What Is An SKU
and what SKU level has to do with inventory forecasting
The term SKU (Stock Keeping Unit) is associated with a product (usually, but not always, a physical one) and identifies the mostdetailed disaggregate description of the product. Let me give an example – assume you produce shoes. They are your products.The somewhat aggregated specifications of your product would be: a specific shoe model, in a specific color, made from a specific material. A given shoe model might come with several available sizes. An SKU can be the code for identifying a specific size. It can even be something more disaggregated, like that size in a specific warehouse or retail store.
An SKU usually corresponds to detailed and specific product description. In other words, you can freely exchange two product items with the same SKU identification without any problem.
An SKU (and its uniquely identified code) is extremely important for inventory management and control. If the inventory is like a building, SKU’s are the bricks.
Businesses usually record historical data on the SKU level. Thus, any good inventory forecasting software solution will be based on the analysis of past sales data on a similar level. They usually do forecasting on the SKU level, too.
Let’s take shoes as an example. Sometimes inventory forecasting software solutions aggregate different SKUs and generate a forecast at a higher level of aggregation. As an instance, we might aggregate and forecast the inventory demand for that specific shoe type, disregarding the different sizes.
This way of producing inventory forecasts has some advantages. It is usually more precise for the aggregate forecasted demand, but there are also disadvantages. Sooner or later you will need to split your aggregate to the SKU level.
Why should you make the most out of your SKU level data?A couple of reasons are as follows:
- SKU level data will allow you to know more details about your purchases and about the people who made them. You’ll learn about the favorite size or color of a given customer with the help of this data.
- Having all this information at hand, you will be able to improve your marketing strategies. As a result, you’ll send more relevant offers to your customers – ones that are actually in the scope of their interests.
Benefits of integrating a solid SKU plan into your business
- Improved Work Efficiency: Using SKUs helps everyone internal understand the products and their movements efficiently.
- Fewer Communication Errors: Having to deal with long product names and variant attributes can cause communication errors and affect the workflow. SKUs help reduces the occurrence of such errors and misunderstandings.
- Simplified Stock Taking: With the help of SKUs, the identification of variants becomes much simpler and easier. This way you can know if your inventory matches the actual stock levels.
- Product Prioritization: SKUs enable you to check out the sales volumes for each variant of your products. Some colors or sizes might be more in demand than others. Knowing your customers’ preferences, you can essentially optimize your production and increase your sales.
- Better Inventory Management: Having reorder points set on each variant on your SKU will highly improve the efficiency of your inventory.