What Is An SKU and What SKUs Have To Do with Forecasting and Inventory

The term SKU (Stock Keeping Unit) is associated with a product (usually, but not always, a physical one) and identifies the most detailed 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.

Use your SKU level data to encourage your customers to buy more of what they want to buy. It will help you increase engagement, foster customer relationships, and their shopping experience.

Just keep in mind that regardless of your demand forecasting technique and tool, eventually you will be interested in SKUs. Not only for inventory demand forecasting, but also for the inventory and its control. You will need to replenish some SKUs and leave others untouched as they are beyond the level which triggers a new order.

SKUs are of crucial importance as they allow you to track your stock levels for each product and material type. This leads to higher optimization of your inventory levels and more productive inventory management.

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.

Improve and optimize your SKU plan in order to take advantage of everything that SKUs bring to the table for a business owner or a manufacturer.

To sum up, SKUs are your products, described with all the details you need in order to keep inventory and cost under control.

Forecast with Intuendi

Related articles

Decomposition Methods for Time Series Forecasting

Big data, machine learning and demand forecasting

Four Simple Steps to Improve Inventory Management