Stock Keeping Unit (SKU): Definition, Best Practices, Example, and Benefits
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September 8, 2020What is a SKU?
The Stock Keeping Unit (SKU), most often being around 8 alpha-numeric digits, helps retail stores in keeping track of the items and their variants in the inventory.
It lets a retailer know if he has the right products in stock when he needs them. 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, and hence they are more popular as item descriptions tend to have a longer length. SKUs help quicken the data entry, inventory movement, and management and Point of Sale.
SKU Numbers can be created manually by using inventory management software or through a point of sale (POS) software. They are printed on the label of the product along with the Universal Product Code (UPC) and other information about the product.
Unlike UPCs, SKUs can be designed as per the specific needs of the retailer as they are not universal.
SKUs are used by stores, e-commerce vendors, warehouses, supermarkets, product fulfillment centers, and businesses that deal with inventories. Ecommerce giant Amazon uses SKUs extensively, and it requires SKU to be part of the inventory file that a seller submits to it.
SKU Benefits
- SKUs help differentiate a product from another
- SKUs help in quickly searching for a product
- Helps to reduce errors in product warehousing and shipping
- Enables you to optimize your management of the product catalog
- Assists in inventory tracking, inventory management, carrying out various analysis related to inventory and sales
- Makes it easy to analyze customer behavior
- Properly generated SKUs result in the 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
- 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
- Helps in optimizing the carrying costs of inventory as it makes it possible to identify slow-moving items
- Helps in improving the inventory turnover ratio and decrease deadstock
- SKUs help in grouping the products and inventory management by 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 for tracking the ownership of the product and getting the warranty information.
Barcode numbers on a group of products may differ for each product if one wants to provide them a unique identity, but SKU numbers remain the same to establish that they belong to a specific product group. Therefore, 1000 televisions sets of the same size and features will have the same SKU, whereas their barcode number and UPC number 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 a SKU should be represented by the most important attribute of the product.
- SKU Numbers should not begin with zero as some software might consider the value of zero as null and remove them.
- The SKUs should not be aimed at being relevant with respect to the meaning, as it 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 the naming of 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 so that you 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 can be a tricky thing to manage. 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.
Stock Keeping Units help to maintain inventory records up to date, which in turn enables 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 in forecasting your sales better. You can easily see which products are selling well, or are selling fast or probably are selling slow. With all such data, it becomes easy to anticipate the requirements of stock and maintain it accordingly. Products can be strategically analyzed, and the needed steps can be taken to help foster sales.
3. Facilitating Quick Shipment
Once an order has been placed, timely shipment is an essential step that follows—for this, keeping track of what is stored where is very important. SKUs make this very easy.
They help warehouses in finding the required product quickly. The exact product can be found by the warehouse keepers with accuracy. Products that have multiple variants can be sorted soon and placed in the warehouse on the basis of SKUs. Whenever a particular product is needed, the database can be checked, and the exact location of the product can be known. 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.
Repeating orders, finding a product, comparing product features are all made easy for customers by SKUs. In case of vendors, they can quickly present customers their needed products when SKUs are in place.
5. Earning Greater Profits
Stock Keeping Unit Numbers can help you maximize your profits. They help you know the products that are selling the most. Strategic actions can be taken to maintain sales high. Proper positioning of the products on both offline and online platforms to increase customer focus can be done. Further, SKUs help in providing suggestions as to ‘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 software automates the task of SKU generation and saves time and cost. One can select the product characteristics that one wishes to have in the SKU coding scheme, and with a touch of a button, required SKUs and corresponding barcodes are generated. 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 Point of Sale.
SKUs are important for everyone, including suppliers, retailers, logistic companies, and customers. They help manage inventory efficiently and allows tracking and analyzing sales performance and provide better customer experience.
FAQs:
SKUs and Barcodes are similar. Just that the SKUs are interpretable by humans, whereas barcodes require a scanner.
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,
Step 1: Identify product characteristics/attributes that you wish to track (Say, Colour, Size, Gender, Material, etc.)
Step 2: Assign an alpha-numeric code to each characteristic
Step 3: 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 on to 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.
