What is SKU Number & How to Create it: Examples + Best Practices [Free Infographics Attached]

If you run an e-commerce business, chances are you’ve come across the term “SKU number.” In fact, SKU numbers are crucial to the success of any e-commerce operation, particularly in the Southeast Asia market, where online shopping is booming.

Did you know that the average Southeast Asian spends an average of 10.23 hours on the internet (nearly 43% of a 24-hour day) and just over 4 hours on social media? And more than 80% of the region’s population shops online. 

With such a significant portion of consumers turning to e-commerce for their purchases, it’s essential for businesses to have a robust inventory management system in place, and SKU numbers are a critical component of that system.

In this article, we’ll dive into everything you need to know about SKU numbers, including what they are, how to create them, and best practices for using them in your e-commerce business. We’ll also provide real-life examples of how businesses in Southeast Asia have used SKU numbers to improve inventory management and drive sales.

So whether you’re just starting out in e-commerce or looking to optimise your existing operation, read on to learn how SKU numbers can help you take your business to the next level.

What Are SKUs?

A stock-keeping unit, commonly known as the SKU, is a unique identifier in the form of an alphanumeric code allotted to a particular item or inventory sold by the retailer. The SKU helps retailers keep track of their stock and determine the volume of sales based on the category and the product. It also helps the store’s layout designs, enhancing the customer’s shopping experience. The SKU of each product and type are designed based on their importance.

Stock keeping units have multiple uses apart from just identifying a product. Therefore, you need to know how to create one and what these codes stand for. Additionally, you must know every possible way to utilise these codes to design a foolproof inventory management system and enhance the customer experience.

Retailers usually make their SKUs based on the characteristics of the items they sell. Ideally, SKUs are subdivided into different categories and classifications, so identifying them in the store or the warehouse is not a chore.

If you take a DIY store, for example, you will notice that it has different sections allotted to products needed for your home improvement. There is a separate section for hardware tools and another for lawn, garden, and other related items. Their SKUs are also seemingly designed around their classification, with numbers and alphabets designated to products as categories within that particular section. 

SKU Numbers Vs. UPCs

It is not uncommon to mistake a UPC and SKU code as the same. In reality, they are two completely different entities with a similar purpose: product identification. Both SKUs and UPCs are numeric-based codes given to products. UPCs, or Universal Product Codes, are alloted for business purposes. They provide you with product descriptions once you scan them.

On the other hand, a Stock Keeping Unit, more commonly known as SKU, is an alphanumeric code assigned to one particular product by a retailer or a company for the primary purpose of stock-keeping and internal use. Both SKUs and UPCs are essential for inventory management. To successfully carry it out, you should know the fundamental differences between SKUs and UPCs to follow the appropriate practices.

The primary differences between SKU Numbers and UPCs are elaborated in the table below:

Stock Keeping Units (SKUs)	Universal Product Codes (UPCs)
SKU numbers are unique for every retailer.	UPC barcodes are universally used. They remain constant for one particular product no matter which retailer chooses to sell it. This is why every product will retain its own UPC even if the SKU codes assigned to them differ from company to company.
SKU codes are a combination of both alphabets and numbers.	UPC barcodes are strictly numeric and do not contain alphabets.
SKU codes can be any length as assigned by the company selling them.	A UPC barcode is only 12 digits.
Companies are responsible for creating SKU codes for their internal use at their convenience.	UPC barcodes are assigned by the GS1.
Companies are free to create SKU codes for the products of their own accord.	UPC barcode numbers require to be licensed and purchased.

Using SKUs and UPCs is being made easier with numerous business software applications. They are designed to integrate the scanning of SKU and UPC with the help of digital inventory tracking, order fulfillment, point of sale, and accounting software.

Locad is one of the best fulfillment management e-commerce companies with the best solutions to every fulfillment need, including any kind of aid related to SKU and UPCs.

SKU Number Examples

As mentioned before, a Stock Keeping Unit or an SKU is a scannable barcode, and you will often see it on product labels along with the UPCs in retail stores. As the name suggests, this alpha-numeric code allows retailers and vendors to track their stock and inventory movement easily. 

They can also help track several product details like product price and manufacturer. They are also applicable for intangible billable services like repair time units. SKU numbers can be manually or digitally created with the help of point-of-sale (POS) or inventory management software. 

Businesses have unique SKUs for each product and service that they sell. If we take the example of a shoe store, you will notice that they have internal Stock Keeping Unit codes showing the product’s details like price, colour, style, size, brand, and manufacturer. 

For example, the SKU code for Bailey Bow style Ugg boots in blue shade, size 7, might read “UGG-BB-BLU-07.” With this customised identification system, it is relatively easy to keep track of every item and label them accordingly.

Why Do Companies Use SKU Numbers?

Companies, e-commerce retailers, catalogues, service providers, warehouses, and fulfillment centers use SKUs to track inventory levels. As the very term suggests, it is used for effective stock keeping. You can usually scan SKUs and UPCS in a POS system as they make it easier for managers to identify, keep track of and restock products that require restocking.

When customers purchase items at the POS or point of sale, the SKU gets scanned, after which it is automatically removed from the POS system, which also records other crucial product data, like sale price. SKUs are not the same as model numbers and should not be mistaken as the same. Businesses, however, might embed model numbers inside SKUs. 

In fact, businesses that use SKU numbers can experience significant benefits. According to multiple studies, companies with effective inventory management systems (which typically include SKU numbers) see an average of 63% improvement in order accuracy, more than 10% reduction in inventory carrying costs, a 25% increase in productivity and a 15% increase in order fulfillment rates.

Here are three key points highlighting the significance of these SKU codes in e-commerce:

1. Improves tracking and management of inventory: The very purpose of SKUs is to enable retailers to identify and keep track of stock and inventory count, maintain perfect inventory turnover ratios, and better understand the direction and speed of inventory flow.

2. Customise product recommendations as per preference: This is another valuable advantage provided by SKUs. With the help of these simple and unique codes, as a retailer, you can easily customise product recommendations as per your preference. While surfing the web, you will often find these recommendations online in your email inboxes and random display ads. These customised recommendations contribute heavily to digitally marketing the product, increasing the chances of purchasing via engagement. 

3. Forecast sales in the future: Mastering sales forecasting is a skill you should mandatorily have to become a successful retailer. You will be surprised to know that forecasting is greatly dependent on SKUs. 

4. Improved Customer Experience: With accurate inventory management, businesses can ensure that customers can find the products they want and receive them in a timely manner. In fact, a survey by MetaPack found that 61% of customers consider delivery speed an important factor in their online shopping experience.

E-retailers, manufacturers, and merchants greatly rely on weekly tracking and the monthly and annual differences in sales volume with the help of SKUs. Stores track fast-moving seasonal products, winter and summer wear, holiday items, and more with the help of SKUs to assign the accurate lead time for ordering the said products to maximise resource allocation.

In short, SKUs offer numerous benefits to e-commerce businesses, helping them to improve inventory management, provide a better customer experience, and optimise operations for growth.

Why Your E-commerce Business Needs SKU Numbers or SKUs?

As an e-commerce business owner, you know that efficient inventory management is essential to your success. That’s where Stock Keeping Unit (SKU) numbers come in. These unique identifiers offer numerous benefits to your business, helping you to organise your store, track products, and provide a better customer experience.

Consider these statistics: The average retailer loses 4% of its inventory each year, costing $1.75 trillion globally. In Southeast Asia alone, e-commerce sales are projected to reach $199.20 billion by 2027. With so much at stake, it’s crucial to have a solid inventory management system, and SKUs are a key part of that system.

With so much at stake, it’s crucial to have a solid inventory management system in place, and SKUs are a key part of that system. Implementing an SKU system can lead to increased profits and a better customer experience.

1. Accurate Inventory Counts: SKUs allow businesses to accurately count their inventory and know exactly how much stock they have on hand. This helps businesses avoid overselling, stockouts, or holding too much inventory that ties up capital.

2. Streamlined Order Processing: SKUs help businesses streamline their order processing by automating inventory management. Businesses can automatically adjust inventory levels as orders are placed and fulfilled by using an inventory management system that uses SKUs.

3. Improved Product Tracking: SKUs help businesses track their products from when they arrive at the warehouse to when they are shipped to customers. By assigning a unique SKU to each product, businesses can effortlessly track its movement within the supply chain and know exactly where it is at all times.

4. Better Sales Analysis: SKUs allow businesses to track sales by product, making it easier to identify top-selling items and plan for future inventory purchases. By accessing this data, businesses can make informed decisions about which products to stock and which to phase out.

5. Efficient Warehouse Management: SKUs help businesses optimise their warehouse management by allowing staff to quickly and easily locate products. By organising products by SKU, staff can quickly identify where products are located in the warehouse, reducing the time it takes to fulfil orders.

6. Reduced Product Returns: With SKUs, businesses can track the movement of each product from the warehouse to the customer’s doorstep. This allows them to identify any issues that may arise during the fulfillment process, such as incorrect product shipments, and take corrective action to reduce returns.

7. Better Customer Service: When businesses use SKUs, they can easily locate products, making it easier to fulfill customer orders accurately and quickly. This leads to increased customer satisfaction and loyalty.

8. Streamlined Reordering: SKUs allow businesses to identify which products are running low in inventory quickly and need to be reordered. This helps companies to maintain optimal inventory levels and avoid stockouts, ensuring that products are always available to customers.

In short, SKUs are essential to efficient inventory management and can help you to provide a better customer experience while increasing profits. So if you haven’t already implemented an SKU system, it’s time to start reaping the benefits.Choosing the right and reliable e-commerce SKU service can be a chore. For availing of a top-tier e-commerce SKU service, give Locad a try.

How to generate SKU Numbers: A step-by-step guide

Generating SKUs for your e-commerce products can be a simple process if you follow these steps:

Step 1: Identify your product attributes

Start by identifying the key attributes of your products that you want to include in your SKU. These attributes can be things like colour, size, material, and product type.

For example, if you sell t-shirts, your product attributes could include:

• Colour (red, blue, green, etc.)
• Size (small, medium, large, etc.)
• Material (cotton, polyester, etc.)
• Product type (men’s, women’s, etc.)

Step 2: Determine your SKU format

Once you’ve identified your product attributes, determine the format of your SKU. The most common formats are alphanumeric, including letters and numbers or numeric-only.

For example, if you choose an alphanumeric format, your SKU could look like this: RED-TS-M-CTN-MN, where:

• RED = colour
• TS = product type (t-shirt)
• M = size (medium)
• CTN = material (cotton)
• MN = manufacturer (optional)

If you choose a numeric format, your SKU could look like 12345678, where the numbers are assigned to each product attribute.

Step 3: Assign codes for each attribute

Assign codes or abbreviations for each attribute that you want to include in your SKU. These codes should be unique and easy to remember.

For example, using the same attributes as before, you could assign the following codes:

• Colour: RED = R, BLUE = BL, GREEN = GR
• Size: SMALL = S, MEDIUM = M, LARGE = L
• Material: COTTON = CTN, POLYESTER = PLY
• Product type: MEN’S = MN, WOMEN’S = WN

Step 4: Combine the codes to create the SKU

Combine the codes for each attribute in the order that you want them to appear in the SKU. Add dashes, spaces, or other characters as needed to separate the codes.

Using the assigned codes from Step 3, the SKU for a medium, red, cotton men’s t-shirt would be: R-TS-M-CTN-MN.

Remember to test your SKUs before implementing them to ensure they are unique and easy to read and remember. This will help you avoid mistakes and confusion when tracking inventory and processing orders.

Can Two Products Have The Same SKU Number?

Two products with different features cannot have the same SKU number. Even if the products vary in minor ways, having their unique SKU codes allocated for each is best. 

The generated SKU numbers should be unique for each product the retailer sells. However, two products can be allotted with the same UPC number, or a barcode can be allocated to two products. 

Tips For Your SKU Naming Convention

Here are some tips you can follow to create the best SKU system for your business:-

1. Don’t overdo it: The best practice to follow in creating SKU numbers is to keep it simple. Since they are easy to customise per your preference, you might tend to add too many details. 

To avoid this, you can choose two or three features of your choice to reflect in the SKU system. If you need to include more than three traits mandatorily, keep the codes short.

2. Don’t begin an SKU code with a zero: In most cases, computer softwares interpret zero at the starting of a number as nothing. Therefore, leading to an SKU named something like 02000111M to be read as 2000111M. Avoiding a zero at the start of an SKU number will help you avoid this type of error that can confuse you.

3. Don’t use letters that look like numbers: SKU numbers are usually alphanumeric, and you might be tempted to use every alphabet possible. However, using letters that look similar to numbers, such as “O” or “I”, might lead to confusion. 

4. Don’t repurpose manufacturer numbers: As a new business owner, generating a foolproof SKU system can be challenging and intimidating. However, if you want to avoid this and use the existing manufacturer’s number instead, it eliminates the essential advantages of a penalised SKU formula unique to your company.

SKU Numbering Best Practices

To manage SKUs with ease and efficiency, here are some of the best SKU practices you can adopt:-

1. Choose the most important attributes of your products

There is no one-size-fits-all method for creating SKU codes. A company needs to have a unique SKU system reflecting the business specifics. To make things easier, first, prioritize the most crucial product attributes that define it and arrange the SKU codes in accordance. Among the best e-commerce inventory and logistics management solutions, Locad has stood out for years. You can choose Locad if you are a business owner in need of e-commerce fulfillment aid. 

2. Follow one pattern or framework

Follow one template for successfully managing your SKU system when you are allotting SKU codes to each product. Following a single pattern will make the SKU system clearer and much easier to understand and manage. 

• First and foremost, develop a format that is unique to the product and reflects the most significant attributes. 
• The next thing you need to maintain is the size of the code as well as the characters you need to use. 
• Ensure the code is limited to 8 and 12 characters; beginning a code with a letter is always advisable. 
• Always use letters in uppercase to avoid any misunderstanding. 
• Do not use symbols such as  >, <, * and make sure they remain alphanumeric. 

3. Maintain scalability

Ensure that your SKU design is useful and appropriate if your inventory expands. Always plan based on your current inventory, keeping plans for growth in mind. Always consider every aspect of the product, such as product brands, segments, and others, while allocating the SKU of a product. 

4. Test and upgrade

It is impossible to achieve perfection on your first try, even if you consider every possibility while planning your SKU management system. Monitor the accuracy and efficiency of the first SKU system you plan and upgrade. 

How Inventory Management Systems Can Enhance Your Use of SKUs in E-commerce?

Implementing SKUs is an excellent start to streamlining your inventory management, but combining SKUs with an inventory management system (IMS) can take your e-commerce business to the next level.

An IMS is software designed to help businesses track inventory levels, sales, and deliveries. Here are some ways an IMS can enhance your use of SKUs:

1. Automatic Inventory Tracking: An IMS can automatically adjust inventory levels as orders are placed and fulfilled, reducing the risk of overselling, stockouts, or holding too much inventory.

2. Improved Analytics: An IMS can generate real-time sales and inventory reports, making tracking sales by product and identifying trends easier. You can also use this data to make informed decisions about which products to stock and which to phase out.

3. Streamlined Order Fulfillment: An IMS can automatically route orders to the right warehouse or fulfillment center, allowing you to quickly and efficiently fulfill orders.
   
4. Integration with Shipping Carriers: An IMS can integrate with shipping carriers, so you can easily create shipping labels and track shipments.

Using an IMS like Locad can help you take advantage of SKUs in many ways. Locad is not only an inventory management software but a complete e-commerce engine for logistics and fulfillment needs. Locad can automate order fulfillment, provide real-time analytics, and integrate with multiple sales channels and shipping carriers. With Locad, you can easily manage your inventory and shipping operations, giving you more time to focus on growing your business.

Conclusion

To conclude, SKU is one of the most integral parts of a successful business because it indirectly contributes to sales and customer satisfaction. When done right, SKU can make a business run more efficiently, generating more profits in the long run.

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