Definition

SKU Rationalization is a process used in inventory management to analyze and optimize the inventory of a business by eliminating unnecessary or low-performing stock keeping units (SKUs). The objective of SKU rationalization is to maximize profits by increasing the efficiency of inventory management and reducing the costs associated with carrying excess inventory.

The SKU Rationalization formula is a simple calculation that helps businesses identify which SKUs are performing well and which ones are underperforming. The formula is as follows:

Formula

SKU Rationalization = (Total Sales of SKU / Total Sales of All SKUs) * 100

The SKU Rationalization formula takes the total sales of a specific SKU and divides it by the total sales of all SKUs to determine the percentage contribution of the SKU to the overall sales. This percentage is a measure of the importance of the SKU to the business.

For Example

If a business sells four SKUs, and one of the SKUs accounts for 60% of total sales, then this SKU is considered to be very important to the business, and the business should ensure that this SKU is always in stock. On the other hand, if another SKU accounts for only 2% of total sales, the business may consider discontinuing the SKU to reduce the costs associated with carrying low-performing items.

By using the SKU Rationalization formula, businesses can identify which SKUs are performing well and which ones are not. This information can be used to make informed decisions about which SKUs to prioritize, which ones to discontinue, and which ones to promote to increase sales and profits.