The Three Main SKU Classifications
2. Exploring Different Categorization Methods
Alright, lets get down to brass tacks and explore the three key classifications. The main idea here is that you want to know how to organize all this data. This article will explore the core classifications by explaining the uses and benefits of each. We will go through each of them to get you the best possible understanding to get on your SKU managing journey! Let's start exploring:
1. By Product Type
This is probably the most straightforward and intuitive way to classify SKUs. It involves grouping products based on their inherent nature. For instance, a clothing retailer might have categories like "T-shirts," "Jeans," and "Dresses." A grocery store could use categories like "Dairy," "Produce," and "Canned Goods." This classification is excellent for general reporting and understanding the overall performance of different product lines. It answers the basic question: "What are we selling?"
The benefit of this approach is its simplicity and ease of implementation. It provides a high-level overview of the business's product offerings, allowing for quick identification of best-selling and underperforming categories. Imagine trying to explain your business to someone without this basic breakdown — it would be like trying to describe a painting without mentioning the colors! It is useful for marketing efforts. For example, a company might launch targeted campaigns promoting specific product categories based on seasonal trends or customer preferences.
Of course, the downside of this classification is that it can be too broad for detailed analysis. For example, knowing that "T-shirts" are selling well is helpful, but it doesn't tell you which specific T-shirt designs, sizes, or colors are the most popular. To address this, businesses often combine product type classification with other, more granular methods. To improve this, the following SKU classifications provide more detailed analysis and provide better insights to businesses.
Moreover, this classification is a great base to work from. It builds the foundation for businesses to expand on and allows for a good starting point in the grand scheme of SKU management. It will also allow the business to better scale since it can create a system of categories to build on. This is a crucial part to understand since it helps in long-term SKU management.
2. By Brand or Vendor
This classification focuses on the origin of the product. It groups SKUs based on the brand name or the vendor from whom the product was purchased. This is particularly useful for retailers who carry products from multiple brands, as it allows them to track the performance of each brand and negotiate better deals with vendors. It answers the question: "Who made this?" or "Where did we get it?".
Imagine a department store that sells clothing from various designers. By classifying SKUs by brand, they can easily see which designers are resonating with their customers and which are not. This information can be used to adjust purchasing decisions, negotiate better terms with suppliers, and tailor marketing campaigns to specific brands. Also, this is particularly relevant for retailers managing private label products, allowing comparison between brand performance versus self-branded goods.
A great benefit of this classification is vendor performance analysis. By tracking the sales and profitability of products from different vendors, businesses can identify reliable suppliers and those who may need improvement. This can lead to more favorable contract terms and a stronger supply chain overall. This helps build stronger supplier relationships to optimize for better business outcomes.
One thing to note about this classification is that the classification also depends on vendors themselves. Businesses should have a system for evaluating vendors, such as quality control processes and performance reviews. Another point to note is that they can be many vendors that supply similar products, which means businesses must carefully review to optimize operations. By doing this, businesses can maintain a strong and stable supply chain that ensures they can meet customer demand.
3. By Attributes
This classification is where things get really specific. It involves grouping SKUs based on their individual characteristics, such as size, color, material, or style. This is particularly useful for businesses that offer products in a variety of options. This answers the question: "What are the specific features of this product?".
For example, a shoe store might classify SKUs by size, width, color, and style. This allows them to track which sizes are most popular, which colors are trending, and which styles are selling best. This information can then be used to optimize inventory levels, tailor marketing campaigns, and even inform product development decisions. This level of detail is essential for businesses that want to cater to specific customer preferences and maximize sales.
The obvious advantage of classifying SKUs by attributes is the ability to make data-driven decisions about product assortment. By analyzing the performance of different attributes, businesses can identify gaps in their product offerings and introduce new products that meet customer demand. This also helps minimize the chances of overstocking on unpopular variations, reducing waste and maximizing profitability. This can ensure a streamlined and efficient process that allows for the business to maximize their business strategy.
However, this classification requires a more robust data management system, and can get complex. Businesses need to ensure that their systems can accurately capture and track all relevant attributes for each SKU. This may involve implementing a Product Information Management (PIM) system or customizing their existing inventory management software. Even though the system can be complex, it is very useful for businesses to get specific data to optimize their revenue.
