You’ve probably been hearing about SKU rationalization and been wondering why people are talking about it. SKUs stand for Stock Keeping Units. They are typically found on the product barcoding label used to identify a product.
These codes are scannable and they provide information about the product such as the cost of the product and the manufacturer of the product.
SKUs are tailored to retailers to help you manage your inventory, unlike the UPC/EAN code.
SKU rationalization is one of the most effective ways to improve your products, simplify your inventory and execute processes to maximize your business activities.
Some products already have SKU codes which enable consumers to differentiate between them. However, despite SKU being useful with regards to identifying products, an increased number of SKUs can complicate business processes. A high number of SKUs is synonymous with an excess number of suppliers, people, analysis, machines, and storage space.
To monitor this trend, many have turned to SKU rationalization. In this article, we’ll look at how auto companies can also benefit from SKU rationalization but first, let’s look at the definition of SKU rationalization.
What Is SKU Rationalization?
SKU rationalization, also known as inventory optimization or product optimization, is a process where automakers and distributors use metrics such as inventory, storage costs, and supplier fees to decide which product should be kept on the shelf or which product should be discounted based on their profitability.
By examining these metrics, auto companies can quickly identify which SKUs are helping or hurting their businesses to streamline their inventory and lower operational costs. Working with automotive fasteners is one way to do this. In addition to this, SKU rationalization offers numerous benefits to auto companies which includes:
1. Optimizes Supply Chain Network
One of the numerous benefits of SKU optimization is an optimized supply chain network. We indicated earlier that SKU rationalization helps you decide which product should be kept on the shelf or which product should be moved based on profitability.
Using these metrics would help auto companies optimize their slotting process and ensure that their inventories are stored at efficient locations to reduce the traveling times of workers.
This gradually reduces the cost of labor to allow auto companies to meet the demands of their customers with ease.
2. Reduces Inventory Holding Costs
You are only losing money when the product units in your warehouse aren’t sold. The more the products remain in your warehouse unsold, the higher the risk of them breaking or becoming obsolete.
Frequent SKU rationalization is essential to inventory reduction strategies to protect auto companies from running at a loss to maintain a steady cash flow.
Auto companies would also be able to clear out resources that can be used to execute growth policies and new product lines that are more likely to thrive on the market.
3. Improves Warehouse Management Process Flow
In warehouses, it is normal to have a couple of unorganized products now and then; however, you have a problem if you have products occupying unwanted space in your warehouse. The more the clutter, the more your daily efficiency is affected negatively.
Your warehouse management process flow shows you where you’re at in meeting your goals as a company and where each product should go.
SKU rationalization would help you keep a list of valuable SKUs to effectively manage your warehouse workers and make their work much more straightforward.
4. Increased Profitability
SKU rationalization helps you to maximize your profits. By keeping the products based on their value to your company, you quickly generate more revenue. SKU rationalization also shows you consumer trends to aid auto companies in producing more goods to meet the needs and wants of buyers.
For instance, if an auto company uses SKU rationalization, they’ll quickly identify that sales of electric vehicles are increasing. Hence, a need to move into the production of electric vehicles to maximize profits. With SKU rationalization, all your good products would generate massive revenue for your company to promote your brand on the auto market effectively.
Additionally, SKU rationalization makes it easy to launch marketing campaigns because they are based on historical data and factors in sales forecasts. Hence, auto companies would be able to carry out strategies that have worked in the past while working to control changes that may occur in the future.
5. An Organized Warehouse
The fewer the product, the more minor warehouse labels you’ll have, leading to less money on ink and labels. SKU rationalization helps you to save money throughout the entire production, storage, and distribution process.
6. Makes You Competitive
Making more sales than your competition is part of the significant factors that drive production in the auto industry. By analyzing which products to keep and which ones to discount, you can identify buyer gaps in your data. SKU rationalization would show you whether you’re close to beating your competitors or not.
The analysis would help you produce products that you lack to provide more excellent value to your customers. The more you pay attention to these details, your company will quickly become a force to be reckoned with in the auto industry.
How to Make the Most Out of SKU Rationalization
To make the most out of SKU rationalization, you’ll need to:
- Make time for it: The best way to benefit from SKU rationalization is to make time for it. As you are setting up meetings to improve your auto company, you should count your number of SKUs. This would keep you updated on the number of SKUs you have and aid your decisions concerning your products.
- Merge SKUs to your business goals: Make sure you’re not only stocking new products without putting in promotional efforts to sell them. Your warehouse and forecasting staff must work together with your marketing and sales teams to ensure that you sell products efficiently.
SKU rationalization is quickly becoming an integral part of running a company and the supply chain management of the auto industry.
With SKU, you’ll be able to make effective business decisions like keeping or halting the production of products to free up resources to invest in other areas to make your business scale.