6 Benefits Businesses Can Get from SKU Rationalization & How AI Can Accelerate them
Simplifying business operations means reducing the complexity of tasks and processes by streamlining them and removing unnecessary steps. This helps to make operations more efficient and cost-effective, as well as helps to improve customer satisfaction and reduce the risk of errors. One such way is SKU rationalization.
SKU rationalization removes or consolidates "stock-keeping units" (SKUs) from the supply chain. This practice helps streamline the supply chain and reduce costs by reducing the number of SKUs in inventory. The goal is to reduce the number of SKUs without lowering the variety of products or services offered. This can be done by reducing the number of product variables and SKUs that might have future supply chain issues, or the shopper insight team has estimated that certain SKUs will no longer be going to be famous or demanded by consumers in the future (i.e., the growing trend towards organics). The result is a simpler and more efficient supply chain.
The challenge here is that so many different variables, new data points, and constraints that the category management team needs to consider can make this task very complex and time-consuming. In fact, there are possible more possible variations than atoms in the observable universe!
What if SKU rationalization wasn't a complex and time-consuming task?
What if there was a way to consider those variables and the impact of adding or removing SKUS? What if you could do this rapidly and test different assortment SKU strategies as you prepare assortment plans? What if there was a way to understand the financial implications of every assortment decision? This is what AI and new methods in SKU rationalization offer retailers and CPG suppliers. It allows for more dynamic and real-time SKU rationalization capability, superior assortment plans, and better planograms. Dynamic SKU rationalization embraces new methods of using your data with the power of artificial intelligence (AI), specifically machine learning models. AI can augment your decision and do this rapidly. If you're interested in implementing a dynamic SKU rationalization approach, it's worth first understanding the benefits of SKU rationalization. Here are the top 6 benefits of SKU rationalization and how AI can help.
1. Improved Forecasting Precision
By looking at past sales data for each product, you can gain insight into your customers' preferences and buying habits. This information can help you predict future demand and make more precise sales forecasts. With AI, you can simulate different forecasts and understand the impact of each SKU rationalization strategy. This can also help convince stakeholders, with transparency and confidence, why it is a good (or bad) idea for the category if you implement such an SKU rationalization strategy.
2. Enhances Product Innovation
Rather than focusing on multiple versions of the same product, companies can invest in creating new products. SKU rationalization offers the opportunity to provide space for something more efficient, of better quality, and more appealing to consumers. Again, with AI, you can simulate the success of product innovation on existing core SKUs.
3. Reduces Raw Material Costs
Discontinuing certain SKUs is a way to reduce production costs. By eliminating certain items, you don't have to purchase as many of the expensive materials needed to make them. Additionally, you don't need to purchase as many variations of packaging to keep older products stored away. This is particularly important when you might have supply chain challenges (COVID-19 market shocks) over a certain period of time or when supply chains are just unpredictable, and you need more certainty (i.e., extreme weather patterns) over your supply. With AI, you can factor into the model's thinking each SKU you plan to reduce; and simulate the impact on your business and category.
4. Elevates Efficiency
By reducing the number of products in your process, you can save time and resources that would have been wasted on transitioning between different products. This enables you to use those resources to focus on producing more items with higher demand, resulting in increased efficiency and output. With AI, you can also generate planograms to execute your assortment strategy. This can take save 70% to 90% of your time.
5. Minimises Inventory Costs
Reducing inventory carrying costs means reducing the amount of money spent to store, manage, and secure stock. This could involve optimizing the warehouse space, cutting the number of workers, finding cheaper insurance, and investing in more efficient storage and security equipment. Businesses can save and increase their profits by minimizing the amount spent on inventory carrying costs.
6. Maximises Profit Margins
Reducing the number of products in a process can help businesses increase their profit margins. By streamlining the process, companies can reduce their overall overhead costs. This can increase profits and help companies reach their financial goals.
Conclusion
As you can see, SKU Rationalization offers many benefits, even more than what we've just mentioned today. Of course, SKU Rationalization requires time and effort to plan and implement well, so we highly recommend reaching out to professionals to assist you in this endeavor. That way, you can enjoy this incredible process that helps reduce unnecessary costs and maximizes your business' productivity and profitability!
HIVERY offers an incredible assortment of strategy simulation and optimization technologies that help bolster decision-making. If you want assortment optimization help, check out what we can do for you!
Related resources you might be interested in:
Blog: Do Current Assortment Optimization Methods Create Store Sacrifices?
Blog: Demand Sensing: The New Era of Retail Demand Planning
Guide: Enabling Retail Space Planning With AI