What Is a Stock Keeping Unit (SKU)? A Complete Guide to Stock Keeping Unit Number
A stock-keeping unit (SKU) is a number that enables retailers to track inventory in a store. Using the SKU code on your products is vital to an excellent inventory management strategy. You can track stock demand, prevent losses, and boost your business sales.
Keep reading to learn all about stock-keeping units, including their definition, how to recognise them, and their differences from other product codes. This will also provide insight into how to customise your business store SKUs.
What’s a Stock Keeping Unit?
SKU comprises eight to sixteen alphanumeric digits created by retailers to identify, locate, and receive their product inventory. The number is a scannable barcode printed on products. The SKU code tracks the item's price, detail, manufacturer, and point of sale.
You can also apply SKUs to intangible but billable products like warranties.
Each product must have a unique SKU. Therefore, if you sell t-shirts in different colours, such as blue, red, purple, and grey, in small, medium, large, and extra large sizes, make SKUs for every variant. This means you will have eight SKUs.
The primary reason for having different SKUs for each variant is to avoid mix-ups during the picking process. If the SKU only identifies the colour, you may pick the wrong size.
Benefits of Using Stock Keeping Unit Number
SKUs are essential in every store, such as:
1. SKUs are industry standard
This number is the industry standard throughout the supply chain. An entrepreneur operating an SKU is like running a business without a site. Although you might be doing without an SKU currently, you will need it when a company expands or when you start selling on a multi-selling channel like Amazon.
2. SKU conveys information quickly
These codes are primarily used for communication by describing an item in a way that everyone can quickly understand. They serve as a shorthand that, if well done, communicates the exact product at a glance.
3. They help you to track inventory quickly
When using SKUs, you speed up the product search process because you can search and track the stock levels in a warehouse. This helps save time you could have used in searching and saving your business money.
4. SKU enhances accuracy in warehouse procedures
The SKUs help business owners to achieve accurate inventory management. This is possible because you can track your inventory electronically in several ways. For example, barcode scanning is 99.9% correct, which is more efficient than relying on warehouse workers to count inventory manually.
5. Enhance quality control
SKUs will help reduce miscommunication-related problems since everyone can read the Codes. Precise communication via SKU prevents misships and misspicks and ensures the correct order gets out every time.
How to Create an SKU?
Now that you’ve learned the importance of screws, let us walk you through how to create them.
1. Create format
When creating an SKU, ensure you use a standard format for all your SKUs. You should also decide what identifiers and numbers should be included in your SKU.
What will it include? The colour? What about the brand name? Or manufacturer code? Outline the attributes of your products and how to distinguish them from other products that need SKUs.
Here is a SKU example
Use alphanumeric SKU numbers to make your SKU code as descriptive as possible.
Creating an SKU now will save time when you make a new SKU because you will have an idea of what to include. You will also know how to read these SKUs since some attributes remain in the same place.
2. Create a coding system
When creating list codes for brands, manufacturers, colours, and sizes, use a spreadsheet to outline manufacturers and brands in one column and assign each a code.
For example
You must create another list of colours and sizes on your spreadsheet and learn how to abbreviate them.
For example, for sizes:
Example for colours:
The advantage of using standard identifier codes in your SKU is your employees will eventually memorise them, thus interpreting SKUs quickly. With such SKUs, you won't require long descriptive titles for your products because you will know the type of product by looking at the SKU.
SKU Naming Practices
There are no specific rules in naming your SKUs. However, there are several dos and don'ts that you should consider to make it easier at your warehouse.
Do’s
- Keep your SKU short
- Use dashes as letter separators
- Use identifier codes such as “L” for large and “PP” for purple
- Use a series of numbers and letters
Don’ts
- Don’t make the SKU too long
- Include special characters such as ampersands or asterisks because some programs may not recognise them.
- Spell every word, for example, dreamline-shirts- men-short-sleeved-shirt-blue-large-M36
- Don't use numbers that can be mistaken for letters. For example, don’t use letters such as O or I; they can be mistaken for 0 or 1.
Types of SKUs
There are different SKU types based on the company's use, but here are common SKU categories.
- Simple SKU: this is the most used type of SKU. It identifies one product without considering its variants like colour or size—for example, T-SHIRT-004.
- SKU with attributes: This type includes information about the item attributes like style, colour, size, and more—for example, T-SHIRT-L-BLU-004.
- Combined SKU: When selling products in bundles or packages, you can use a combined SKU to identify a specific combination of products. An example of such an SKU could be PACK001-T-SHIRT-004x6+T-SHIRT-006X6.
- Hierarchical SKU: This type can organise products in a hierarchy. It is mostly used in warehouses with a wide range of products—for example, PALLET-RACK-T-SHIRT-L-BLU-004.
SKU vs. Model Number
SKU and model numbers are different. The manufacturers generate the model number, but a retailer cannot modify or change it.
On the other hand, an SKU isn’t something a customer knows about because it's used for retail purposes only. Model numbers are useful to customers and are visible. You will find a similar product model number regardless of where you purchase the product.
As a customer, you should know the product's model number so they can contact the manufacturer for support if they encounter an issue.
SKUs vs. Barcodes
Barcodes are often confused with model numbers, but this code is assigned to each product.
Barcodes are also referred to as universal product codes (UPC). These are the scannable black bars and codes on every product you purchase. Every UPC is integral to a globally recognized system aimed at streamlining the movement of products across supply chains and point-of-sale transactions.
UPC barcodes enable most stores to scan your purchases using barcode scanners, eliminating the need for manual entry of product details or reliance on diverse codes that might differ from one store to another.
This means an SKU is an internal code a business generates for its inventory management, whereas the barcode is the same for products regardless of the store selling them.
SKU vs. Serial Numbers
Some people use the term model number interchangeably with serial number. However, these two numbers are different. Like the model number, the serial number is generated by the manufacturer, and retailers cannot customise it.
Unlike model numbers, each serial number excludes a specific product type and is not shared with other products within its model or elsewhere. Serial numbers are commonly assigned to electronic products like gaming consoles, cell phones, and kitchen appliances.
Customers can access serial numbers, and the manufacturer may request them when a customer returns or requests the product repair.
Uses of SKUs
How can you use them in your business after you’ve learned how to create and what SKU you may want? Here are its uses:
1. Analysis
You can use SKU to determine which products are selling and which aren't. This helps you to know how much of a particular product to restock based on what customers want more or less of.
This means you use the tracking data to project which products are top-selling so you can order more to enhance revenue. You can also reduce orders for slow-moving products to avoid overstocking. SKUs help keep your inventory manageable, saving you money and storage space.
SKUs give you more than just an inventory insight. You can learn valuable things about how customers behave, like finding out which products are frequently bought together. This helps you think about selling them together to boost sales even more.
2. Customer Assistance
With SKU, you can organise your products and make it easy to find them. This means you decrease customer waste time since you can pick and pack the products faster. The faster the deliveries are, the happier your customer becomes. SKU is important if you promise 24-hour delivery of your goods.
3. Inventory management
SKU codes simplify inventory management by enabling real-time tracking. Your employees can scan these codes when products come in and out of your warehouse. This will help you keep track of the quantity of every product in your store, even if you’re operating multiple fulfilment centres.
The advanced warehouse management system notifies you when the products run low. You can ensure your top-selling products don't run out by establishing reorder thresholds. This helps prevent customers from turning to other stores if something is out of stock.
4. Advertising and marketing
Some e-commerce business owners use SKUs when advertising their items to ensure their customers see the products they're selling.
You can also use SKU for anti-poaching measures. When you promote your product based on its SKU, your competitors won't see it since it isn’t public. This decreases customer poaching with discounts or lower prices.
5. Product recommendation
When using SKUs, it is easy to recommend a product. Your e-commerce platform can suggest additional products to your customers based on the products they've already added to their cart, either as upselling or cross-selling options.
Production recommendations appear on the checkout page before your customer makes their purchase. It can also “save” a sale by suggesting a similar product if the item the customer wants is unavailable.
Final Thought
Most businesses need SKUs because they help them track inventory, note how much they’re selling, and determine when to restock. The code will also help them identify how fast they sell specific products.
The SKU is a potent and flexible asset in warehouse management, aiding in inventory oversight, product arrangement, and well-informed decision-making. Through proficient use of the SKU system within a warehouse or a retail store, businesses can enhance their operational effectiveness, cut down on expenses, and deliver a more gratifying experience for their clientele. Do you have any questions on stock keeping unit? kindly contact one of our experts here.