Efficient inventory management is crucial for distributors supplying paper and plastic disposables. Many today are carrying an excessive number of SKUs that lead to inflated costs, reduced cash flow, and underutilized warehouse space. SKU rationalization emerges as a strategic solution to these challenges, enabling distributors to streamline their inventory, enhance inventory turns, and mitigate the impact of aging inventory. 

By adopting effective SKU rationalization strategies, paper and plastics distributors can not only optimize warehouse space but also significantly improve their overall operational efficiency. Learn best practices and actionable steps for implementing SKU rationalization to boost your business’s performance and profitability.

Understanding SKU Rationalization

What is SKU Rationalization?

SKU rationalization is the process of evaluating and optimizing the number of SKUs in your inventory. This involves analyzing each SKU’s performance, profitability, and relevance to your business goals. 

For distributors, this means identifying products that do not significantly contribute to sales or customer satisfaction and deciding whether to discontinue, consolidate, or replace them. By rationalizing SKUs, distributors can reduce excess inventory, improve inventory turns, and free up warehouse space. This not only enhances cash flow but also minimizes the costs associated with storing and managing an extensive range of products. Ultimately, SKU rationalization helps create a more efficient and streamlined inventory that better aligns with market demand and operational capabilities.

SOLUTION: Emerald Ecovations and SKU Rationalization

At Emerald Ecovations, we hear from distributors about the pain of old inventory, carrying too much inventory, and having duplicity in multiple product SKUs, resulting in continued elevated carrying cost. The redundancy across many categories is especially painful when you have:

• 8 Different Branded Cups
• 10 Lids to Accommodate Alternate Fits 
• 10 Different Towel and Tissues
• 6 Different RTU Cleaners

As a result, distributors are getting squeezed by carrying costs, too much inventory, too few turns, and confusion to the sales team and their clients. In addition, buying trends have changed since Work From Home has reduced head counts. Available in October 2024, Emerald Ecovations will be introducing Convenient Packs allowing our distributors the bandwidth without repacking to accommodate the new reality.   

Emerald Ecovations built a portfolio of 300+ products across 5 key categories after decades of researching customer product consumption as well as the fast growing demand in sustainability products. By applying the 80/20 rule in demand from the users, our portfolio of products and solutions offers distributors a ONE BRAND TOTAL SOLUTION that reduces costs along multiple cost centers from warehouse space, transactional paper flow, and incoming trucks. One trailer and 5 product groupings all in one brand helps the executive sales teams spend more time focusing on organic solution sales. 

Common Challenges Faced and strategies to overcome each 

While SKU rationalization offers numerous benefits, it also presents several challenges that paper and plastic distributors must navigate. One common challenge is resistance to change, as employees and stakeholders may be attached to existing products and fear that rationalization may negatively impact sales or customer relationships. Managing the transition period, where discontinued SKUs need to be phased out without disrupting operations or customer service is important. Ongoing communication and training are essential to maintain alignment and support across the organization. Addressing these challenges requires careful planning, clear communication, and a strategic approach to change management.

SOLUTION:

Be in front of the change and deliver sound reasons to clients and sales teams effectively and consistently. Suppliers must assist in the why and the how. Present streamlined product offerings to solve your client’s disposable and sustainability objectives with one brand, and they will see the why. Plan on strategic rollouts with the support and training from your vendor network that includes educational platforms as well as marketing assets.

Benefits of Effective SKU Rationalization

Improving Cash Flow

One of the most significant benefits of effective SKU rationalization is the improvement in cash flow. By reducing the number of underperforming or redundant SKUs, paper and plastics distributors can minimize the capital tied up in excess inventory and additional cost to process  from ordering to stocking and paying multiple vendors . 

Streamlined inventory management reduces storage costs, as less warehouse space is required. This further contributes to cost savings and better cash flow management. Improved cash flow allows distributors to be more agile, responding quickly to market changes and customer needs. With fewer SKUs to manage, the administrative burden is reduced, leading to lower operational expenses and a more focused business strategy. Overall, SKU rationalization helps create a more financially robust and responsive business environment.

Enhancing Inventory Turns and Reducing Aging Inventory

Effective SKU rationalization significantly enhances inventory turns, a vital metric for measuring the efficiency of inventory management. By focusing on high-performing SKUs and eliminating those that contribute little to sales, paper and pulp distributors can ensure that their inventory is moving more quickly through the supply chain. Faster inventory turns mean that products spend less time sitting in the warehouse, reducing the risk of aging inventory and obsolescence. This not only improves cash flow but also ensures that warehouse space is used more effectively. 

Reducing aging inventory is a crucial advantage of effective SKU rationalization. Aging inventory, which consists of products that remain unsold for extended periods, ties up valuable warehouse space and capital. Over time, these products can become obsolete, leading to markdowns, write-offs, and diminished profitability. 

By rationalizing SKUs, paper and plastic distributors can identify and phase out slow-moving or non-essential products. This allows them to focus on high-demand items that turn over more quickly. 

Consequently, the risk of holding onto outdated or unsellable inventory is minimized. Reducing aging inventory enhances overall inventory health, ensuring that the stock is more aligned with current market trends and customer preferences. This proactive approach not only improves cash flow but also enhances the distributor’s ability to meet customer demand promptly. 

SOLUTION:

The days of attempting to be everything to everyone is being challenged and rightfully so. The manufacturers  of today must think differently. Building supply chains that offer multiple products on one truck and sustainable solutions that compliment those products is essential to the evolving logistic and organic growth challenges many distributors have today.

In today’s competitive landscape, distributors have fewer choices with continued consolidation of manufacturing and enterprise distribution groups. The traditional options are no longer effective. Buying from multiple manufacturers and/or utilizing redistribution leaves distributors filling trailers with products to meet best price or relying on redistribution companies to keep them competitive. Creating a manufacturing source that offers one brand and satisfies 80% of the everyday consumption is what propelled us to develop a robust portfolio . 

Our unique bundling platform offers distributors 5 essential categories along with a host of growth tools based on real solutions that help distribution overcome both these challenges. 

Strategies for SKU Rationalization that also enhance organic growth 

Segmenting Product Categories

Segmenting product categories is an essential strategy for effective SKU rationalization. By organizing products into distinct categories based on attributes such as product type, usage, or customer segment, paper and plastics distributors can gain a clearer understanding of their inventory.

So why carry both lines of non green and green choices? What will propel clients to want to consolidate?  Distributors need to complement the strategy of consolidation with a solution that clients will find hard to resist. 

For instance, clients are demanding sustainability solutions, and as we all know, plastics and paper disposables are front and center in this endeavor. The timing to deliver consolidation along with solutions will make this transition much easier.  

SOLUTION: 

At Emerald Ecovations, we help distributors identify redundant or overlapping non-green SKUs within each category, making it easier to consolidate and streamline the inventory. 

This approach aids in tailoring marketing and sales strategies to customer needs and preferences. Decision makers today are on high alert for products and solutions that will help to elevate their current sustainability targets .

By focusing on these high-performing segments and optimizing underperforming ones, distributors can deliver the solution and at same time enhance overall inventory efficiency that  better meets today’s market demands.  

Long-Term Success

Continuous Improvement

Continuous improvement is crucial for sustaining the benefits of SKU rationalization over the long term. Regularly update your data analytics tools to capture more accurate and comprehensive insights. 

Collaborate with suppliers and customers to gather external feedback and incorporate it into your strategy. By fostering a culture of continuous improvement, you can keep your SKU rationalization efforts dynamic and effective, ensuring that your inventory remains optimized and aligned with your business objectives.

SKU rationalization works best when you work together with your internal teams and external partners. It’s important to leverage technology as a forecasting tool and a way to spot trends on a weekly or even daily basis. 

Learn more about how Emerald Ecovations helps distributors improve cash flow, increase turns, and reduce aging inventory with SKU Rationalization.