SKU'd to Profitability
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Proper SKU management is aimed at increasing profits while minimizing costs. Planning your SKUs for profitability is a part of “inventory optimization,” and the main benefits you can unlock by planning the right SKU strategy are:
Reduced human error: Mistakes in inventory management can be costly. Effective SKU planning minimizes the chances of human error by providing clear and organized records of each product, ensuring accuracy throughout your inventory system.
Less inventory shrinkage: Inventory shrinkage happens when actual inventory levels are less than what’s recorded on inventory records. Inventory shrinkage leads to lost profits. That’s because the inventory that was purchased is never sold. But the right SKU management can help your business keep track of all its inventory, making it that much easier to track what’s where.
Optimize reordering: Identify the average daily usage is how much of a product your customers typically demand in one day. Know your wait time, the number of days it takes for an order to arrive once placed. And be aware of safety stock is needed, how much of a product you need to keep on hand to avoid completely running out. Knowing these data will help you optimize the reordering cycle and reduces unnecessary capital stuck with slow-moving products, saving space and resource in managing it.
Tracking SKUs for Success
ShelfPerks Store OS allows businesses to track SKU performance effectively. By analyzing key performance indicators such as procurement costs and inventory turnover rates, you can make informed decisions about whether to continue selling specific SKUs, or modify the selling strategies. By understanding a product’s profitability in addition to having the ability to track inventory performance, you can improve the SKU rationalization process, leading to greater profitability.
Create meaningful SKUs
For store owners who create their own SKUs, you should think carefully about your business. Everything from how your store is laid out to item seasonality should be considered. Once you’ve thought through your inventory, start developing an alphanumeric code that references everything from item category to color, size, production year, and more.
Best Practices and Processes
A SKU is made up of letters and numbers. The numbers and letters provide details about the product, such as brand, model number, color, etc. Each store or company follows its own way of creating SKUs for its products, and there is no incorrect way to create a SKU. That being said, there are some best practices when building a SKU.
Do not start SKUs with zeros
As a general rule, avoid using zeros at the beginning of your SKU names to prevent data storage problems. You will find some storage tools that do not consider zeros at the beginning of your SKU names. As an example, if you enter 04563 in Excel, you will save 4563.
Group SKUs by similarity
You can design your retail store in a way that shows the different options for a particular product by clustering SKUs by similarity.
For example, if you sell sports shoes and jerseys, and a customer comes into your store, you can show them the available colors. So, if the customer sees the shoe that comes in black but prefers another color that you have suggested, you can easily display the different colors available for that shoe. This also improves the customer experience. You can spot the different types of products in demand and the options that most customers prefer for that specific high-demand product.
Do not use confusing letters, numbers, and spaces
Do not use spaces or special characters. Creating a SKU with spaces or special characters can be confusing. Do not use letters that can be confused with numbers. Avoid using letters such as O and I, which can be confused with 0 and 1. It is advisable to use uppercase letters to prevent confusion when using letters.
Know your SKU ratio
SKU ratio is the contribution of an SKU to the gross profit. Understanding your SKU ratio, which measures an SKU's contribution to gross profit within a given range, is essential. Knowing this will help store owners decide their inventory & sales strategy. What SKUs to stock for attracting customers? what SKUs to sell for revenue growth?
Regular to-dos in SKU management
- Audit: Conduct periodic SKU audits to identify slow movers and obsolete products that can be discontinued.
- Analyse: Use ShelfPerks to gain insights into SKU performance and customer preferences.
- Forecast: Implement demand forecasting to anticipate changes in product demand and plan accordingly.
- Track: ShelfPerks inventory management software automates SKU tracking and order processing.
- Collaborate: Collaborate with suppliers to optimize SKU selection and reduce lead times.
Step Up Your SKU Game
Effective SKU management is a cornerstone of organized inventory tracking and forecasting. It empowers you to make informed decisions about when to reorganize inventory, identify profitable items, and address underperforming ones. To enhance your inventory SKU management, consider utilizing tools like www.ShelfPerks.com, which offer valuable features to optimize your store operations.
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