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 need to know every possible way to utilize 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 sub-divided into different categories and classifications so that identifying them in the store or the warehouse does not seem like 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 own 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, also known as 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 comparatively 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 a SKU is a scannable barcode, and you will often see it on product labels along with the UPCs in retail stores. As the very name suggests, this alpha-numeric code allows retailers and vendors to track the movement of their stock and inventory 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 softwares.
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, color, 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 customized identification system, it is relatively easy to keep track of every item and label them in accordance.
Why Do Companies Use SKUs?
Companies, e-commerce retailers, catalogs, 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. 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. Customize 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 customize product recommendations as per your preference. You will often find these recommendations online in your email inboxes and random display ads while surfing the web. These customized 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.
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 maximize resource allocation.
Why SKUs Are Important For Your Business
As a business or startup owner, you need to know the importance of SKU numbers through and through. In the paragraphs above, we have already emphasized the importance of SKU numbers in a business and how they greatly help track products, boost profits, and even provide essential inventory data.
A well-planned Stock Keeping Unit system helps strategize and manage numerous areas crucial to businesses. First and foremost, this unique identifier system aids in mapping and organizing a store, so customers and staff locate products with ease.
They help track products by type, collection, department, or vendor, allowing you to quickly find and arrange products on a sales floor, warehouse, or storage space. SKUs are also crucial in creating a pleasant and orderly shopping experience for customers by store merchandising, leading to increased sales.
Lack of a proper SKU system can lead to various risks, such as losing track of product locations in the storage space. This can confuse staff members, frustrate customers, and lead to a loss of sales. Therefore, a well-maintained SKU system leads to better customer service and smooth and foolproof checkout.
How Do SKUs Help E-commerce Inventory Management
If you have purchased anything from an online store or read a product description, you most certainly have come across a SKU code. SKU management is a crucial part of an e-commerce business because it gives you precise details about each item stocked in your inventory. This significantly helps improve an order’s accuracy in picking and packing in a warehouse and reduces human error in inventory management.
SKUs are internally used at online stores, and e-retailers usually depend on them to communicate smoothly with vendor partners. They help in forecasting, which helps in setting expectations for predicted demand and assisting online merchants in communicating with their vendors. SKUs also help e-retailers determine the sale volume of certain items and collaborate with their vendors.
Choosing the right and reliable e-commerce SKU service can be a chore. For availing of a top-tier e-commerce SKU service, Locad is the right place to go.
How Do You Generate SKUs?
Now that we have covered why SKU numbers are an integral part of running a business, here are five basic steps you need to follow for creating them:-
1. Use the first numbers to represent a top-level identifier: The first few SKU digits or characters need to represent a top-level identifier. It can represent a department, category, or supplier. This helps store owners and staff members easily identify the highest-level merchandising group and location of every product available.
2. Use the middle numbers to allocate the unique identifiers: Assign the unique features (size, item type, color) or a product subcategory for the middle numbers or characters of the SKU code.
3. Use a sequential number to finish the SKU: Use a sequential numbering system (001, 002, 003) to assign the final sequence in the SKU number. This will help you identify products based on which is older and which are newer.
4. Add the SKU codes to the Inventory Management System or the POS: After creating the SKUs, you can manually track inventory with the help of spreadsheets and notebooks. However, a POS or inventory tracking system will make it far easier. You can start by entering the following product specifications in order:-
- Item name
- Item category
- Product description
- Item type
- SKU number
- Other features like size or color
5. Generate SKU barcode labels: Once the SKU codes are added to the inventory system, always generate a scannable version of them in the form of barcodes and add them in the product labels. This aids in easier checkout processes and inventory counting with the help of barcode generators.
Can Two Products Have The Same SKU Number?
Essentially, two products with different features cannot have the same SKU number. Even if the products vary in minor ways, it is best to have their unique SKU codes allocated for each.
SKU numbers that are generated should be unique for each product sold by the retailer. However, two products can be allotted with the same UPC number or barcode.
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 customize 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 there are more than three traits you need to include mandatorily, keep the codes short.
2. Don’t begin a SKU code with a zero: In most cases, computer softwares interpret zero at the starting of a number as nothing. Therefore, leading to a SKU named something like 02000111M to be read as 2000111M. Avoiding a zero at the start of a 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 penalized SKU formula unique to your company.
SKU Best Practices
To manage SKUs with ease and efficiency, here are some of the best SKU practices you can adopt:-
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 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.
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.
- Make sure the code is limited to 8 and 12 characters; it is always advisable to begin a code with a letter.
- Always use letters in uppercase to avoid any misunderstanding.
- Do not use symbols such as >, <, * and make sure they remain alphanumeric.
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.
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.
To conclude, we can say that SKU is one of the most integral parts of making a business successful 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.