What is SKU rationalization – and why is it important for home builders?

SKU bar code on a navy blue background

Having too many items on your SKU list can slow down your material purchasing process and lead to delays. By narrowing down the number of materials and products you offer, you’re making it easier for your suppliers and distributors to have what you need when you need it.

What is a SKU?

A SKU, or stock keeping unit, is a way to manage inventory that works by assigning bar codes to every unique product or material. For example, each type of lumber comes in a variety of types, lengths and thicknesses. Each individual variation is then assigned its own code to identify it.

SKUs are also a great way to track sales data and forecast future demand.

What is SKU rationalization?

SKU rationalization is a process that allows vendors to measure the profitability of the materials and products they’re stocking. This process uses metrics like inventory, storage costs and sales data to determine if an item should be kept in stock or removed.

As a builder, you want to make it easier for your suppliers to keep the materials and products you need in stock. This ensures you always have what you need and never have to wait. That’s why keeping your SKU list at a reasonable number is so important. So, how do you go about minimizing your list?

What to ask when rationalizing your SKU list

Here are four questions to ask when rationalizing your SKU list to ensure more efficient material purchasing and less waiting on backordered products.

1. Who are your target clients?

The first thing you should do is determine who you’re really catering to. As a home builder, all the materials, products and appliances you offer should align with your ideal clients’ must-haves.

To make this decision, ask yourself questions like:

  • What type of client do I want to appeal to?
  • What styles are they most interested in?
  • Do all the products I currently offer fit this clientele?

This will help you choose which SKUs you should keep on your list and which ones you should discontinue. Narrowing your list may also make it easier for clients when they’re making decisions for their home.

2. Which SKUs are performing the best?

Next, take a look at the numbers. Of all the materials and products you offer for your home builds, which are the most popular? Those items should remain on your list.

Then, the hard part is narrowing down the rest of your selections. Two things to consider include:

  • What are the lead times?
  • How expensive is the labor?

Evaluating these factors will help you see how offering certain SKUs could be negatively impacting your business. It also gives you the opportunity to add or replace SKUs with items that may be a better option.

3. Are there other variables to consider?

After analyzing your list, you may also want to consider other potential variables that have impacted the success of a product or appliance you offer. For instance, do you market certain appliances, or have you promoted a certain brand over a period of time? This could impact the number of items requested or used.

Alternatively, introducing new materials or appliances can cause numbers for other items to go down. Be aware of how the popularity of products can be affected by change.

4. Is your list organized?

Just like everything else in construction – organization is key. While auditing your list, you can create columns for items you want to keep, remove or review. This will help prevent any errors.

Keeping your SKU list organized into categories will also help you review and audit faster in the future.

How can CBUSA help keep projects on track with material purchasing?

As a member of CBUSA, you’ll get help with purchasing your materials, products and appliances. We work with our builders to help them understand their product needs. We work with them to ensure their list is accurate and optimized to better equip the vendors and partners that serve them.

We work with the best suppliers, manufacturers and brand partners who prioritize our builders and get them what they need. Become a member today and start experiencing the benefits.

About The Author

Chelsea Cole

Chelsea Cole Chelsea Cole is a senior content marketing specialist at Buildertrend