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SKU Management 101: Here’s All You Need to Know

what are SKUs

Ankit

May 19, 2022 · 10 Min read

A robust automated inventory management system is as crucial to customer experience as the quality of the product itself. If a high-quality product falls prey to logistical failures, it can still hamper a customer’s experience. 

If you’re in the retail industry, the chances are that you might have come across the acronym ‘SKU,’ popularly pronounced as ‘skew.’ 

SKU is a product code, usually alphanumeric, that you assign to your inventory stock to manage and track sales by product and category, multi-channel listings, invoices, and orders. In offline retail, SKU management enables you to design store layouts and flow more efficiently to elevate a customer’s shopping experience. Retailers create these codes based on the criteria that are most relevant to their business.

There are many uses and benefits to SKU management. However, despite being a colloquial retail term, not many people are aware of how SKUs work. This is especially true for many business owners who have just started out in the eCommerce market. 

So, whether you’re a seasoned retail giant or a budding business owner, run large-scale operations, manage a limited inventory, own an offline retail store or an e-marketplace, you will most likely be aware of the importance of an efficient SKU management architecture to run your business. 

To learn more about SKUs, keep reading this comprehensive guide to SKU management. 

What is an SKU? 

As we understand what SKUs are, let’s start by answering the burning question – what does SKU stand for? SKU stands for ‘Stock Keeping Unit.’ Any warehouse or inventory manager could immediately relate to and elaborate upon the importance of SKUs. 

An SKU or Stock Keeping Unit is essentially created as a unique identifier for the different products that a retailer deals with. SKU codes are often characterised by the features of the products sold by a retailer, fundamentally segregated based on classification and category. 

For instance, let’s consider Amazon has several sections – menswear, womenswear, electronics, home, accessories, etc. So the SKUs for their products may be classified as the clothing across the categories – menswear (denoted by M), womenswear (denoted by F), and electronics (denoted by E) – all at the e-retailer’s discretion. 

Let’s now follow the second burning question – how can you use SKU numbers?

SKU numbers don’t just revolve around tracking. There’s a lot that effective SKU management can help you accomplish: 

Trend analysis and forecasting: Retailers can easily collect and analyze data, sales trends, product performance, or seasonal fluctuations in the demographics they cater to using SKU management. As a result, retailers can better anticipate consumer needs and optimize their inventory accordingly so that their stock overlaps the ongoing consumer demands. 

Inventory management: If inventory management is the backbone of a business ecosystem, then SKU management is the backbone of an inventory management system. SKU management enables retailers to track inventory levels, movement, and sales to ensure a smooth end-to-end flow. With inventory management software like Sumtracker, you can use SKU codes to set low stock alerts that get triggered whenever the level dips below the minimum threshold. 

Customer support: SKU management can help retailers identify stock alternatives for consumers seeking a swap. A quick SKU scan makes the job much more efficient, thereby amplifying customer satisfaction. 

Personalised marketing and advertising: SKUs are a boon for marketers too. SKU management enables marketers to send out product recommendations for similar products when a consumer is surfing an online store. Additionally, you can compare and analyze how your marketing or ad campaigns performed for a particular product or service, corresponding with the sales. SKU management also gives your products an edge over your competitors – by advertising your SKU number instead of a generic model number, you can safely track information without prompting potential leads to review competitor deals. 

SKU Management: Understanding SKU Numbers

An SKU typically consists of an alphanumeric string of eight characters that helps vendors maintain an optimum inventory level. With an SKU label and an automated inventory management software, retailers and vendors can easily track their inventory movement. 

Warehouses, fulfillment centers, e-stores, brick and mortar stores, catalogs, and service providers – all use SKUs to manage their inventory stock systematically. For a retail store, a quick SKU scan at the Point of Sale can successfully facilitate the job of a store manager or supervisor. They can use the SKU codes to keep up with the stock levels and identify the need for restocking in the early stages, thus avoiding a stockout. 

Normally, when a customer makes a transaction at the Point of Sale, managers scan the SKU barcode for that product. The system automatically removes the item from the inventory as soon as the code is scanned. 

Plus, if you’ve integrated with an inventory management system like Sumtracker, you won’t have to worry about manually syncing the listings across other inventories. Sumtracker auto-syncs your inventory levels for all your eCommerce channels so that you don’t spend your precious time crunching numbers. 

When you add an SKU code to the products in your inventory, tracking the stock quantity becomes much less cumbersome and error-free. Storeowners can create low stock alerts so that they can make purchase orders as soon as there’s a dip in the stock levels below the threshold limit. 

Retailers create SKUs based on the products and services they offer. For instance, consider an interiors store like IKEA, which deals in furniture and lighting – sofas, lights, and beds is likely to create SKUs that denote the characteristics of the product – such as classification, category, and style, brand, manufacturer, etc. So the SKU may look something like this: 02-SO-6S-IKE, where 02 is the classifier denoting ‘furniture,’ SO denotes ‘sofa,’ 6S denotes the style’ 6 seaters’, and IKE is the brand or manufacturer ‘IKEA.’ 

What is an SKU Number and How to Create One?

SKUs help you generate crucial data about sales trends and inventory activity that you can use to strengthen your vendor relations and customer experience. Creating an effective SKU architecture is the key to deriving the data. 

Most retailers rely on their inventory management system and POS since it is the easiest way to generate SKU numbers. Although, if you’re running short on time and have several products to cover, you might want to try online SKU generators. 

While smaller retailers can create SKUs as needed by hand, if you’re a retailer with a rather large inventory to look after, there may be scope for error in your hand-generated SKUs.

Next, let’s dissect and examine an SKU number in sections.

First part: This part of the SKU defines the broadest classification. For instance, the first could denote the supplier, department, or category in a multi-tiered retail store. Conventionally, there are two or three alphanumeric characteristics associated with this.

Middle part: The first part is followed by categorization based on salient product features such as style, brand, size, color, etc. 

Last part: The last part can be a string of two to three characters, serving as a sequence identifier. Depending on your needs, this part can be designed such that it tells you the volume of stock for this specific product in your inventory or the order in which you purchased and processed this item.

Consider these SKU examples

Here’s a sample SKU set from an online multi-brand shoe store like JD Sports or Sports Direct to help you understand the anatomy of SKUs:

First Identifier Style Size(US) Gender SKU
Adidas AD Continentals CO 07 FF AD-CO-07-FF
Nike NI Jordans JO 11 MM NI-JO-11-MM
Superga SU Cotu CO 06 FF SU-CO-06-FF
Vans VA Old Skool OS 11 MM VA-OS-11-MM
Converse CO Chuck Taylors CT 08 FF CO-CT-08-FF
Puma PU Smash SM 07 FF PU-SM-07-FF

We hope this simple exercise helped you understand SKUs a little better. Here are some things to keep in mind pertaining to the SKU naming convention: 

  • Keep the identifiers unique yet straightforward. 
  • Anything between 8 and 12 characters is ideal. 
  • It is best to avoid special characters (!,@,$, or %) in SKUs. 
  • Using the first two letters is the easiest way to form initials. 
  • Research the most shopper-for product features to entice customers. 
  • SKUs should never begin with a zero. It’s challenging to work with SKUs in Excel if you start with a zero since it drops the first character.
  • It would be best to avoid ambiguous characters. Many letters, such as I, L, and O, can be mistaken for numbers.

SKUs Vs. UPC

Is SKU the same as UPC? The short answer is no. 

Many people confuse SKUs with UPCs because of the similarities in their naming conventions – but they are both different functions of a product. SKUs are typically internally generated codes that facilitate the process of inventory tracking and overall warehouse management. 

The data derived from the various SKUs helps marketers design campaigns without prompting interference from other retailers. For instance, if stores provide a particular SKU code in their ad, customers cannot hunt for the same product at different stores based on the SKU alone. That’s how SKUs prevent competitors from matching your advertised rates and poaching your potential customers. 

On the other hand, UPC, or Universal Product Code, is a 12-digit numeric code that denotes just the item and its manufacturer. UPCs are universally assigned codes generated by the Global Standards Organisation and are consistent across retailers, unlike SKUs, which are uniquely generated by retailers for each product. When differentiating a UPC code from an SKU number, check for the number of digits – UPC is always a 12-character code, while SKUs can range between 8 and 12 characters. 

SKU and Barcodes

SKU Vs. Barcodes

SKUs are unique to each product of each retailer or seller. On the contrary, barcodes are patched with all products alike, regardless of whether they are sold. A barcode is essentially a machine-readable code consisting of a pattern of parallel lines of different widths. Retailers scan barcodes at the POS when a customer is completing their purchase. Some retailers use UPC and barcodes interchangeably – however, both accompany an SKU number.

SKU Management with Sumtracker

An automated inventory can alleviate your inventory management efforts by 90%. Automation makes your tasks systematic and logical, but it also rules out the possibility of human error, ensuring the accuracy of data. All you need to automate your SKU management is POS and an inventory management software like Sumtracker that automatically syncs your multi-channel inventories. As soon as a customer makes a purchase, inventories and SKUs across all sales channels will be synced automatically in real-time. Additionally, Sumtracker offers sales reports and forecasts that help you stay on top of your inventory so that you can capitalize on the merchandise that sells. Get low stock alerts as soon as your stock levels dip below the threshold limit so that you never experience a stockout. 

Pic Credits: Barcode scanner photo created by jcomp – www.freepik.com

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