But of course, nobody lives in an ideal world. Far from it. If yours is a typical supply chain business your inventory may be made up of products that fit the above description along with items that languish on warehouse shelves, deliver low margins, take up excessive space and sometimes run into problems when it comes to purchasing and shipping.
You may also be running a business that has succumbed to what’s an increasing problem amongst supply chain merchants, namely SKU proliferation. This is when, in an effort to attract more customers and keep existing ones satisfied, you end up with more items in your inventory than you actually need. At its worst, SKU proliferation becomes burdensome at some point because the benefits of adding new products are outweighed by the negatives, for example in the form of obsolete or slow-moving inventory, higher overheads, increased order cycle times and additional and unnecessary order fulfilment complexity.
Knowing which stock items are worth retaining and which should be discontinued is critical if a business wants to operate at maximum efficiency and reach its full profit‑generating potential. In pursuit of these goals it’s also important to be very selective when deciding what items should be added to the inventory mix.
Gaining those insights can, however, be quite challenging. How can you be certain that a particular product line is earning its keep, and how can you be sure that discontinuing a specific item really is the smart thing to do?
These days plenty of businesses, both large and small, rely on SKU (Stock Keeping Unit) rationalisation to answer those questions. At its core SKU rationalisation is a process to determine which products to keep and which to dump, all with the ultimate goals of streamlining operations, enhancing efficiency, improving cash‑flow and boosting the bottom line. Consider it like a spring cleaning of your inventory and as a major component of your Product Life Cycle Management.
So how do you go about sales ranking your products? To make a SKU rationalisation exercise worthwhile, there are several steps that are worth following. Let’s go through these.