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What is SKU? Why is SKU important for Inventory Management

 

Variety of products – Too much inventory – Tough to identify & track inventory?

Don’t fret – use SKU!

Wonder how does SKU system help?

  1. Identify each of your products uniquely
  2. Fasten warehouse operations
  3. Avoid human errors

Next – one might wonder what is SKU about and how does it help to achieve the above results? So let’s dive into the details of SKU and know what are the best practices to manage inventory using SKUs.

 

SKU meaning

SKU (pronounced “skew”) stands for ‘Stock Keeping Unit’. It is a product code, usually six to nine characters long, created by the seller using the combination of letters and numbers (or just letters) to distinguish one product from finite others.

→ SKUs also called as item identification numbers or item numbers. Some businesses use names like ‘part numbers’, ‘model numbers’, ‘product codes’, etc. Whatever you call them, they are important since you or your system need to uniquely identify an item, so you can effectively account for its activity and whereabouts within your inventory.

→ SKUs serve as a shorthand: for longer item descriptions. Instead of entering an entire name or description for an item, you can use a much shorter SKUs. This speeds up the process of data entry, inventory managementand point-of-sale.

→ What SKUs denote: The numbers, alphabets or abbreviations in the SKU may denote a multitude of attributes of a product like product type, brand or manufacturer, description, model, batch, color, size, supplier, packaging, warranty terms, etc.

 

SKU example: Each product or group of same products will have the same SKU: for e.g.: i.e 10 pieces of 42-sized blue color V-neck Puma t-shirts can have SKU: PU-VN-BLU-42.

SKU & inventory: SKUs can be easily read by seller and his/her team members or can also be rendered as scannable barcodes to make it quicker to trace incoming or outgoing inventory.

 

SKU Vs UPC : They are not the same!

SKUs, unlike UPC, are unique or local to an organization and thus serve ONLY as internal use codes. This means that a product with same UPC can be saved as two different SKUs by two different sellers. In fact, not every product has a registered UPC but can have a seller-coded SKU.

Let’s explore the difference “big difference” between SKU & UPC:

SKU_UPC

For business in some countries, you may need to use a special 13 characters UPC called an International Article Number (IAN) or European Article Number (EAN).

There are a lot of retailers who use UPCs as SKU number, however. generally, it is advised not to, as both convey different information, and that too differently. Sellers, especially those who make their own products and are not registered to GS1, may find it beneficial to create their own SKU system.

 

Why are SKUs important for your business?

Having an efficient SKU system helps the store owners or businesses to manage and plan their inventory in multiple ways.

  • Be better prepared for multi-channel selling and universal standards

For multi-channel selling especially through 3rd party marketplaces like Amazon, eBay, inventory handling using SKU becomes a necessity. For selling on Amazon, either you or Amazon can choose SKU.

 

  • Have information available in a flash

SKUs, if set properly, help in unmistakably identifying what the product is, thus making your and your employee’s task to pick, pass and track stock easily.

 

  • Fasten warehouse operations with accuracy

SKUs come in handy at various stages of inventory like stocking, picking, packing and shipping. Item search and tracking becomes easier with SKU barcode scanning which is close to 100% accurate.

 

  • Cut human-borne errors

Tracking products using SKU numbers ensure that your inventory and related data like pricing, stock count etc is always spot on. It also prevents errors like mispicks and misships, and thus you can make sure that orders go out correctly every time.

 

  • Improve customer shopping experience

When customers check out, sales is noted counting the SKU with the correct pricing and thus your on-hand quantity gets automatically synced. Also in case you or your customer is unable to customer find an item at the store, a quick search through SKU codes in your POS stock status can help you quickly locate the item.

 

  • Avoid overstocking and under-stocking

If you organize your stock using SKU numbers, it’s easier to track overstock or low stocks or no-stock situations just by having a look-up to stock reports based on SKU codes.

 

Now that we know stock keeping unit (SKU) system for our business makes a lot of sense, let’s see how you can set up SKUs for your products and what are the best practices to manage SKUs.

 

How to set SKUs?

Well, there’s no universal system, as we read above. Any seller can have his or her own convention rules to set up SKUs based on necessary and differentiating attributes. SKUs can be created manually or using an SKU creator or with an inventory management software or POS software – depending on the size of your inventory.

Here’s how you can go about creating SKUs (don’t forget to add points that are particular to your business):

 

Know the limitations

Some marketplaces allows limited number of characters in an SKU. For example, Amazon limits the SKU code to 40 characters. If you use inventory or POS systems, you can check with the developers to find if there is a limit to the SKU. Even if there’s no limit, a lengthy SKU may cause problems when exported or imported into other systems, and you may lose vital information.

 

Create a format

Create SKU Format

You need to create or format or standard convention for all of your SKUs. Decide what identifiers and numerics to be included in your product SKU, and in what order. Choose from the various attributes of your products to be included.

 

Pro-tips:

1. Start SKU with a Top-level Identifier: It can be code or number for store location or even a brand/manufacturer.

2. Use the middle numbers as Unique Identifiers: With this, you pick unique features, such as size, color, gender, product category or subcategory, whatever makes sense in organizing your products.

3. Finish SKU with a Sequential Number: You can use sequential numbers like 001, 002 to end the SKU codes, making the setup easier. It can be coded as per product size if needed or as per the product batch or date-of-use to help you identify older versus newer items. You may also want to tie the final series of an SKU number to the supplier codes.

4. Be smart with the selection of attributes: Say if you are selling on only one brand products, you will have no need to include the brand name (obviously, right?). So is the color important or is it the size, or the utility or the product category, or something else? You need to create a format considering ALL your products (not some) and their distinguishing factors.

–        Sometimes you might want to use attributes like year or season to help you narrow down the search to the specific collection, rather than less important attributes like color and size.

–        Be specific of what is the most primary attribute

 

Here are some examples of attributes and SKU based on format:

Manufacturer/brand identifier, collection identifier, category identifier, raw material identifier, gender identifier, color identifier, size identifier, etc

Adidas’ Summer Collection Men’s Leather Shoe Size 9 – ADSC-M-LTSH-BK-9

 

Define a coding system

Prepare and maintain a list of codes for things like manufacturers, brands, colors, sizes, etc. You might also want to decide how many alphabets of each attribute or identifier should be feasible and easier to use. You and your employees need to memorize them, and eventually be able to read and interpret product SKU quickly. Avoid to keep long codes for every attribute, else you’ll end up creating SKU number which is even longer than their actual description!

SKU_Robots

 

Here are some examples of codes:

 Brand name – 2 alphabets (or 3, maybe)

Adidas            – AD

Puma              – PU

Woodland     – WL

 

→  Size – 2 alphabets

Medium         – MD

Large              – LG

Small              – SL

Or simply use exact numeric sizes – like 7, 7.5, 41, 42 etc

 

→  Colors – 2 or 3 alphabets

Black               – BK

Blue                 – BL

Red                 – RD

Yellow             – YL

And so on…

 

→  Codes for product category identifiers. For example:

Cereals            – 01

Sauces            – 02

Breads             – 03

Biscuits            – 04

 

Try Orderhive’s FREE SKU generator

 

Best practices to manage SKUs – the Do’s and the Don’ts

Different companies will follow different practices to assign SKU to their products. However, there are some best and easy practices that can universally followed to create and manage product SKU for smart inventory management. Below are a few of them:

 

Don’ts for managing SKUs

  • Never start a SKU with a ZERO, unless you are forced to do so by something out of your control.
  • Don’t include number-like letters or letter-like numbers: Simply avoid numbers such as 0 (looks like “O”) and 1 (looks like “l”), and likewise, avoid culprit letters like O, I, and L.
  • DO NOT use a manufacturer’s serial number or SKU in your SKU. These numbers are often too long and cryptic. Plus, such SKUs become meaningless to your organization in case switch suppliers, or if the manufacturer changes their number
  • Do not load item numbers with meaning. Do not try to use the SKUs to describe your product, unless you are really needed to. Save this information for the item description.
  • Avoid starting the product SKU with characters such as “/” or “*” or “,” since these symbols may be mistakenly read as formulas in programs such as Excel. See if your brain can decipher something like this: X$%U-xO0*-QU%1!
  • Never reuse an SKU (even if a product is discontinued) and make sure each product comes with a unique SKU

Do’s for managing SKUs

  • Try to keep your SKUs simple and alphanumeric where possible. The more simple SKU it is, the better for everyone!
  • Keep SKUs short, but not so short that they end up being mistaken for other attributes (like quantity). 4 to 9 characters should suffice for most organizations.
  • Consider using a few letters to begin the SKU. It becomes easier to scan or search for items in the lists, and distinguish one SKU type from other SKUs. Letters also greatly increase the number of possible SKUs you can have while keeping the overall SKU length as short as possible. For example, for an item “Notebook, 100 pages”, you create SKU as “NTB100”, while for “Notebook, 200 pages” would be “NTB200”, etc.
  • Longer SKUs may be advantageous if you have lots of products OR if you use just a few SKUs but want them to provide more information.

 

SKU for Amazon:

  • Some Amazon sellers use UPC codes and warehouse locations their SKUs.
  • Amazon sometimes recommends adding a listing date, the condition of the item and the cost price you paid
  • For instance, if you create a SKU for a black leather briefcase that’s sitting in your Washington warehouse and the listing is set to appear on June 1, it might look like this: LBCASE-Blk-New-WTN-June01

 

Remember: Good SKUs Will Make Your Life Much Easier!

 

Some Good SKU Code Examples:

PUMA Wallet Red Small – PMA-WAL-RED-SMA

DELL Monitor, 2019 Model, Black color, 21 inch – DEL19-MON-21BL

Adidas sports shoe size 8 white color –ADI-WHI-SS-08.

Spring 2018, Flower Tee, Small, Red – S18T-FLR-RS

Baskin-Robbins Strawberry Cake and candles, 1-kg weight SKU would be –1K-BRSB-CKC

 

SKU and Inventory Management Software

Inventory management software (cloud-based) is becoming a prime necessity for multi-channel sellers, brand owners as well as multi-brand sellers. It helps you with syncing of inventory across channels, keeping you updated on stock levels in real-time and streamlining entire order fulfillment processes. With such tools, most of your work becomes automated, tasks are simplified and processes & actions are saved/noted for any future reference.

Inventory management tools also store and track products based on SKUs. And this is how you can use SKU in inventory management software:

  • Create SKU codes for your products.
  • Create and print SKU barcodes for your products.
  • Bulk-map your product SKUs codes to your supplier SKUs for timely reordering of products.
  • Bulk map your product SKUs to the third party marketplaces SKU like Amazon, Flipkart, Magento, etc. These may or may not be the same for the same product.
  • Once you have mapped your SKU code across channels, inventory and prices are automatically updated across all sales channels (online and offline) in case of a sale or manual reset of the system.

 

 

Final Steps

Take complete charge of your inventory NOW by taking these actionable steps:

  1. Prepare formats, codes, and name your SKUs.
  2. Implement a system to continuously name new SKUs, label, track them in your warehouses and at points of sale. Be consistent.

You see, SKU system will not just make your and your team’s life easier, but also make your business more efficient to match up to the global standards and marketplaces. With SKUs, inventory handling and tracking won’t be a daunting task anymore. Yes, the initial steps will consume some efforts, but surely your business is worth it!

Upma Kanswa

Upma Kanswa

Observer of small things. Hasn’t been able to choose between mountains and beaches yet. Chose written words to express herself. Writes and edits for Orderhive, which is simple & smart inventory management software.

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