Inventory is the most significant investments across every industry and specifically in retail sector is phenomenally high. Therefore, in order to maximize the Return on Investment (ROI), each and every retailer must ensure that exuberant inventory investments are kept to the minimum. Statistics confirm that up to 30-35% 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 (critical one).

These days the retailers are facing big issues in managing and handling their inventory. The entire exercise has become tedious and cumbersome for them. The entire phenomenon of inventory in retail sector is dependent upon the customer. Market is volatile hence inventory optimization calls for immediate action at retailer’s end. One of the ways to reduce these unnecessary inventory investments is to optimize the assortments. Based on one or more parameters such as, No. of SKU’s (#SKU) sales, Gross Margins Return on Investment (GMROI), Space Productivity, Minimum Presentation and so on, the non-performing SKUs may be selected and rationalized appropriately.

“SKU Rationalization is an important technique in inventory management that helps retailers optimize their assortments by decommissioning some of the non- productive merchandise.” Inventory optimization takes inventory management to the next level, providing a more dynamic and holistic approach which allows managers to assess various signals in the supply chain that may be relevant. SKU rationalization is not a simple, mechanical process and an “optimal” shelf set cannot be produced by any piece of software.