Inventory planning
SKU Rationalization
By the Supply Chain Manager team · Updated October 16, 2026
SKU rationalization is the review of your product range to cut or consolidate SKUs whose sales, margin or strategic value no longer justify stocking them.
Ranges grow by addition: a new supplier, a customer request, a new pack size. Few items ever get removed. Rationalization asks, SKU by SKU, whether the item earns its place once carrying cost, handling and complexity are counted.
Candidates are usually low-volume, low-margin C items with long days of supply, near-duplicates of other items, and lines a single customer bought once.
SKU rationalization example
Illustrative: a distributor finds 400 SKUs that together make up under 2% of sales but hold 15% of inventory value. Moving some to special order, merging duplicates and clearing the rest frees cash and shelf space without losing meaningful revenue.
Why SKU rationalization matters for distributors
Fewer SKUs means less safety stock overall, simpler forecasting, faster picking and easier cycle counts. It also concentrates purchasing volume, which can improve terms with suppliers.
Common SKU rationalization mistakes
- Cutting a low-volume SKU that an important customer depends on to complete their orders.
- Judging SKUs on revenue alone instead of margin after carrying cost.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.