining data for a hugely bloated and cluttered catalog risks the entire collection becoming too large and confusing for anyone to monitor properly. If the unnecessary proliferation of SKUs is not eliminated, the situation could turn into chaos that hinders rather than helps business operations.

Streamlining SKUs helps both to overcome logistical challenges and to avoid the risk of a collection becoming so cluttered that it can no longer be properly tracked and controlled. The aim is to optimise inventory, logistics and manageability by removing SKUs that are underperforming or redundant. This reduces the storage capacity required, streamlines systems and simplifies the catalogue to a level where the portfolio can be managed effectively.

When rationalising the SKU portfolio, a company usually looks at certain criteria to identify candidates for removal. This includes analysing factors such as sales volumes, profit margins, seasonal patterns and product lifecycles. Analysing data can shed light on overlaps between products and identify "tail items" — which are slowing moving or unprofitable items —  that are best removed from the portfolio.