The value of SKU rationalization: the pooling effect under suboptimal inventory policies

José Alfaro () and Charles J. Corbett

DEE - Working Papers. Business Economics. WB from Universidad Carlos III de Madrid. Departamento de Economía de la Empresa

Abstract: Managing product variety is a widely recognized challenge. Several approaches to this rely on the "pooling effect", the reduction of uncertainty that occurs when individual demands are aggregated. This can occur through reduction of number of products orSKUs, through postponement of differentiation, or in other ways. These approaches are by now well-known and widely applied in practice. However, theoretical analyses of the pooling effect always assume that one has an optimal inventory policy before and after pooling. If this is not the case, how does that affect the value of pooling? This paper analyses the benefits of pooling in terms of costs and service level under optimal and suboptimal policies and proposes a simple framework to analyze the trade-off between implementing pooling and improving inventory policy. We show there is always a range of current inventory levels within which pooling is better and beyond whichoptimizing inventory policy is better. We analyze how this range varies with the problem parameters and illustrate these findings using highly erratic empirical demand data.

Keywords: Pooling; SKU; rationalization; Product; variety; Suboptimal; inventory; policy; Service; level; Fill; rate (search for similar items in EconPapers)
Date: 2000-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://e-archivo.uc3m.es/rest/api/core/bitstreams ... 464e56c73f80/content (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cte:wbrepe:9917

Access Statistics for this paper

More papers in DEE - Working Papers. Business Economics. WB from Universidad Carlos III de Madrid. Departamento de Economía de la Empresa
Bibliographic data for series maintained by Ana Poveda ().