A key responsibility of any grocer is ensuring that products are delivered safely and efficiently all the way from warehouse to shopping cart. Now more than ever, increasing productivity, reducing cost, preventing food waste, and improving consumer experience are paramount retailer concerns along the way. SKU rationalization is a product management system used to decide which items are retained, increased, reduced, or eliminated based on past sales data or demand. How can grocery retailers take advantage of SKU rationalization to help control and improve their supply chain?
Harnessing this system by analyzing available data, predicting future demand and market trends, and effectively reducing inventory assortment will involve
- Limiting supplier quantities,
- Being a smarter, more innovative retailer
- Considering the habits and challenges of today’s evolving consumer
Assortment reduction drives productivity and helps grocery retailers navigate “a landscape where over time a glut of choice has sowed confusion among consumers, snarled supply chains and heaped unnecessary costs on the industry.” Read on to learn ways in which SKU rationalization can help grocers streamline their supply chain, all the way from warehouse, to retailer, to customer.
Limiting Supplier Quantities
SKU rationalization can increase efficiency right from the first link in the supply chain: Distribution.
Taking stock of current inventory and implementing changes to the variety of SKUs ordered and retained can simplify the responsibility of a supplier and reduce supplier-related challenges. Reassessing the assortment of products stocked also allows retailers to avoid inflated warehousing, shipping, and labor costs, decreasing the time and money spent in the initial supply chain stages. Excessive variety necessitates more workers and time spent in distribution, increasing both cost and the opportunity for complication in storing and shipping prior to selling.
Lisa Johnston, managing editor of Consumer Goods Technology, writes that even “…beyond reducing costs and simplifying operations, [SKU rationalization plays] a vital role in improving the supplier/retailer relationship…and may even pave the way for new innovation.” Simplifying supplier quantities will improve business operations for both supplier and retailer, nurturing a healthy and mutually beneficial partnership. As IGA CEO John Ross says, “…rationalizing as a retailer and as a manufacturer is having the dialogue about how consolidating production around fewer SKUs could end up making the entire supply chain more efficient.”
Particularly in the over year-long challenge of COVID-19, simplifying operations in the supply chain begins with the supplier. Personnel are in short supply and at greater risk, and suppliers are conscious of continually high demand for products like paper goods, hand sanitizer, and cleaning supplies. While it remains unclear how long the market will be vulnerable to pandemic-linked consumer behavior, unprecedented consumer demand will still exist in a post-pandemic world. It’s up to retailers to maintain productive relations with retailers by reducing the number of moving parts through SKU rationalization.
Analyzing historical data and predicting future demand can aid grocers in determining which products need to be scaled back, replaced, increased, or maintained. Retailers might consider reducing the number of items sold in a category based on excess of brands, product size, flavor or other varied attributes, and conduct a similar audit on products that are less profitable or slower-selling. Consider how analysis—and reduction—of inventory provides several advantages:
• Controls inventory costs to ensure that you don’t overspend on producing, storing, or retaining inventory that will not sell.
• Produces more accurate, concise forecasts by focusing on fewer products per category.
• Reduces the amount of time store employees spend managing inventory and allows them more opportunity to assist shoppers and ensure positive shopping experiences.
Reduced variety also benefits the process of stocking, rotating stock, and managing expiring inventory. Streamlining these processes is beneficial for several reasons. With less product to track and physically manage, personnel can develop more efficient systems for making sure what is on the shelves—and what is sold from the shelves—is fresh. Grocers can reduce the possibility of customers discovering expired items or even selling said items. SKU rationalization also works to prevent food waste in this way, allowing retailers to embrace higher levels of sustainability that not only improves their public image, but satisfies the consumer and makes less of an environmental impact.
The Evolving Consumer
Skyrocketing product proliferation and the ever-present demand for innovation seem to necessitate constant expansion of grocery store inventory. But contrary to the idea that more items allows for a greater—and therefore easier—selection, the evolving consumer of today is less interested in more than they are in a smaller selection of products they trust.
Today’s evolving consumer will appreciate a retailer’s attention to assortment reduction that doesn’t sacrifice innovation. Consumers want unique products and brand variety, but not in excess. Reducing a particular item’s variety to a well-edited assortment means a customer spends less time deciding what to buy, which in turn decreases the time a customer spends selecting their items in the store, which, ultimately, increases a customer’s satisfaction with the overall shopping experience. Similarly, reducing the amount of available SKUs in specific categories increases a retailer’s customer service because people can find what they are looking for more easily. The more pleased a consumer is with their trip to the store, the more likely they are to return in the future and place their trust in the retailer.
Even considering the possibility of consumer backlash due to changes in product stocking, don’t underestimate the evolving consumer’s ability to be responsive to a well-edited selection. A consumer that feels safe and satisfied in their likely fewer shopping experiences per week is a happier consumer.
Assortment Rationalization in the COVID-19 Era
Beyond satisfying a consumer’s need to choose between fewer products, less variety where it matters is a key part of how the COVID-19 pandemic has affected the way we shop. Fear and anxiety about time spent in a physical store calls for more precise stocking, which in turn promises a quick in-and-out shopping experience. SKU rationalization can affirm that consumers are in and out of the store quicker and employees are able to clean surfaces sooner and more efficiently. Embracing SKU rationalization to simplify operations and stock the most in-demand products has been an extremely important measure in helping traditional grocers manage through the pandemic.
Get the Grocer’s Guide to SKU Rationalization!
Grocery retailers today face myriad challenges: From dealing with the onslaught of change brought on by consumption in the COVID-19 era; to predicting, rationalizing, and keeping up with the evolving consumer; to managing efficient supply chains that begin with healthy retailer/supplier relationships. SKU rationalization can play a key role in every level of this supply chain. Implementing, supervising, and maintaining the system allows retailers a pulse on how their inventory needs to change or persist; how they can compact and improve operations; and how they can provide consumers with the best products and the most positive experiences.
To learn more about using SKU rationalization, download our e-book on the subject, which brings together insight from Date Check Pro and Itasca Retail. In this e-book, you learn:
- Why the right category assortment is important for stores and their customers.
- How to avoid the factors that lead to having too much inventory.
- The essential data needed to guide SKU rationalization decisions.
- The solutions that will enable retailers to get the job done right.