The Role of SKU Management in SKU Rationalisation Projects

Abstract

The increased demand for product variety implies that many manufacturing companies are struggling with the negative effects of stock keeping unit (SKU) proliferation in product portfolios. This implies that many companies implement SKU rationalisation programmes to deal with product and process complexity. However, many industry companies report that they do not gain the financial benefits that they expected from optimizing their portfolios. To improve the understanding of this phenomenon, this paper studies an unsuccessful SKU rationalisation project at a hearing healthcare company. The case study revealed that what appeared to be a great potential for reducing inventories through SKU rationalisation turned out to be more of an SKU management problem. Specifically, analyses showed that 19% of the hearing devices' product portfolios had multiple SKUs for the same product variant, and that SKU rationalisation would only produce minimal inventory-related benefits. The case study therefore demonstrates the importance of proper SKU management in identifying fruitful SKU rationalisation projects.