SKU stands for “Stock Keeping Unit” and pertains to the identification of a particular product/service using an alphanumeric code. Individual products will have an SKU code that allows customers to easily tell the difference among them. While SKUs can be beneficial in terms of identifying products, having too many of them can lead to an overall complex business operation. Having too many products correlates with an overabundance of suppliers, data, people, analysis, machines, and especially storage space. This is where SKU Rationalization comes into play, in which it is a decision making process that determines if a product should be continued. This is to aid companies in ridding themselves of unnecessary inventory cost and cut down various other cost within the production process as well. With SKU rationalization, there are steps to effectively reduce SKUs with ease.
5 Steps to Reduce SKUs through SKU Rationalization
The 5 Steps in Reducing SKUs through SKU Rationalization include the following:
- Selecting Product Categories - SKU Rationalization does not only pertain to inventory control, it requires a cross functional team to be utilized as well. You have to establish project boundaries and pick what product line or brand that is in need of being reviewed.
- Identifying Market Segments - It is important to choose a product that is serving many customers. This allows you to analyze which market segment or segments that are in need of being focused on. This allows you to condense your product family and choose products that consumers prefer.
- Making a List of Products - Choose any SKUs that you believe you should keep, then collect data on each SKU. This pertains to demand, profitability, and pack sizes.
- Reviewing All SKUs - To reduce or eliminate any unwanted SKUs, you must attempt to locate one of more product characteristics that pertain to demand, production, and supply.
- Remove Unwanted SKUs - The final step is to trace any SKUs that you wish to eliminate back to raw materials, WIP, and all related finished goods and then remove them.
Benefits of SKU Rationalization
When reducing SKUs through SKU Rationalization, there are various benefits associated with it as well such as:
- Improved Manufacturing Efficiency Through Reduction of Changeovers
- Raw Material and Packaging Cost Reduction
- Increased Forecasting Accuracy
- Increased Margins Such as Profitability
- Reduction in Logistics Cost
A software that can aid in eliminating SKUs is PlanetTogether’s Advanced Planning and Scheduling Software. APS is a software that can provide thorough insight into the operation and eliminate any unwanted cost and boost production efficiency.
Advanced Planning and Scheduling Software
Advanced Planning and Scheduling (APS) software has become a must for modern-day manufacturing operations due to customer demand for increased product mix and fast delivery combined with downward cost pressures. APS can be quickly integrated with a ERP/MRP software to fill gaps where these system lack planning and scheduling flexibility and accuracy. Advanced Planning and Scheduling (APS) helps planners save time while providing greater agility in updating ever-changing priorities, production schedules, and inventory plans.
- Create optimized schedules balancing production efficiency and delivery performance
- Maximize output on bottleneck resources to increase revenue
- Synchronize supply with demand to reduce inventories
- Provide company-wide visibility to capacity
- Enable scenario data-driven decision making
Implementation of Advanced Planning and Scheduling (APS) software will take your manufacturing operations to the next level of production efficiency, taking advantage of the operational data you already have in your ERP.