In the field of supply chains, the concept of stock keeping units, or SKUs, is one of the first subjects you will learn about. As a fairly basic concept, it is completely ingrained in the practice of inventory management and, as such, is a major part of practically all modern ERP, WMS and e-commerce platform systems.
However, what seems to be such a basic concept on the surface can come with many assumptions that can actually be highly deceptive, such as the difficulty in differentiating between physical products, which is evidently important to avoid stock-outs. In this episode of LokadTV, we explore where the limitations lie within the concept of SKU and try to comprehend why it can be so easy to get carried away with things that appear at first to be somewhat straightword and fundamental.
There are industries where SKUs can be highly helpful and make a lot of sense, for example for fast-moving consumer goods, and others where it doesn’t make quite so much sense and can even be misleading, such as in fashion and aerospace.
We try to understand the edge cases that are affected by this and look at various real world examples: the need to track expiration dates in fresh food, or the amount of flight hours an aerospace part has been subjected to. We discuss how availability at the SKU level is not always relevant and look more closely at the important impacts that substitute products can have, as SKUs make identifying substitute products more difficult and can twist your supply chain perspective.
Finally, to wrap things up, we take a look at the many alternative approaches that can be taken and debate whether each vertical should have a specific definition of a SKU that takes into account the key characteristics of the market. For instance, should a car parts dealer think in terms of units of service and units of demand, as there are many equivalent products that can serve the same need?
00:30 What is the definition of a SKU?
01:28 What is so interesting about a SKU? What is interesting about the features of a SKU?
03:26 What are some of the assumptions we make by using SKUs? What issues can arise from making these assumptions?
03:58 What kind of real world assumptions are there?
05:03 What are some of the issues that you have observed as a result of this?
07:19 So, SKUs don’t take into account substitute products and there is no linking between them?
08:36 What’s the alternative? Is there a better approach we can take instead of using SKUs?
10:03 What we are saying is that each vertical should have a specific definition of a SKU which takes into account the key characteristics?
12:19 Have those industries where it doesn’t work moved away from using SKUs?
13:58 Why is it that, as an industry, we are still so happy to use them? Is it because it is so ingrained in ERP systems?
16:08 What is the advice to a Supply Chain practitioner? What should they be moving towards instead of using a SKU?
18:05 Is the concept of SKUs something that is here to stay?