What is a SKU analysis?

SKU (Stock Keeping Unit) analysis involves evaluating the performance and contribution of individual products or items within a company's inventory. This analysis helps identify the top-performing SKUs that generate the majority of the revenue and uncover insights to optimize inventory management, production, and marketing strategies. Here's a more detailed explanation of SKU analysis:

1. Revenue Contribution: By analyzing sales data, manufacturers can determine the revenue contribution of each SKU. This analysis helps identify the vital few products that generate the highest sales and revenue. Typically, a small percentage of SKUs (around 20%) will contribute to a significant portion (around 80%) of the total revenue.

2. Profitability: SKU analysis goes beyond revenue contribution and considers the profitability of each product. It involves evaluating factors such as production costs, material costs, labor expenses, and pricing. This analysis helps identify the SKUs that not only generate high revenue but also provide better profit margins. By focusing on these high-profit products, manufacturers can improve their overall profitability.

3. Demand Patterns: SKU analysis provides insights into the demand patterns of different products. It helps identify which SKUs have consistent and strong demand and which ones are more seasonal or sporadic. Understanding these demand patterns allows manufacturers to optimize production planning and inventory management. They can allocate resources and adjust inventory levels based on the demand fluctuations of each SKU.

4. Market Trends and Customer Preferences: SKU analysis helps track market trends and customer preferences by evaluating the sales performance of different products over time. It allows manufacturers to identify emerging trends, shifts in customer preferences, or changes in market demand. By staying informed about these trends, manufacturers can proactively adjust their product offerings, develop new products, or modify existing ones to align with market dynamics.

5. Inventory Optimization: SKU analysis aids in optimizing inventory management. By identifying the top-performing SKUs, manufacturers can focus on maintaining adequate stock levels for these high-impact products. This prevents stockouts, ensures customer satisfaction, and reduces carrying costs associated with excess inventory for underperforming SKUs. It also enables better demand forecasting and inventory replenishment strategies for each SKU.

6. Marketing and Sales Strategies: SKU analysis informs marketing and sales strategies. By understanding which SKUs contribute the most to revenue, manufacturers can allocate marketing budgets, promotional efforts, and sales resources accordingly. They can prioritize advertising, promotional campaigns, and sales initiatives for the critical few products, maximizing the return on investment and improving overall sales effectiveness.

Overall, SKU analysis provides manufacturers with valuable insights into the performance, profitability, demand patterns, and market dynamics of their individual products. It helps them make data-driven decisions related to production, inventory, marketing, and sales strategies, ultimately leading to improved operational efficiency and increased revenue.