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Understanding and managing SKUs (Stock Keeping Units) is essential for emerging CPG brands looking to enter the retail market. SKUs are crucial in tracking inventory, managing product information, and facilitating sales analytics. Effective SKU management can significantly impact a brand’s ability to scale and integrate seamlessly into retail environments. This guide explores the meaning of SKUs, providing actionable insights for optimizing their use.
Definition of SKU
What are stock keeping units? An SKU (Stock Keeping Unit) is a unique identifier assigned to each product in a brand’s inventory. Typically consisting of alphanumeric characters, SKUs distinguish products based on attributes such as size, color, and model. For example, a blue, size M t-shirt might have an SKU like "BLU-M-TSHIRT-001".
SKUs enable precise tracking of stock levels, sales patterns, and reorder points, ensuring efficient inventory control and reducing the risk of stockouts or overstock situations. By maintaining detailed SKU records, brands can streamline their operations, making it easier to manage large inventories and enhance customer satisfaction through better stock availability.
SKU Names Across Different Retailers
Every retailer uses a unique system for SKU identification:
- Walmart: Utilizes numeric sequences for streamlined inventory management and easy tracking across its supply chain.
brickseek.com - Amazon: Employs the ASIN (Amazon Standard Identification Number), a unique identifier for products in its catalog.
nchannel.com - Target: Uses TCIN (Target.com Item Number) for online products and DPCI (Department, Class, Item) for in-store categorization.
Understanding these naming conventions and SKU meanings is crucial for CPG brands to ensure their products are compatible with retailer systems and comply with their requirements.
SKUs and Planograms (POGs)
Planograms are visual representations of a store’s layout, showing where and how products should be displayed on shelves. SKUs are critical in creating effective POGs, ensuring that each product is placed in its designated spot for optimal visibility and sales.
Proper POG implementation, facilitated by accurate SKUs, helps increase sales by enhancing product visibility and improving the shopping experience. Effective packaging, whether it be hang tags, stand-alone displays, or sitting in a shipper, and the size of products are all taken into account when building POGs.
By assigning specific SKUs to designated spots on shelves, retailers can ensure consistent and logical product displays, which attract customers and drive sales. CPG brands must understand and work with retailers on POGs to ensure their products are displayed effectively.
SKU Rationalization
SKU rationalization involves evaluating and optimizing the SKU portfolio to eliminate underperforming products and focus on top sellers. This process is essential for maintaining an efficient and profitable inventory.
To rationalize SKUs effectively:
- Data Analysis: Review sales data to identify low-performing SKUs.
- Customer Insights: Gather feedback to understand customer preferences and identify the most valued products.
- Cost-Benefit Analysis: Assess the costs of maintaining each SKU versus its profitability.
- Implementation: Phase out low-performing SKUs and consolidate similar products to streamline the inventory.
By focusing on top-performing SKUs, CPG brands can reduce complexity, lower costs, and improve overall inventory performance, ensuring that shelf space is used for products that drive the most value. An essential aspect of successful SKU rationalization is maintaining adequate stock levels to prevent out-of-stock situations, which can severely impact sales and customer satisfaction.
At Lunr, we help emerging CPG brands with inventory financing and purchase order (PO) financing, enabling them to keep their top-performing products in stock and capitalize on sales opportunities without the burden of cash flow constraints.
Apply now to learn more about how Lunr can help.
Optimizing SKU Management
Optimizing SKU management involves several best practices and tools to ensure efficiency and accuracy:
- Consistent naming conventions
- Advanced inventory management systems like SAP or Oracle
- Regular audits to ensure SKU accuracy and relevance
- Inventory management software with real-time tracking, automated reorder points, and comprehensive reporting capabilities
Actionable Insights for Brands Moving into Retail
Embracing the strategic importance of SKUs can significantly impact your brand's retail operations and profitability. By applying the strategies discussed, brands can improve inventory control, enhance product visibility, and boost profitability in the retail space.
For more detailed guidance and support, reach out to our team at hello@lunrcapital.com or apply here. Lunr provides expert insights and strategic solutions to help brands optimize and navigate the complexities of retail expansion.
