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Too Many SKUs Got You Down?

3 min read
Sep 30, 2022 8:19:25 AM

Overstocks, understocks, and low performing SKUs… oh my! At this point, you may be wondering, “what is a SKU?” So, let’s define “SKU” before we get into the nitty gritty. The term “SKU” refers to “stock keeping unit.” It’s the code of lines and numbers on each item that retailers use to track inventory and purchases. 

Nowadays, retailers need to be strategic to survive. The days of sourcing products, figuring out how much of each product to buy, and creating different iterations of your inventory based on gut feeling alone are long gone. There are a few different reasons for this. The rising rate of counterfeits has made customs officials more rigorous than ever. The result?  Substantial delays at customs and an overarching import crisis that’s made international shipping precarious and unreliable. We’re also in the midst of a global economic downturn, leading to an average 8.5% inflation rate on most goods.  

Let’s take a look at two of the sourcing strategies being utilized that aren’t working in the extremes in which they’re being used. We’ll also discuss how the right retail PLM can help you source inventory more effectively.  

Different sourcing strategies lead to disparate results

What do Walmart, Target, Macy’s, Nordstrom and Kohl’s all have in common? They’ve all had to slash the number of products in their inventory orders due to over-assortment. Sourcing inventory is not at all a “the more, the merrier '' situation. While empty shelves aren’t a good look for any retailer, markdowns resulting from overstocks are still a very real threat to retail margins.

But Harvard Business Review found that understocks are an even bigger issue. In May of 2020, the frequency of stockouts within the U.S. was more than 35% —  that’s more than double the 

pre-pandemic level of 14%. It’s true that consumers are being extra frugal right now, but it’s also true that customer loyalty wanes when retailers run out of their favorite products.

To contend with the impact of the pandemic, retailers have bifurcated their sourcing into two main strategies: 

  • Reduce the number of products: This strategy aims to eliminate overstocks. The idea is to reduce the number of laggard inventory items and double down on marketing best sellers. It’s a great core strategy. The issue is that many retailers don’t have the inventory visibility and sell through data to make informed sourcing decisions.

  • Source as many popular products as possible: This strategy aims to eliminate understocks and compete with online marketplaces like Amazon. The idea is to keep everything in stock by ordering more of what you think you’ll need. Or by introducing third-party sellers, so customers have no reason to shop anywhere else. 

When your options are between two extremes, the right answer is usually somewhere in the middle. Sourcing the right SKUs is no different. A data informed sourcing strategy is infinitely more effective than an all or nothing approach for the broad majority of retailers. 

Data informed SKU assortments can maximize sales

Want to source SKUs that are more relevant than those of your competitors? Then you’ll need to learn to use communication as a competitive asset. Hanes has recently reduced the number of its low performing SKUs by more than 30%. But you can’t just start cutting SKUs left and right without sales data to help you make an informed decision.

Surefront’s product lifecycle management solution lets you create assortments with robust product visuals right from the platform. You can add or subtract products, make notes, and turn assortments into an order with just a few clicks. With Surefront’s retail PLM, you have a comprehensive view of all of your SKUs and assortments, so you can weigh them against past product orders. 

But that’s not all. Surefront’s retail PLM easily integrates with most SAP and ERP systems.  Access all of your inventory, geographical, and sales data directly from Surefront.  Automatically transfer data to help plan your inventory assortment and share that data from any integrated platform with a single click. It’s just another one of the ways we help make inventory planning an intuitive process. 

Visualize products, make notes as to how things performed, and place more strategic product orders, every single time. Get ready to simplify the process of sourcing the right SKUs for your unique inventory needs with Surefront.

Ready to experience the difference of a retail PLM that allows you to interface with external suppliers? Surefront’s product lifecycle management solution was built by a retailer to service the retail industry’s unique needs. It’s time we got better acquainted. Book a custom demo with one of our product lifecycle management experts today!

Product lifecycle management is a quickly evolving industry with a lot of moving parts. We do all of the research, so you don’t have to. Stay ahead of news & trends by subscribing to our Product Lifecycle Management Blog.

Need to improve Category Management?  Learn how to:   * Cut down sourcing costs.   * Use consumer insights for merchandising.   * Fuel your process with competitive analysis. Get the Guide

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