In this article, we explore what SKU analysis is and its importance for your business. We also share our step by step process for effective SKU analysis. Read on to learn more.
SKU analysis involves assessing the performance of each product’s unique identifier in your inventory to ensure efficient inventory management and better sales performance. This helps in making informed decisions about stocking, pricing, and marketing.
Example: If a clothing store analyzes SKUs and finds that red T-shirts are selling well while blue ones are not, they might choose to stock more red T-shirts and reduce the number of blue ones to improve profitability.
Here are some of the key advantages of employing SKU analysis in your business:
SKU analysis helps in maintaining optimal inventory levels. It ensures that you have enough stock to meet customer demand without overstocking, reducing carrying costs, and the risk of stockouts.
By examining historical sales data for each SKU, businesses can make more accurate predictions about future demand. This helps in planning production, procurement, and stock replenishment efficiently.
SKU analysis allows you to identify which products or variants are top performers and which are underperforming. This insight can guide decisions on marketing, product development, or discontinuation of slow-moving items.
Analyzing SKUs helps in understanding the profitability of individual products. This information can inform pricing strategies, cost management, and resource allocation to maximize overall profitability.
SKU analysis helps businesses market their products more effectively by identifying popular items among different customer groups and pinpointing price flexibility. By adjusting prices based on these insights, companies can boost sales and profit margins.
SKU analysis aids in optimizing the supply chain by identifying the demand patterns for each SKU. This can lead to more efficient procurement, production, and distribution processes.
SKU analysis helps in identifying slow-moving or obsolete items, allowing businesses to take action to reduce carrying costs and free up capital.
SKU analysis provides data-driven insights, allowing businesses to make informed decisions rather than relying on intuition or guesswork.
Here are our steps for conducting an effective SKU (Stock Keeping Unit) analysis:
Identify each SKU (Stock Keeping Unit) in the product line you wish to analyze. This involves understanding the unique identifier for each item in your inventory.
Example: The company stocks three types of shoes: Sneakers, Loafers, and Sandals. Each has a unique SKU: SNK001, LOF001, SND001 respectively.
Evaluate the past sales data for each SKU. This helps in understanding how well a product has performed over a specific period.
Example: Over the past year, SNK001 had sales of 5,000 units, LOF001 had 3,000 units, and SND001 had 2,500 units.
Calculate the rate at which each SKU sells out and gets replenished. A higher turnover rate indicates good sales while a lower one can indicate overstock.
Example: In six months, SNK001 inventory was sold and replenished 5 times, while LOF001 was only 3 times.
Determine the profit margin for each SKU. It’s vital to know which products provide the best return on investment.
Example: For every pair of SNK001 sold, the profit is $20, whereas for LOF001 it's $25.
Assess how often an SKU runs out of stock. A high stockout rate may indicate underordering or high demand.
Example: SND001 ran out of stock 4 times last year, while SNK001 ran out only once.
Categorize SKUs based on their performance, like A (high performing), B (medium), and C (low).
Example: Based on sales and profit, SNK001 is categorized as A, LOF001 as B, and SND001 as C.
Predict the potential demand for each SKU based on past trends, seasonality, or market research.
Example: Given the increasing trend and upcoming summer season, SND001’s sales are expected to rise by 15%.
Analyze the various costs associated with each SKU, like procurement, storage, and handling.
Example: Storing a pair of LOF001 costs $2/month due to special storage conditions, whereas SND001 costs only $0.5/month.
Collect and assess feedback for each SKU. Products with higher positive reviews can be indicative of higher demand and customer satisfaction.
Example: SND001 has an average rating of 4.8 out of 5 from 200 reviews, suggesting high customer satisfaction.
Based on the gathered data, decide on strategies such as promoting, discontinuing, or revamping an SKU.
Example: Given its high profit and turnover rate, a marketing campaign could be designed to further promote SNK001.
Let's apply the 10 steps of SKU analysis to TechGad, a company that sells electronic gadgets. TechGad recognizes the need to refine its product lineup to streamline offerings and drive greater profitability.
TechGad identifies each SKU in its product line. For example, they have smartphones, tablets, and laptops with the following SKUs:
TechGad reviews the past year's sales data for each SKU:
TechGad calculates the inventory turnover rate over the past year:
They determine the profit margin for each SKU:
TechGad assesses the stockout rate for each SKU:
They categorize the SKUs based on their performance:
TechGad predicts potential demand for each SKU based on trends:
They analyze various costs associated with each SKU:
TechGad collects and assesses customer feedback and reviews:
Based on the gathered data, TechGad makes decisions and action steps:
We hope that you now have a better understanding of how to conduct SKU analysis to improve inventory management and the profitability of your business.
If you enjoyed this article, you might also like our article on SKU numbers or SKU level.
