SKU Rationalization a Technique for Inventory Optimization in the Retail Sector
Inventory is one of the most significant investments in the retail sector. A $4.0B arts and craft specialty retailer may hold up to $0.9B of inventory while a $45B pharmacy retailer may invest as much as $8.5B in inventory. Therefore, in order to maximize the Return On Investment (ROI), every retailer should ensure that extraneous inventory investments are kept to the minimum. Facts confirm that up to 35-40% of the total inventory is stuck in the non-performing, slow moving Stock Keeping Units (SKUs), whose cumulative contribution to sales is less than 5%. This phenomenon is known as the long tail of the supply chain.