Stock Keeping Unit (SKU): Definition, Best Practices, Example, and Benefits

What 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.

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

Differences between the Stock Keeping Unit (SKU), Serial Numbers and Universal Product Code (UPC)

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

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.

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