Stock keeping unit rationalization evaluates a product assortment to retain, change or discontinue SKUs based on value, demand and operational cost. It aims to reduce unnecessary complexity without removing strategically important products.
Which factors are evaluated?
- Revenue and gross margin
- Sales frequency and trend
- Inventory turnover and aging
- Substitution and customer commitments
- Forecast and replenishment cost
- Supplier minimums and lifecycle status
How can concentration inform the review?
Assume a catalog has 1,000 SKUs, and 200 generate $800,000 of $1,000,000 annual revenue. Those 200 SKUs represent 20% of the assortment and 80% of revenue. The remaining 800 still need margin, customer and strategic review before removal.
Illustrative SKU concentration
| SKU group | SKU share | Revenue share |
|---|---|---|
| Top 200 SKUs | 200 ÷ 1,000 = 20% | $800,000 ÷ $1,000,000 = 80% |
| Remaining 800 SKUs | 80% | 20% |
Revenue concentration alone does not show profitability, substitution or contractual importance.
What can go wrong?
Removing low-volume products can break bundles, lose strategic customers or shift demand to competitors. Data should distinguish temporary stockouts and new launches from persistent underperformance.
How should decisions be controlled?
Assign owners, disposition dates, customer communication, substitute products and inventory plans. Preserve historical SKU records after sales stop.
