Pareto ABC Analysis: SKU Rationalization
Applied the Pareto principle to find that 20% of SKUs drove 80% of revenue, refocusing merchandising and inventory investment on the vital few A-class items and automating the C-class long tail to free working capital.
20% SKUs = 80% revenue
A-class
50% SKUs = 6% revenue
C-class
Concentrate on A, automate C
Action
Working capital freed, planner focus on vital few
Result
The catalog had thousands of SKUs but revenue was concentrated. Pareto analysis ranked SKUs by revenue and found the 80/20 split: 20% of SKUs (A-class) drove 80% of revenue, 30% (B-class) drove 14%, and 50% (C-class) drove 6%.
A-class SKUs got tighter safety stock, better forecasting, and merchandising investment. C-class SKUs were consolidated under a single supplier and managed on a loose reorder cycle, freeing working capital and planner attention. The analysis is re-ranked each quarter as the vital few shift.
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