Simplify and Scale: Leveraging Product SKUs for Business Growth

What is a product SKU?

A stock keeping unit (SKU) is a unique alphanumeric code assigned to a product by a retail store. They identify characteristics, such as price, product options, and merchandise manufacturer.

Retailers, both e-commerce companies and physical retail stores, use SKUs to track inventory, manage sales data, and streamline operations, effectively reducing stockout or overstock instances.

The SKU for each product is typically unique to each store, meaning that two businesses selling the same product likely use different SKUs. Therefore, SKUs can be tailored to an individual business's inventory tracking needs to allow for greater detail and flexibility than other types of identifiers, such as barcodes and UPC codes.

The SKU number varies by product and other characteristics. For instance, different variations of the same product would have different stock keeping units. By assigning unique SKUs to product variants, businesses can have the most precise tracking available, which can inform purchasing decisions, streamline fulfillment, and optimize inventory management.

SKU number examples

SKUs can be a series of alphanumeric characters. The format, length, and structure of SKU numbers vary depending on the company's inventory management needs and the complexity of the product catalog.

An SKU number might include the product type, color, and size for a simple product lineup. For instance: TSHRT-BLU-LRG. This SKU code indicates the product variant is a large, blue t-shirt.

For more complex product catalogs, you might require more information. Complex SKUs are often required by companies selling electronic devices and may look like this: LAPTOP-DELL-7480-I7-16GB-512GB. In this example, the company's SKU number refers to a Dell 7480 laptop with an i7 processor, 16GB RAM, and a 512GB hard drive.

What's the difference between an SKU and a UPC?

Like a stock keeping unit, a universal product code (UPC) is a crucial product identifier that can help with inventory management. However, SKU numbers are customized by retailers for internal use, while UPCs are universal identifiers used across different retailers for POS tracking and product identification.

Universal product codes are typically 12-digit numbers and are accompanied by a barcode, which can be scanned at the point of sale. The nonprofit organization Global Standard 1 (GS1) issues the barcode to ensure the number's universality and uniqueness.

Companies can use a universal product code as an SKU. However, this limits the flexibility and level of detail that can be added to the inventory tracking system since UPCs don't contain specific attributes like color or size that are important for effective SKU management.

Why do businesses need SKU numbers?

SKU numbers are crucial for accurately tracking inventory and products across the supply chain while tracking sales and ensuring a good customer experience. By using SKUs, businesses can improve their operations and drive profitability. Here are a few reasons a retail store needs SKUs:

Inventory tracking

SKUs are essential for accurate inventory tracking, allowing you to review in-stock, low, or out-of-stock items. In addition, if you run a hybrid retail business, you can track in-store inventory levels and warehouse inventory to help you determine when to order more. This can be especially useful for omnichannel businesses that utilize strategies like BOPIS to attract customers.

Order fulfillment

SKU numbers make it easier for warehouse employees to locate items that need to be shipped, streamlining the order fulfillment process while reducing the potential for errors. Using SKU numbers facilitates picking, packing, and shipping, increasing efficiencies in an e-commerce business.

Sales analysis

By using a SKU system, brick-and-mortar, and online retailers can track sales to gain insights into product performance and identify which products are selling well and which aren't. With real-time data, business owners can make data-based decisions about product development, production, and retail marketing. For instance, you can determine whether audience segmentation can improve sales and identify types of products different audiences might be most interested in.

Product identification

A product's SKU number can facilitate identifying each product in a catalog. Because SKUs can contain information about product characteristics like size, color, brand, and style, businesses can use them to find products in a warehouse using inventory management software.

Efficient reordering

An SKU number provides a business with key information about a specific product, allowing businesses to identify exactly which items need to be reordered from suppliers. This effectively prevents inventory shortages or stockouts that can affect the customer experience.

In addition, this more efficient reordering prevents a business from over-ordering from a supplier, reducing their spending on potentially unnecessary inventory items.

Customer service

Creating your own SKU system can also improve customer service efforts. For instance, if a customer needs help with a specific product, a customer service representative can use the SKU number to locate information. In addition, SKUs make it easier to track orders, process returns, and handle complaints.

In addition, product SKUs can improve your marketing efforts by enabling you to send customers personalized product recommendations based on the items you have in stock. These recommendations can help you eliminate excess stock while catering to the specific needs and preferences of your audience.

How to generate SKU numbers

Generating SKUs can improve your operations, increasing efficiency while driving profitability. Remember, SKUs are unique to the retailer, so they should be informative, unique, and scalable.

The easiest way to create SKU numbers is by using your inventory management system. However, your software can't do everything for you. Here are the steps to create SKUs that uniquely identify products in your inventory.

Decide on SKU components

Your SKU can be as simple or complex as you want it to be as long as it supports your inventory management initiatives. Decide what information your SKU should contain, which may include product type, brand, size, color, or any other unique identifiers.

Develop a standardized format

Once you've determined your SKU's characteristics, you can develop a standardized format. This format will keep all your SKUs consistent, eliminating warehouse confusion. You can choose any type of format, such as product type > brand > size > color.

Create alphanumeric codes

After determining your SKU components and format, you can begin creating alphanumeric codes for each element in your SKU. For example, you might use TSHRT for a t-shirt. On the other hand, if you're selling a particular brand, such as IBM, you might use IBM to keep it simple. These codes should be easily understood by anyone who will be working with your inventory.

The shorter the code, the better. Eventually, your staff will memorize the components, format, and individual codes to create new SKU numbers when necessary. In addition, they'll easily identify and track inventory items across locations, warehouses, and stores.

You should also invest in training and creating resources to ensure all staff members understand how to use the SKU system, especially if they create SKUs or identify products in inventory.

Keep it unique

Your SKUs must be unique because each SKU represents a specific product variant. Even if products only differ slightly, they should have their own unique SKU. For instance, a small black t-shirt will have a different SKU from a large black t-shirt.

If two different product variants share the same SKU, it can lead to errors in inventory tracking, order fulfillment, sales, and restocking. For instance, inaccurate inventory counts could result from non-unique SKUs, leading to poor purchasing decisions that result in stockouts or overstocking.

Similarly, when stocking orders, warehouse workers might pick, pack, and ship the wrong item if multiple items have the same SKUs, resulting in a poor customer experience.

Avoid confusing characters

Avoid confusing characters in your SKU codes because they can make identifying products difficult. For instance, a zero (0) and uppercase O may look too similar. By avoiding these types of characters, you can reduce inventory management and fulfillment errors, especially if you need to manually input SKUs into an inventory system.

Also, keep in mind any characters that can be confusing when spoken verbally. For instance, if you're on the phone with someone and need to give them a particular code, zero and the letter O may sound alike.

Grow your business with an effective SKU system

An effective SKU system can help you track inventory, manage sales, help customers, and improve your warehouse and store operations. Developing your own system can help you make it more memorable, allowing you to quickly identify existing products to become a more reliable merchant by preventing stockouts.

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