Here is an article explaining what it means to have a hierarchical SKU structure, why you might want one, and how it differs from a traditional SKU structure.
Depending on your industry, it could prove extremely valuable to have a hierarchical SKU structure.
Hierarchical SKU Structure
A hierarchical SKU (Stock Keeping Unit) structure organizes products into a multi-level system where each level represents a specific category or characteristic of the product. This type of SKU system is akin to a family tree, where each branch represents different product details:
- Style: The first level of the hierarchical SKU, which typically represents the broadest category of the product, such as a functional product (a laptop, for example in Electronics) or a design (women jeans for example in Apparel). The style defines the general type or function of the products grouped under it.
- Substyle: The second level within the hierarchy, which refines the classification further within the style category. For example, under the "laptop" style, a substyle might be "color," providing a more specific grouping under the broader category.
- Product SKU: The third and most detailed level, which specifies individual products under a substyle. This could include specific attributes like size, CPU, model, etc.
Advantages:
- Detailed Organization: Allows for intricate organization of inventory, making it easy to track products according to various attributes (style, substyle, brand, model, etc.).
- Enhanced Reporting: Facilitates detailed reporting and analytics by different segments, enabling better stock management and planning.
- Improved Inventory Control: Helps in identifying trends at multiple levels, from broad categories to specific items.
- Efficient Product Content Management: Enhances the management of product information by sharing common attributes within the same style or substyle, reducing effort and ensuring consistency.
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Enhanced E-commerce Cataloging: Structures e-commerce catalogs to maximize product exposure, improving navigation and increasing the likelihood of customer purchases.
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Streamlined Wholesale Order Entry: Boosts efficiency in wholesale sales order entries, allowing quick selection and bulk processing of products within the same style or substyle.
Traditional SKU Structure
In contrast, a traditional SKU structure often utilizes a flat or linear system where each SKU is unique but doesn’t necessarily convey detailed hierarchical information. Each SKU in a traditional system is generally independent of others, and while it may include information about the product, it does not inherently show its relationship to other products. For example, SKUs might be a simple series of numbers or letters that need to be looked up in a database to find related information.
Advantages:
- Simplicity: Easier to set up and manage due to its straightforward nature.
- Flexibility: Less rigid in how SKUs can be structured, offering adaptability to various business needs.
- Quick Setup: Ideal for smaller businesses or those with a limited range of products.
Also: Two-Level Hierarchy
In addition to the three-level hierarchical SKU structure described above, there is also an option for a simpler two-level hierarchy:
- Style-SKU: This configuration involves only two levels—Style and Product SKU—eliminating the Substyle level. This structure is beneficial for businesses with less complex product lines or those that require a streamlined approach to categorization. For example, a business that deals exclusively in specific types of products, like custom t-shirts, might find this structure sufficient.
Key Differences:
Complexity and Depth: Hierarchical SKUs provide a detailed breakdown of product categories and attributes within the SKU itself, whereas traditional SKUs are simpler and lack this layered detail.
Information Accessibility: Hierarchical structures offer immediate insight into the classification of a product just by looking at the SKU, unlike traditional SKUs that may require additional reference to understand.
Scalability: Hierarchical SKU structures are better suited for larger businesses with extensive and varied product lines or SMBs selling complex product types, facilitating growth and expansion.
Understanding these three SKU structures helps users of an ERP system choose the one that best fits their business model, providing the necessary tools for effective inventory management and operational efficiency.
It's important to note that DigitBridge offers the flexibility to implement any of these hierarchical structures—whether it's the detailed three-level hierarchy (Style, Substyle, Product SKU), the simplified two-level hierarchy (Style, Product SKU), or even a traditional flat SKU system. Users can even use more than one structure if different segments of your inventory require different approaches.