Drive Business Growth Beyond Cost-Cutting
Are you looking to cut costs without cutting growth?
Already outsourced, automated, and offshored everything you can?
Searching for smarter, more strategic ways to boost margins without sacrificing brand equity or customer experience?
If so, you’re not alone.
Many brands face tough economic conditions and have reached a limit in their traditional cost-cutting efforts. What’s left are the hidden inefficiencies buried in bloated portfolios, underperforming SKUs, and production complexity that quietly drains resources across marketing, operations, and innovation. But the answer may be hiding in your product catalog.
SKU bloat directly drives an explosion in costs. It builds slowly, one product extension or packaging variant at a time, until it becomes a massive drag on performance. What starts as a strategy to capture more consumers often ends up inflating costs across every part of the business:
SKU Proliferation Impacts Marketing First
- Promotional budgets are spread across too many SKUs, forcing campaigns thin.
- Instead of building brand equity, marketers are juggling fragmented messaging and diluted impact.
- The result is lower ROI, weaker consumer recall, a leaky funnel, and missed opportunities to scale what actually works.
SKU Bloat Hinders Operations
- According to a recent Bain study, SKU complexity can increase supply chain costs by up to 25%.
- Every additional SKU adds complexity to forecasting, production planning, inventory management, and logistics.
- Forecasting becomes less accurate.
- Inventory costs rise.
- Production lines slow down or require costly changeovers.
Retailer Requirements Don’t Help
- It doesn’t matter if you are selling through digital or physical sales channels; everyone has stricter demands today than just a few years ago.
- Shelf space is more expensive than ever, and retailers require justification for every SKU.
- Some categories are seeing shelf space shrink by 10 to 20 %.
- Private labels and proven performers are winning out, while bloated portfolios, challenger brands, and niche products are being told to consolidate or pay more to get in front of customers.
Innovation, R&D, and Product All Lose Efficiency Without Product Rationalization
- New SKUs often cannibalize existing ones, creating internal competition instead of incremental growth. Launches that promise volume gains struggle to gain traction.
- Price increases are not viable margin growth levers.
- Brands are realizing that SKU proliferation without clear consumer demand is a liability, not a strategy.
All of this is happening while input costs are rising, supply chains remain volatile, and consumers are more price-sensitive than ever. Brands are under pressure to simplify, streamline, and cut costs quickly. SKU optimization is one of the fastest and most effective ways to achieve this, but not all rationalization captures the true nuances that drive real growth.
The Benefits of SKU Rationalization
A comprehensive process delivers substantial benefits in cost savings and operational efficiency. By strategically evaluating and streamlining product offerings, companies can potentially increase margins by 3 to 5 percent, slash supply chain expenditures by up to 50 percent, and decrease manufacturing conversion expenses by as much as 25 percent. Through our own experience here at Sedulo, we’ve been able to save clients an average of 5% of Operating costs through SKU rationalization.
These significant cost reductions serve as a game-changing mechanism for brands striving to maximize overall profitability amidst market challenges and resource constraints. By focusing on SKU rationalization, businesses can unlock untapped financial opportunities and enhance their overall competitiveness.
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SEO purposes – google looks for adjacent terms to prove the content has the right context and authority. I can move this term elsewhere, if this is the wrong spot.
The Challenge with Traditional Supply-Chain-Driven SKU Rationalization
For decades, SKU rationalization was viewed as a back-office exercise focused solely on reducing overhead costs and operational complexity. The traditional approach centers on:
Cost-to-Serve Products
Logistics Complexity
Supply Chain Efficiency
It relies heavily on internal data and financial modeling, including activity-based costing, unit economics, and SKU-level profitability, to identify underperformers and remove excess inventory.
The goal is to streamline operations, reduce working capital, and improve gross margin by eliminating SKUs that are expensive to produce, store, or distribute.
While this process is often rigorous, it is also narrow, focused on internal cost structures and short-term financial performance. This limited perspective misses strategic nuance.
A purely cost-driven lens can lead to the elimination of SKUs that play critical roles in brand loyalty, channel strategy, or competitive positioning. It treats all complexity as waste without considering the value that some complexity may create.
SKU Rationalization Reimagined for Maximum Profitability
A more effective approach expands the lens beyond internal cost metrics to encompass external market dynamics. This demand-driven model evaluates SKUs not only by their cost, but also by their contribution. It incorporates:
Customer Desire
Competitive Differentiation
Strategic Role
It protects SKUs that drive loyalty, block competitors, or win inside of specific channels.
This is SKU rationalization that balances cost-cutting with growth strategy, enabling brands to simplify with purpose rather than sacrifice potential.
Demand-Driven SKU Rationalization
Sedulo Group’s demand-driven SKU Rationalization service builds off the foundation of traditional SKU rationalization. It expands the scope of data outward to create a more complete and strategic view of SKU performance. Our model is built on combining:
- Historical internal SKU profitability data: We do what everyone else has always done for SKU analysis, look at the unit economics and cost-to-serve data.
- Customer behavior data: We use tools like Voice of the Customer surveys, journey mapping, and willingness-to-pay analysis to understand what buyers truly value.
- Buyer & Channel Partner preferences: We talk to your buyers and channel partners to identify what matters to them, what financial and operational requirements need to be met, and how to be more attractive within their sales channel.
- Competitor analysis: We analyze competitors through product mapping, teardown analysis, and innovation forecasting to identify which SKUs are strategically differentiated versus commoditized.
- Market trends: We assess the market through segmentation, lifecycle analysis, and whitespace identification to determine where each SKU fits in the broader landscape.
By combining these insights, we are able to categorize SKUs in a unique way. To power our demand-driven SKU rationalization model, we integrate data across nine key dimensions, each capturing a unique aspect of SKU performance:
Detailed SKU Analysis Data Sources
Internal SKU Data Sources:
- Sales velocity
- SKU unit economics and contribution margin
- Channel concentration
- SKU-level CLV
- Repeat purchase behavior
External SKU Data Sources:
- Customer importance
- Competitive differentiation
- Lifecycle stage
- Strategic role
Evaluating and Scoring SKUs by Role
All of these data points are captured through Primary and Secondary research across customer groups, buyer channels, competitors, internal stakeholders, market SMEs, and desk research. Each of these dimensions is then scored and weighted based on the client’s strategic priorities.
The result is a comprehensive, multi-dimensional view of SKU performance. The output is a strategic SKU map that segments SKUs into categories, including Stars, Cash Cows, Channel Winners, Loyalty Builders, Trial Creators, Competitor Stoppers, Innovation Bets, and Rationalization Candidates.
This scoring model enables smarter and more focused decisions about where to invest, where to reposition, and where to retire. It transforms SKU rationalization from a blunt cost-cutting axe into a precision scalpel for portfolio optimization and growth.
The Demand-Driven SKU Rationalization Process
Sedulo Group’s demand-driven SKU rationalization process is designed to be both strategic and actionable, based on the following steps:
Phase 1: Stakeholder Alignment and Discovery
Every engagement begins with interviews across key stakeholders in Finance, Marketing, Product, Sales, Customer Service, Strategy, and General Management. These conversations help clarify business goals, identify portfolio pain points, and validate internal hypotheses. At the same time, generate a structured data request that includes SKU-level sales by channel, geography, customer segments, associated repeat purchase rates, and unit economics. This phase ensures alignment on success metrics and sets the foundation for the analysis to come.
Phase 2: Internal Data Analysis
With internal data in place, we analyze SKU performance across sales velocity, gross margin, channel concentration, and customer loyalty. This establishes a clear baseline of what drives value and what doesn’t. It also flags early patterns and outliers, setting the stage for integration with external market intelligence.
Phase 3: External Market Intelligence
In parallel, Sedulo’s experts prepare and launch the critical external research efforts. We also conduct secondary desk research to assess market trends, category dynamics, and regulatory roadblocks. This 360-degree view calculates how each SKU performs not just internally, but in the eyes of the market.
Phase 4: Weighted-Criteria Rules
Once both internal and external data streams are complete, Sedulo Group synthesizes the findings into. Each SKU is evaluated across key dimensions, including customer importance, competitive differentiation, profitability, and strategic role. These scores are weighted based on the priorities established during stakeholder discovery. The result is a first-pass categorization of SKUs that opens the door for strategic discussion.
Phase 5: Inventory Optimization and Recommendations
With the initial scoring in place, we reconvene stakeholders to review the categorizations and gather feedback, ensuring final recommendations reflect the overall business context. In the most successful efforts, this is done through a cross-functional workshop to review the SKU weighted-criteria outputs. We then finalize the SKU mapping and deliver a clear action plan that includes identifying rationalization candidates, investment priorities, and whitespace opportunities. The outcome is a streamlined, strategically aligned SKU portfolio that supports growth while reducing complexity and cost.
SKU Rationalization: Intelligent Cost Cutting
SKU rationalization can be both a cost-cutting and strategic competitive advantage exercise. Cost-cutting will remain important as inflation, geopolitical instability, and ongoing supply chain volatility continue to pressure margins. However, approaching your portfolio of SKUs strategically will become even more important as retailers consolidate shelf space, consumer behavior shifts rapidly, markets experience rising price sensitivity, and brand loyalty becomes harder to earn.
Against this backdrop, bloated portfolios are inefficient, expensive, dilutive, slow, and strategically risky. Bloat in SKU portfolios poses a threat to your business, but with the right approach, SKU rationalization can be a powerful tool for mitigating threats and capturing opportunities.
Sedulo’s demand-driven SKU rationalization enables margin expansion, cost cutting, smarter portfolio decisions, increases marketing and sales efficiency, focuses resources on the SKUs that matter most, improves product-market fit, and reduces launch risk by aligning offerings with real customer demand.
This is not cutting for the sake of cutting; it is simplifying with purpose. It is about protecting what drives loyalty, investing in what wins, and retiring what no longer serves. When brands must do more with less, strategic SKU rationalization is one of the clearest paths forward.
Frequently Asked Questions (FAQs)
What is SKU rationalization?
SKU rationalization is the process of analyzing a company’s product portfolio to determine which SKUs to keep, modify, or discontinue based on performance, cost, and strategic value. It uncovers inefficiencies, eliminates duplication, and enhances alignment between the portfolio and business objectives.
How is demand-driven SKU rationalization different?
Unlike traditional cost-focused approaches, demand-driven SKU rationalization evaluates each product based on both internal performance and external demand signals. It integrates customer preferences, channel partner needs, market trends, and competitive positioning. The goal is to simplify without sacrificing growth, loyalty, or strategic differentiation.
What are the results of data-driven SKU rationalization?
Typical outcomes include a 3–5% margin expansion, 25–50% reduction in supply chain costs, and a significantly improved marketing and sales focus. It also streamlines operations, reduces innovation risk, and ensures resources are invested in the SKUs that drive the most value across the business.
Can any organization benefit from SKU rationalization?
Yes. Any organization managing more than a few dozen SKUs—especially those operating across multiple geographies, channels, or customer segments—can benefit. The impact grows with complexity, making it particularly valuable for brands dealing with channel conflict, category overlap, or stagnant growth.
How often should SKU rationalization be done?
Sedulo Group recommends conducting a strategic SKU review every 12–18 months as part of ongoing portfolio governance. Demand-driven models should be integrated into product lifecycle management, commercial planning, and innovation roadmaps to support sustained growth and agility.