Where SKU Rationalization Happens: Places in the Business & Supply Chain

Understanding where SKU Rationalization actually happens helps teams coordinate actions and avoid gaps. Rationalization is both a strategic exercise (deciding which SKUs belong in the assortment) and an operational project (executing changes across systems and locations). Below is a beginner-friendly map of the typical places and systems involved.

1. Head-office functions (strategy and analytics)

• Merchandising/Category Management: Sets assortment strategy, identifies SKU candidates for consolidation or discontinuation, and evaluates customer-facing impact.
• Finance: Runs cost-benefit models and approves financial targets, including inventory write-offs or working capital reallocation.
• Data & Analytics Teams: Perform the heavy lifting of extracting SKU-level sales, returns, and inventory data from ERP and POS systems and generating dashboards.

2. Procurement & Supplier Management

Supplier contracts, minimum order quantities, and lead times live here. SKU Rationalization must coordinate with procurement to renegotiate MOQs, adjust forecasts, or consolidate suppliers. Often, supplier collaboration can identify packaging or SKU harmonization opportunities that don’t harm customer choice.

3. Warehouses & Distribution Centers (DCs)

This is the physical front line. Rationalization reduces the number of SKUs stored, simplifies slotting, and impacts picking methodologies. Actions in DCs include re-slotting, decommissioning bin locations, reallocating space, and adjusting safety stock levels.

4. Retail stores & fulfillment channels

For omnichannel businesses, SKU decisions vary by channel. A SKU that performs poorly in brick-and-mortar may be valuable online (or vice versa). Rationalization often requires channel-specific plans: discontinue in stores but keep online, or vice versa, with updated planograms and e-commerce catalog changes.

5. IT systems: ERP, WMS, and e-commerce platforms

Decisions are meaningless until systems reflect them. SKU deactivation, changes to product master data (descriptions, UPCs), and updates to reorder policies must be executed in:

• ERP/MRP: Stop planned purchases, change BOMs, update SKU status.
• WMS: Remove picking locations, adjust slotting and wave configurations.
• E-commerce/Catalog Systems: Retire SKUs from storefronts, manage redirects and substitution messages to customers.

6. Point-of-Sale and Customer-Facing Channels

Physical signage, planograms, and online product pages must be updated. Changes should be timed to minimize customer confusion and ensure continuity of service. For subscription or recurring purchases, customer communication and transition plans are critical.

7. Logistics partners and third-party providers

3PLs, contract manufacturers, and freight partners may need notification to stop packaging certain SKUs or to consolidate shipments. If stock is stored with 3PLs, coordinated SKU deactivation and return/fulfillment rules must be implemented.

Physical vs. Virtual Rationalization

Where mechanisms differ is between physical and virtual rationalization. Physical rationalization reduces SKUs physically held in warehouses and stores. Virtual rationalization retains SKUs in catalogs but restricts replenishment (e.g., made-to-order or special-order items). Both approaches have trade-offs and are used depending on demand patterns and strategic value.

Where to start for beginners

• Begin in one category and map where the SKU data lives and which systems will be affected (ERP, WMS, e-commerce).
• Run pilots in a single DC or region to validate operational impacts before global roll-outs.
• Ensure data owners in each system are identified, and that downstream processes (supplier orders, Kitting, promotions) are part of the execution plan.

Practical checklist for execution

1. Confirm SKU list and ownership in the product master.
2. Update procurement and supplier forecasts.
3. Coordinate physical removal in DCs and return or liquidation if needed.
4. Deactivate SKUs in e-commerce and POS with proper redirects or substitutions.
5. Communicate changes to sales teams, key accounts, and customer service.
6. Monitor post-change KPIs in affected locations.

SKU Rationalization happens everywhere from boardroom strategy sessions to bins in a warehouse aisle. Recognizing the various places where changes must be made—and involving the right people in each place—ensures a smooth transition that preserves revenue while delivering operational benefits.