SKU Profiling: A Step-by-Step Guide to Accurate Results
SKU profiling is one of the most important parts of the order fulfillment process, capable of impacting many different parts and areas of an operation—and yet it is rarely given the time or attention that it deserves.
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Here, we explain what SKU profiling is, why it is so important, and the steps that should be included in an accurate analysis of your SKUs and inventory
What is SKU Profiling?
SKU profiling is a process in which an order fulfillment operation seeks to understand the behavior of its inventory. By necessity, this will include answering questions around:
- Product flow: Within and between facilities
- SKU velocity: How fast inventory moves, including which items are the fastest and slower movers
- SKU sizing: Knowing the physical size requirements for inventory allows the proper planning of storage and picking locations.
- Product affinity: Which SKUs tend to ship together or alone
- Seasonality: Understanding the peak, average and low demand periods help planning the proper equipment, floor space and labor requirements.
Once this information is gathered and analyzed, an operation can use it to inform the design and layout of their facilities, the different types of storage that will be required for different inventory, slotting criteria, and asset allocation, ultimately leading to a more efficient, productive, and profitable business.
How to Conduct SKU Profiling
If you are looking to improve performance, planning to build a new warehouse, redesign an existing facility, your first step should be to conduct an analysis of your order and inventory profiles.
By referring to the steps below as guidance as you work through your SKU profiling exercise, you can ensure an accurate analysis that will lead to real, actionable results for your operation.
1. Know your goals.
Before you profile your inventory, it’s important to have a sense of what you wish to achieve through the exercise. By understanding these goals before you begin the process, you will better be able to keep said goals top of mind throughout the analysis.
Some common reasons operations choose to perform a SKU profile include a desire to:
- Reduce the amount of time workers must spend picking orders
- Reduce travel time within your facility
- Understand the impact of adding or expanding item lines or families
- Justify the cost of purchasing new equipment or implementing new systems
- Make existing equipment and systems more efficient and productive
Whatever the case, understanding your goals before starting the analysis will ensure that you walk away with the answers you need.
2. Focus on the data.
Once you have a clear sense of what goals you wish to achieve with your SKU profiling and analysis, you must gather the data that will allow you to complete it. Critical data points should include inventory levels, SKU velocity, replenishment rates, average order profile, etc.
Where this data comes from will ultimately depend on the specifics of your operation, which can vary substantially. In most cases, this will come from a mix of your warehouse management system (WMS) or warehouse execution software (WES) and other business systems.
Wherever it comes from, having accurate data is extremely important. This data is going to form the basis of the analysis; if the data is bad or inaccurate, then the analysis will be bad and inaccurate.
How much data is necessary for an accurate analysis will depend on your business and how seasonality impacts it. Generally speaking, we recommend working with 6 to 12 months’ worth of data at a minimum. The months of data you collect must reflect the variability of your business properly.
3. Evaluate all available tools.
If your goal for completing a SKU profiling exercise is to understand what role new equipment or systems might be able to play in your operation, it is important to build this into your analysis. Once you understand your current performance, you should also model the different scenarios you are considering (including all different technologies, etc.) to determine which will allow you to reach you goals given your existing conditions and medium term projections.
The two most important areas to consider when evaluating these options will be focused around your storage/slotting strategy (and technologies supporting it) and your picking strategy (and technologies supporting it).
When considering new technologies and solutions, keep the characteristics of your product in mind. Are products consistently sized, or do you handle a wide range of sizes and shapes? How many lines do you handle? What type of medium are items currently stored in. Can any of these current realities be changed without impacting the operation too greatly?
The answers to all of these questions will impact which technologies you may or may not be able to implement in your facility.
4. Make sure it’s a RightFIT solution.
With so many options and possible configurations available, it is incredibly important that the solution(s) you ultimately choose are tailored to the specifics of your operation and industry. While one equipment, technology, or system may work for one company, the same is not necessarily true for all companies. We call this the RightFIT methodology, and it’s the bedrock of an intelligently integrated operation.
Remember, an out-of-the-box, one-size-fits-all approach will likely lead to lackluster results and a poor return on investment.
5. Anticipate change.
While historical data will, by necessity, form the basis of your analysis, it does not tell the whole story. Just as important as historical data is forecast data which takes into account changing demand.
Any data that can help to forecast future demand should be factored into your analysis, as it can have a dramatic impact on the efficiency of a picking operation. Some points to consider include:
- Pending promotions, discounts, flash and other sales
- Knowing if an item is going to be featured on the front page of your e-commerce site
- Product or line retirements
- Planned additions or expansions to product lines
- Acquisitions or sales of product lines or divisions
6. What does replenishment look like?
One often overlooked area in effectively designing a warehouse is ensuring that you have the right type of storage for your product, and that you place it in the most efficient location within your facility. Ultimately, the most important criteria for determining the location and type of storage for your inventory is the frequency in which it must be replenished.
Replenishment frequency is an indicator of demand. Logically, those items which must be replenished more frequently are in higher demand compared to other items. With this in mind, it may be determined (for example) that fast movers with frequent replenishment schedules should be housed close to the dock, or close to the packing/shipping centers, to allow for the most efficient workflow.
7. Plan for the change.
Once you have completed your analysis and determined a path forward—whether that includes implementing new technology, auditing your existing equipment, or implementing new systems—you will need to create a plan to get from where you are to where you want to be in the future.
If your changes include moving inventory to new locations within your facility, it is especially important that your migration plan allows you to maintain adequate inventory visibility while moving product from its current home to where it will ultimately be stored.
Similarly, your plan should determine the best time and strategy to actually implement the changes. What makes the most sense for your operation? Will you tackle the migration all at once, or department by department? Can it take place overnight or during the weekend, or will it require a longer shutdown? If you are entering peak season, should you wait until it is over, or is it realistic to pursue now? Should you purge old inventory to make room for new equipment and inventory, or does your facility have enough space? These are the questions you will need to answer to create the best plan for your operation.
8. Put your changes in place, and analyze the results.
In order to understand what impact your changes have had on your operation, you will need to analyze the performance of your operation both before and after your changes have been implemented.
To do so, choose a handful of key performance indicators and metrics that relate to the goal you are attempting to achieve, take note of them before implementing any changes, and then again after implementing your changes. This will allow you to know without a doubt whether or not the changes have had the desired effect, allowing you to replicate elsewhere (such as different departments or additional facilities).
The Bottom Line
As shown above, profiling your inventory and implementing changes to where and how inventory is stored is a complex process. While some larger operations may have an internal team designated to handle such projects, many others do not and may find themselves overwhelmed to the point of paralysis. A trusted systems integrator like Conveyco can help. For a free consultation, just click here.