SKU rationalization is the systematic process of evaluating every product in your catalog to determine which SKUs to keep, consolidate, or discontinue — using contribution data rather than intuition to reduce procurement complexity and redirect capital toward items that actually earn their shelf space.
Quick answers
What is SKU rationalization? SKU rationalization asks a simple question of every item in your catalog: does this SKU generate enough margin to justify the procurement, storage, and management cost of keeping it active? SKUs that don't are candidates for consolidation (merging similar variants) or discontinuation (dropping entirely). The goal is a catalog that better serves demand and operating requirements; the result need not be fewer SKUs in every category.
Why does SKU count matter for procurement? Every active SKU carries a procurement cost: ordering frequency, receiving labor, storage space, carrying cost, cycle count time, and system maintenance. These costs exist whether the SKU sells 500 units per month or 2. The incremental burden depends on shared suppliers, consolidated orders, storage constraints and the item’s role in the assortment.
How does rationalization connect to ABC analysis? ABC analysis can prioritize the review using a chosen measure, such as annual usage value. The class proportions depend on your data and thresholds. Low-ranked items are review candidates, not automatic deletion targets. Oracle’s ABC documentation explicitly makes the valuation criterion a choice.
When should you rationalize? Set a review cadence for the assortment and buying cycle. Useful triggers include: when catalog size exceeds the team's capacity to manage it, when is declining despite stable revenue, or when warehouse/storage space constrains growth.