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Stock Keeping Unit (SKU): Definition, Best Practices, Example, and Benefits
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September 8, 2020What is an SKU?
The Stock Keeping Unit (SKU), often around 8 alpha-numeric digits, helps retail stores keep track of the items and their variants in the inventory.
Moreover, it lets a retailer know if he has the right products in stock when he needs them. After that, It helps to present physical inventory items in a way that employees and computers can understand and track.
In common parlance, it is also known as item code, item ID, item number, etc. SKUs are shortened versions of item descriptions. Therefore, they are more popular as item descriptions tend to have a longer length. Consequently, SKUs help quicken the data entry, inventory movement, management, and Point of Sale.
Most importantly, SKU numbers can be created manually by using merchandise management or through the point of sale (POS) software. After that, they are printed on the product’s label along with the Universal Product Code (UPC) and other information about the product.
Unlike UPCs, SKUs can be designed per the retailer’s specific needs as they are not universal.
Stores, e-commerce vendors, warehouses, supermarkets, product fulfillment centers, and businesses dealing with inventories use SKUs. As a result, eCommerce giant Amazon uses SKUs extensively, requiring SKUs to be part of the inventory file that a seller submits to it.
SKU Benefits:
- SKUs help differentiates one product from another.
- SKUs help in quickly searching for a product.
- It helps to reduce errors in product warehousing and shipping.
- Enables you to optimize your management of the product catalog.
- Assists in inventory tracking, management, and various analyses related to inventory and sales.
- It makes it easy to analyze customer behavior.
- Properly generated SKUs result in raw material and packing material cost savings.
- SKUs help in sales forecasting and production planning.
- Helps in analyzing current trends and remarketing the products on social media platforms.
- SKUs help in providing a world-class in-store experience.
- It helps define a robust inventory management mechanism to avoid out-of-stock situations.
- SKUs help in knowing the exact location of the product.
- SKUs help in reducing the instances of inventory shrinkage.
- It helps optimize inventory carrying costs as it makes it possible to identify slow-moving items.
- It helps in improving the inventory turnover ratio and decreasing deadstock.
- SKUs help group the products and inventory management by the ABC analysis method.
Differences Between the Stock Keeping Unit (SKU), Serial Numbers, and Universal Product Code (UPC):
- SKUs are internal, whereas UPCs are external.
- While SKUs vary in length between 8-12 characters, UPCs are always 12 digits.
- Stock Keeping Unit identifies the product characteristics while, on the other hand, the Universal Product Code identifies manufacturers and items.
- SKUs are alpha-numeric, and UPCs are numeric.
- While the Global Standards Organisation (GS1) issues Universal Product Code, SKUs are determined by the retailer and accompany a barcode.
On the other hand, Serial Numbers are used to tracking the product’s ownership and get the warranty information.
Barcode numbers on a group of products may differ for each product if one wants to provide them with a unique identity. However, SKU numbers remain the same to establish that they belong to a specific product group. Therefore, 1000 television sets of the same size and features will have the same SKU, whereas their barcode and UPC numbers will differ.
SKU Management Best Practices:
Points to Note while Generating and Maintaining SKUs:
- Try following a scheme starting with letters as it helps numbers stand out in a spreadsheet and allows them to differ in the pool of data visually.
- The initial letters of an SKU should be represented by the most important attribute of the product.
- SKU Numbers should not begin with zero as some software might consider zero values as null and remove them.
- The SKUs should not be aimed at being relevant with respect to the meaning, as they might end up forming very long numbers.
- Never use numbers that look like letters – ‘0’ can look like ‘O’ and confuse the person handling inventory.
- Decide upon a convention and follow it in naming all the products. The classification you decide should be maintained with uniformity to ease understanding.
- Try making SKUs short in length and of the same length to find more consistency in your database.
- Never use special characters while coding the SKUs as they may confuse the computers.
- As far as possible, avoid using seller SKUs as they are meant to be customized as per one’s own requirement.
SKU Coding Scheme:
SKUs can be made of details like:
- Gender for which the product is intended
- Brand of the product
- Category of the product
- Size of the product
- Colour of the product
- Type of the products
- Name of the product
- Pricing
- Department code
Stock Keeping Unit (SKU) Example:
For example, an apparel store can design its SKUs considering item characteristics like item type, item size, item material, and item color as follows:
Why are SKU Numbers Important?
1. Accurate Inventory Control:
At times, Inventory Management Software can be a tricky thing to manage. Furthermore, while overstocking on a product can lead to cuts in profits due to increased carrying costs, on the other hand, running low on stock of products can lead to a loss in terms of potential business.
In short, stock-keeping units help maintain inventory records up to date, enabling you to maximize profits and achieve the business goal.
2. Forecasting of Sales:
Having a proper database and record of physical products with the help of stock-keeping unit numbers helps you forecast your sales better. In short, you can easily see which products are selling well, selling fast, or probably selling slow. With all such data, it becomes easy to anticipate and maintain the stock requirements accordingly. After that, you must analyze products strategically. After that, you can take the required steps to help foster sales.
3. Facilitating Quick Shipment:
Once an order has been placed, a timely shipment is essential. As a result, keeping track of inventory is a very important step. Therefore, SKUs make this very easy.
They help warehouses find the required product quickly. Moreover, warehouse keepers can find the exact product with accuracy. Meanwhile, products that have multiple variants can be sorted soon and placed in the warehouse on the basis of SKUs. Above all, whenever a particular product is needed, the database can be checked, and the exact location of the product can be known. As a result, this saves the hassle of finding products in big warehouses and helps in shipping orders as quickly as possible.
4. Better Customer Service:
The customer service teams and physical-store sales teams can quickly locate the products for which queries have been brought up by the customers.
As a result, repeating orders, finding a product, and comparing product features are all made easy for customers by SKUs. In the case of vendors, they can quickly present to customers their needed products when SKUs are in place.
5. Earning Greater Profits:
Stock Keeping Unit Numbers can help you maximize your profits. Furthermore, they help you know the products that are selling the most. Therefore, you must take strategic actions to maintain sales levels. Proper positioning of the products on both offline and online platforms to increase customer focus can be done. After that, SKUs help provides suggestions for ‘related products’ while making sales. Product suggestions help increase sales and, thereby, profitability.
Role of SKUs in Retail:
Role of SKUs in Supply Chain Management:
Ari Retail POS Software automates the task of SKU generation and saves time and cost. Moreover, one can select the product characteristics that one wishes to have in the SKU coding scheme. Moreover, with the touch of a button, you can generate the required SKUs and corresponding barcodes. Check out https://youtu.be/ieDSHmIblrs and https://youtu.be/xh6cmiXT_iU to know the step-by-step procedures to generate SKUs using Ari Retail POS System.
SKUs are important for everyone, including suppliers, retailers, logistic companies, and customers. As a result, they help manage inventory efficiently, allow tracking and analysis of sales performance, and provide a better customer experience.
FAQs:
Both are similar. Just that the SKUs are interpretable by humans, whereas barcodes require a scanner.
In short, SKUs of a product group having the same characteristics will have the same SKU, whereas Serial Numbers are unique for each product.
In order to create a SKU,
1st step: Identify product characteristics/attributes that you wish to track (Say, Colour, Size, Gender, Material, etc.)
2nd step: Assign an alpha-numeric code to each characteristic
3rd step: Link all such codes in a series, and you are done!
Retail stores of all types, fashion retail, shoes, jewelry, pharmacy, sporting goods, gift shop, or eCommerce giants like Amazon, use SKUs for inventory management.
SKUs help identify stock on hand, in-transit, and sales performance of items. Retail stores using point of sale systems and eCommerce platforms can also recommend related products to customers using SKUs.
Say, a customer wants to buy a medium-sized T-shirt with a round neck. When the item is punched onto a POS, the POS system can recommend that the same T-shirt is also available in white and blue colors. The same is true for eCommerce platforms.
