Improving Profitability using SKU Optimization

Are new products placing strain on your warehouse space and warehouse operations? Are increases in revenue from new products being offset by higher supply chain costs? Are you seeing increasing costs for the disposal of discontinued products? Are you experiencing significantly higher costs for specialty SKUs for specific channels or specific customers? If you answered yes to any of these questions, then it may be time to consider a process of optimizing your SKU portfolio.

SKU optimization is a critical annual process that companies need to develop and execute on an ongoing basis. SKU optimization is the combination of analysis and the realities of the competitive marketplace used to determine the merits of adding, retaining, or deleting items from a company’s product assortment.

It’s simply a systematic and consistent business process for analyzing, evaluating and deciding on how to manage your SKU portfolio in order to better align with your organization’s overall strategies, objectives and goals. An effective SKU optimization program lays the groundwork for important initiatives, such as capacity planning and price optimization. Benefits of this integrated, cross-functional business process include improved profitability, increased product availability (lower out of stocks) and increased labor and asset productivity.

Why is SKU Optimization critically important? Research shows customers only use approximately 340 unique items per year in their households (down from 390 last year) from a pool of more than a million items sold *2014 ARM Research, Gartner*. Many consumer product companies have seen an explosion in SKUs over the past decade but don’t have a process for evaluating the merits of individual SKUs. The vast majority of all SKUs become liabilities to an organization at some point in their individual lifecycles.

Smart, proactive companies establish a consistent and repeatable process to identify when that inflection point is reached and execute plans to capture as much profit as possible before discontinuing the item, subject to marketplace constraints and competitive factors. If you’re interested in learning more about SKU optimization,you may either download or view the following presentation on this topic.


Steve Westphal
EDGE Network

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