In this article, we will cover what SKU count is, its importance in your inventory management, as well as the pros and cons of high and low SKU counts.
What is SKU Count?
SKU count refers to the total number of unique Stock Keeping Units (SKUs) that a retailer or business manages within its inventory.
Example: Techtronix Corporation is an electronics company that manages a SKU count of 5,678 different products in their inventory.
Importance of SKU Count
There are many reasons why SKU count is important for a business. We have listed some of the most common reasons below:
1. Inventory Management:
Knowing the SKU count helps businesses keep track of the different products and variations they have in stock. This is crucial for managing inventory levels, and identifying slow-moving or obsolete products that may need to be discounted or discontinued.
2. Stocking Decisions:
Businesses can use SKU count data to make informed decisions about which products to stock, restock, or discontinue. It can also aid in determining optimal order quantities and reorder points for each SKU to reduce carrying costs and prevent stockouts.
3. Customer Demand:
Understanding the SKU count can provide insights into customer preferences and purchasing behavior. Businesses can identify which products are most popular and adjust their marketing and sales strategies accordingly.
4. Supply Chain Management:
SKU count is relevant for supply chain and logistics management. It helps businesses plan for transportation, storage, and distribution of products efficiently. Different SKUs may have varying requirements in terms of storage space, handling, and shipping methods.
5. Pricing and Promotion:
SKU count can influence pricing strategies and promotions. Businesses may offer discounts or bundle products based on SKU performance and profitability.
6. Space Planning:
Retailers need to allocate shelf space or floor space for each SKU in physical stores. Knowing the SKU count helps in optimizing the layout and presentation of products to attract customers and facilitate shopping.
7. Data Analysis:
SKU count data can be analyzed alongside other metrics to identify trends, seasonality, and opportunities for growth. This data can inform strategic decisions and business planning.
8. Financial Reporting:
SKU count can impact financial reporting, affecting metrics like cost of goods sold (COGS), inventory turnover, and gross profit margins. It is important for accurate financial analysis and reporting.
Pros and Cons of High and Low SKU Count
SKU count comes with both pros and cons depending on how it's managed and the specific needs and goals of the business. Here are some of the pros and cons:
Pros of a High SKU Count:
Diverse Product Offering: A high SKU count often indicates a wide variety of products and product variations, which can attract a broader range of customers and cater to different preferences.
Market Segmentation: Different SKUs can target specific customer segments that allows businesses to tailor their offerings to different demographics or market niches.
Competitive Advantage: Offering a unique and extensive range of products can give a business a competitive advantage in the market.
Increased Sales Potential: More SKUs provide more opportunities for cross-selling and upselling that potentially increasing sales revenue.
Customer Loyalty: A diverse product range can help build customer loyalty as customers can find all they need from a single source.
Cons of a High SKU Count:
Inventory Management Complexity: Managing a large number of SKUs can be logistically challenging that can lead to higher carrying costs, potential stockouts, and inefficiencies in ordering and stocking.
Increased Costs: More SKUs can result in higher storage costs, handling costs, and the need for more warehouse space.
Data and Analytics Complexity: Analyzing and tracking a large number of SKUs can be complex which makes it harder to extract meaningful insights from data.
Risk of Obsolescence: Some SKUs may become obsolete or have low sales volume that ties up capital and storage space.
Supply Chain Complexity: Coordinating the supply chain for a high SKU count can be challenging, especially when dealing with multiple suppliers and sourcing variations.
Marketing and Promotion Challenges: Promoting and marketing a large number of SKUs can be costly and may dilute marketing efforts that makes it harder to effectively market each product.
Pros of a Low SKU Count:
Simplified Inventory Management: Managing a smaller number of SKUs is generally less complex and can lead to more efficient inventory management.
Lower Costs: Fewer SKUs mean lower storage, handling, and supply chain costs.
Focused Marketing: With a smaller product range, businesses can focus their marketing efforts more effectively on a select set of products.
Streamlined Operations: A lower SKU count can lead to streamlined operations which reduces complexity and increases operational efficiency
Cons of a Low SKU Count:
Limited Market Reach: Having a limited product range may restrict a business's ability to attract a diverse customer base.
Missed Opportunities: A narrow product range may miss out on opportunities to meet the specific needs and preferences of various customer segments.
Competitive Disadvantage: In some industries, a limited SKU count may put a business at a competitive disadvantage compared to competitors with a broader product offering.
We hope that you now have a better understanding of what SKU count is, its significance and the pros and cons of high and low SKUcounts for your business.
If you enjoyed this article, you might also like our article on SKU-level data or SKU pricing analysis.
