E-commerce success is strongly reliant on accurate inventory management and a well-organized supply chain. To do this, firms must closely monitor their stock-keeping unit (SKU) to assess inventory levels, make package offers, and establish reorder points. And precise SKU analysis is required for good SKU management.
This article will explain what SKU analysis is, why you should evaluate your SKUs, and how you can utilize SKU analysis to enhance inventory management.
SKU Analysis Definition
The technique of monitoring inventories at the SKU level and analyzing the data to derive meaningful insights is known as SKU analysis. At the most fundamental level, it may entail assessing inventory levels to determine how much stock is available for a specific SKU, when it should be reordered, and how much should be reordered. SKU analysis is also a key step in effectively managing your catalog across several channels.
It may entail assessing inventory turnover at the SKU level to discover which goods are in high demand and which are not. SKU analysis also considers the carrying cost of various SKUs in order to discover lucrative and unprofitable items. Businesses may use all of these facts to improve inventory management and uncover chances for increased profitability.
Why should you consider examining your SKUs?
A thorough examination of your SKUs is required for effective and accurate catalog management. Aside from that, it provides a number of other advantages for enhancing e-commerce profitability.
- SKU proliferation should be identified and managed.
SKU proliferation is an essential component of every expanding e-commerce firm. As a company grows, it is frequently necessary to provide new items or new versions of old products in order to increase sales and attract new customers. However, if left uncontrolled, SKU multiplication can eat away at your profitability.
You may wind up with massive amounts of inventory that you are unable to sell as a result of unregulated SKU multiplication. That implies you’re wasting money on stuff that won’t sell. Furthermore, you are spending more money than necessary to keep the inventory.
This is why, rather than expanding for the sake of proliferating, it is critical to be extremely judicious about the SKUs you add to your supply chain. SKU analysis allows you to identify your best-selling item and determine whether versions of it may be introduced, for example. It may also provide insight into what your target audience loves and dislikes, allowing you to better control SKU proliferation.
- Remove unprofitable SKUs.
Your buyers are not paying equal attention to all of your items. While you have several best-selling goods that bring you a lot of money, others may sell well but have extremely low-profit margins. Worse, some things may not sell at all because your clients do not require them or dislike them.
SKU analysis is an excellent approach to keep an eye on these crucial facts and avoid wasting money on acquiring and maintaining unproductive SKUs. The study will discover which SKUs to remove from your supply chain based on which SKUs have poor inventory turnover and how much profit you were able to produce on average for each SKU.
This can help you save money on acquiring and storing slow-moving things. It will also free up resources and warehouse space for the purchase of higher-value products and best-selling SKUs, which will boost your total profitability in the long run.
- SKUs should be organized and consolidated across all channels.
If you sell through various channels, it’s possible that you have distinct inventory systems in place for each channel. This not only causes complexity and inefficiencies in your inventory management, but it may also lead to costly blunders. For instance, if your inventory data in one system does not automatically sync with another, you may sell out-of-stock products or place reorders twice.
Because it entails classifying and combining your SKUs across all of your selling channels, the correct SKU analysis approach simplifies multichannel inventory management. This means you can track SKUs from many channels in one location, allowing you to more precisely monitor inventory levels, reorder points, and inventory movement.
How to Analyze Your SKUs to Improve Inventory Management
Now that we’ve demonstrated how important it is to evaluate your SKUs, let’s look at several methods for performing the analysis and, as a result, improving your inventory management. Knowing what to search for and how to make the most of the data that you’ve retrieved is essential for proper SKU analysis.
- Implementing SKU rationalization
SKU rationalization is an essential part of the SKU analysis process. It entails calculating the profitability of your inventory’s items using parameters including inventory holding costs, procurement fees, fulfillment expenses, customer acquisition costs, and historical sales data. As a consequence, SKU rationalization assists you in determining if particular SKUs should be kept in stock or eliminated.
For example, you may find that a certain SKU sells well. However, because it is a large item, it takes up a lot of storage space in your warehouse. As a result, your SKU analysis technique will assist you in determining if the revenues generated by this SKU justify the expense of holding it.
Alternatively, your SKU analysis may suggest that a certain SKU is exceptionally slow to move. That suggests you’re probably losing money on inventory holding expenses for this specific SKU while generating no revenue. In this instance, it might be prudent to terminate the SKU in order to reduce inventory holding costs while freeing up resources and space for better-selling goods.
- Examining possibly expensive SKU proliferation
While SKU proliferation is a natural aspect of any business’s expansion, it must be done intelligently. In order to attract more customers and improve their income, e-commerce enterprises may wind up offering additional goods that may not appeal to their intended demographic. Some items, for example, may have extraordinarily high price points and hence are unmarketable to their present audience base. Or the product fails to address a critical pain point that its consumers are facing.
Whatever the specifics are, you wind up with things that you can’t sell. And these slow-moving SKUs are using a lot of storage space, increasing your inventory holding expenses, and failing to generate income. As a result, it is critical to do SKU analysis to discover unfavorable or costly SKU proliferation that will assist you in keeping this under control.
You can seek possibilities to address the problem by focusing on the SKUs that are creating the issue. Bundling slow-moving SKUs with best-selling goods, for example. It might also mean broadening your target market for higher-priced items.
- Using inventory management software to locate key SKU-level data
Make sure you’re recording critical inventory indicators at the SKU level while doing your SKU analysis. This would give average units sold each day as well as historical sales performance for each SKU, allowing you to evaluate how well the product has sold over time. To fully analyze profitability, you’ll also need to track how much you spend on storage expenses for each SKU.
To keep track of all of these SKU-level variables, you’ll require inventory management software with strong analytics tools. Ideally, the program should be able to generate accurate forecasts based on prior sales data, such as the predicted rise in demand.