What is an SKU? How Does It Help Inventory Management?

Inventory management is essential for businesses that deal with large volumes of products. Without a system like SKU numbers, inventory management becomes chaotic. It leads to order fulfillment issues, lost sales, and dissatisfied customers. It wastes time and can damage a company's reputation.  SKU numbers are an easy way of identification and inventory management. They help retailers find products in the shortest possible time. They ensure consistency in stock placement and further categorise products based on their characteristics. If you have an E-commerce website or a brick-and-mortar store, SKU numbers can make your life much easier and process orders faster. Let us learn what SKU numbers are, how to create them, and how to use them effectively when managing inventory.

What is a Stock Keeping Unit (SKU)? 

A Stock Keeping Unit (SKU) is a scannable code that retailers use to track specific products. In other words, each item in your inventory management system has a unique SKU. 

SKUs are usually 8-10 characters long and consist of letters and numbers that represent various characteristics of a product, such as price, manufacturer, colour, size, etc.

Unlike other product codes, SKUs are generated by the business owner themselves. They can be tailored to meet specific requirements from both suppliers and customers, allowing for more accurate inventory tracking.

Why is it important to implement a SKU system in a business?

SKUs are convenient for store owners and help them manage several important functions related to inventory, sales analysis, customer service, and marketing.

Inventory Management and Tracking

SKUs improve the accuracy of inventory management and warehouse operations by making it easy to see how many of each type of item are in stock or sold. They also help retailers find specific things, especially when they organise and visually manage their inventory based on SKUs. In addition, SKUs help identify losses. For example, if there is a difference between the number of items in stock and sales, it may be due to theft or misplacement.

Sales Data Collection and Analysis

SKUs provide an easy way to track sales data. Because SKU numbers are listed on invoices or receipts, it is very easy for retailers to analyse how many items each retailer sold in a particular period. It allows for accurate analysis of popular and profitable products and gives an overview of seasonal sales performance.   While SKUs are not strictly required, using them allows for consistency and efficiency which is hard to achieve. Using SKUs allows for quick analysis of issues using uniform shortcodes, which is quite different from trying to track items based on various descriptions.

Promotes Customer Support and Satisfaction. 

SKUs are a trusted reference for employees searching for products in inventory or catalogues, which improve customer service and shopper expectations. For example, if a customer sees something online and goes to the store, a store associate can easily use that SKU from the online listing to find that same item in the store.

SKUs also ensure convenient reordering. Customers can search for the SKU or ask a staff member to process a new order, eliminating the need to repeat a previous search. It makes life a lot easier for wholesale and B2B customers who place bulk orders and need to track products through their enterprise resource planning (ERP) systems.

Supporting Marketing Strategies

SKUs are also beneficial for marketers. They can be used to recommend similar products online or to track sales of specific items within marketing campaigns. Because each company has its own SKU, customers cannot use it to compare products from different stores. For this reason, it is safe to include SKU information in your marketing materials to prevent potential customers from simply checking out a competitor's product.

How do you create SKU numbers?

The best SKUs aren't just random numbers, but are made up of small parts that provide important details.

• Most SKUs start with a two- or three-digit code that identifies the department or category of the product.
• The second part describes the size, colour, subcategory, etc.
• The last part is a unique number.

It makes each SKU unique and useful. For example, employees can roughly identify where an item belongs based on the SKU. Tips for creating SKUs:

• Use short, standard codes for colour, size, etc. Ex: "rd" for red, "xl" for extra-large.
• Keep the codes short, but clear.
• Make sure the codes don't overlap. For example, "lge" refers to both "large" and "lounge." Follow the same process for all products to make them easy to find in your inventory. 

Because SKUs need to be unique for each product, it's not practical to create them manually. Instead, use a warehouse or POS system that automatically generates SKUs.

Conclusion

In summary, proper inventory management gives your business insight into sales patterns and ensures stock is replenished. It also helps determine the cover for your items. A well-structured SKU system makes inventory management easier and enables automation.

A SKU architecture that meets the needs of you, your suppliers and your customers while focusing on the product features that really matter will enable you to manage your inventory efficiently and support the growth of your business.