SKU optimization, often referred to as SKU rationalization or SKU portfolio management, is one of the first, best, and most important steps in inventory strategy development. When we begin RightStock™ projects we habitually find that about a third of the SKUs are profitable, about a third are breaking even, and about a third are losing money. If you could only take one of the steps recommended in this book, this would be it.
Below are several examples of Pareto’s Law working in SKU revenue and profitability. Figure 3.2 is from a RightSKUs™ analysis in a biotechnology company. 5% of the SKUs yield the first 67% of revenue; 10% yield 81%; and 20% yield 92%.