Modern retail organizations stock many different items to attract the widest audience of customers. But did you know that, according to the National Association of Convenience Stores and Inbound Logistics, the average corner convenience store may have as many as 2,500 SKUs, while the big-box grocer down the street might store more than 40,000?
Keeping this many products on hand might seem like the ideal strategy for facing ever-changing consumer demands. But this stock-heavy approach often does more damage than good. Simply storing in-demand products is expensive, and keeping items that fail to move costs even more. For this reason, many sellers are embracing SKU rationalization, which involves evaluating available products and stocking only the most sought-after items.
Intent on reducing its annual gross margin by 125 basis points, Hershey recently embraced this methodology, Food Business News reported. Retailers that believe they’re spending too much on warehousing undesirable items would be wise to follow in the footsteps of the confectionery giant. Here are three strategies for jump-starting SKU rationalization:
1. Establish workable sales benchmarks
Businesses pursuing SKU rationalization must establish sales benchmarks to determine which SKUs to cut. These thresholds will vary depending on the financial state of the organization and its fiscal goals. Scale is another critical differentiating factor. Larger retailers might use established benchmarks involving cases sold. Smaller sellers might use just units, according to Retail Wire.
2. Embrace the ABC inventory rule
With workable benchmarks in place, organizations can move on to cutting down stock. The ABC inventory reduction strategy is perhaps the best option for retailers embarking on such efforts, Inbound Logistics reported. This involves separating items into three categories: Products in the A category are bestsellers. Those in the B category generally perform well. Items in the C-category rarely sell and drive up costs simply by sitting in the warehouse. These are offerings removed as part of SKU rationalization.
3. Address disposal
After identifying products ripe for removal, organizations must figure out methods for disposal. This is often easier said than done, but many businesses find success through write-offs or low-priced distribution networks perfect for off-loading superfluous product.
Retailers that implement these three strategies can effectively manage SKU rationalization efforts and generate savings. Those still unsure of how to pursue this methodology should consider working with USC Consulting Group. For more than five decades, our experts have been helping sellers streamline their operations through cutting-edge optimization efforts.
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