Stock Keeping Units (SKUs): The Unsung Hero of Inventory Management
With the upcoming holiday season fast approaching, retailers and e-commerce business owners must prepare for the influx in customer demand. One of the best ways to do that is to always know exactly what’s in stock and where it is. Enter Stock Keeping Units (SKUs), the unsung hero of inventory management. In this blog post, we’ll explore the significance of SKUs, their role in e-commerce, and how to create effective SKUs for your business.
What Are SKUs and Why Are They Important?
Stock Keeping Units, commonly known as SKUs, are unique codes to identify products within a retailer’s inventory. Featuring a sequence of numbers and letters, a SKU represents a product’s size, brand, colour, and/or other specific identifiers.
This alphanumeric code can vary from retailer to retailer; however, they are crucial for ensuring that products are accurately tracked, making the order fulfillment process smoother, and providing valuable insights into sales and inventory levels.
They allow retailers to manage their own inventory across various channels. Similar to a serial number in which a product is easily identified and located, a SKU system can be found in the retail, e-commerce, logistics, and manufacturing sectors.
The Benefits of SKUs
There are many benefits of SKUs, including:
- Improved Inventory Accuracy: A well-organized SKU system is designed to track inventory levels and avoid stockouts or overstocking. SKUs can be used to create automated reordering points along the supply chain to reduce the stress of maintaining inventory levels. When products are tracked in real-time, they improve inventory accuracy, which eliminates the need for full manual inventory counts each month.
- Enhanced Efficiency: SKUs help to streamline warehouse management processes such as order fulfillment, picking, and packing. Creating an organization system to identify available products and their location within the warehouse reduces the risk of errors. An enhanced efficient management system is key to avoiding lost or misplaced items.
- Better Data Analysis: A successful inventory management system demands the use of up-to-date and accurate data analysis. SKUs provide valuable insights into product performance and customer behaviour. By analyzing SKU-level data, business owners can identify trends, understand which products are popular, and make informed decisions about their inventory and marketing strategies.
- Simplified Reporting: SKUs make generating accurate reports on sales, inventory levels, and profitability a breeze. Businesses can easily track the performance of individual products, categories, and variations, helping them make data-driven decisions and optimize their business operations.
The Role of SKUs in E-Commerce
SKUs are essential for managing product listings, orders, and inventory online to streamline the management process. They help businesses track inventory across multiple sales channels and prevent discrepancies between physical and online stock levels.
Another important role of SKUs in e-commerce is the ability to link product data with e-commerce platforms like Shopify, Amazon, and WooCommerce. This integration ensures that a company’s product listings are accurate and up to date, reducing the risk of overselling or underselling and improving the overall customer experience.
SKUs also help with product search and recommendation algorithms for both the vendor and the customer. By using SKUs, businesses can improve the visibility of their products in search results and provide personalized recommendations to customers, increasing the likelihood of sales.
How to Create Effective SKUs for Your Business
While there is no standard SKU formula used across the board, there are ways to create effective SKU systems within an organization to enhance efficiency.
- Define a Clear SKU Structure: The SKU structure should have a clear structure that includes relevant product details, such as category code, product code, and size/colour code. This structure will help you quickly identify products and variations, making inventory management more efficient.
- Keep it Simple and Scalable: Only use short, clear, and concise codes that can be adapted to the changing needs of your business. Refrain from using spaces, special characters, and numbers and letters that can be interchangeable such as “0” and “O”.
- Standardize Across Your Business: For SKU best practices, ensure that all departments, including sales, marketing, and warehouse, use the same SKU system. Standardization prevents confusion and errors, making it easier for everyone to manage inventory and fulfill orders efficiently.
Basic SKU Structure and Variations
These codes are standard across most global SKU systems:
- CAT: Category code (e.g., TSH for T-shirts, SHT for Shorts)
- PROD: Product code (e.g., RT100 for Running T-shirt)
- VAR: Variant code (e.g., M for Medium, BLK for Black)
This basic structure can also handle different variations of a product, for instance:
- SKU: TSH-RT100-BLK (Black Running T-shirt, Medium)
- SKU: TSH-RT100-WHT (White Running T-shirt, Medium)
- SKU: TSH-RT100-LRG (Black Running T-shirt, Large)
Common Mistakes to Avoid When Creating SKUs
Below are some common mistakes to avoid when creating SKUs:
- Inconsistent Coding: Inconsistent coding across similar products can lead to confusion and errors. Businesses should ensure that their SKU structure is applied consistently to all products and variations, making it easier to manage inventory and track sales accurately.
- Overly Complex Codes: Overly complex codes can be difficult to understand and use, leading to errors and inefficiencies. Businesses should keep their SKU codes simple and straightforward, ensuring that they are easy to interpret and apply.
- Lack of Standardization: Businesses that fail to form a consistent SKU to use across various sales and inventory platforms could face challenges with tracking, demand forecasting, and inaccurate numbers within their supply chain management.
Implement a Well-Structured SKU System with the Help of Lean Supply Solutions
SKUs play a crucial role in efficient inventory management, especially for e-commerce businesses. By using a well-structured SKU system, businesses can improve inventory accuracy, streamline processes, gain valuable insights, and simplify reporting.
If you’re ready to take your inventory management to the next level, consider partnering with Lean Supply Solutions. Our expertise in inventory management and supply chain solutions can help you optimize your operations and achieve your business goals.
Contact us today to discuss how our inventory management systems and other 3PL/4PL services can help you create a consistent and streamlined system for your business.
- Published in Blog
What Is Vendor Managed Inventory (VMI) and How Does It Work?
Efficient inventory management is critical in today’s competitive business landscape. It plays a significant role in maintaining smooth operations, satisfying customer demands, and minimizing costs. However, achieving the perfect balance can be challenging. Enter Vendor Managed Inventory (VMI)—a key component of supply chain management that can create a seamless, tangible relationship that benefits the vendor, retailer, and end customer.
What Is Vendor Managed Inventory?
Vendor managed inventory is a supply chain management system used between the vendor and retailer (or customer). It is a model approach where the supplier takes full responsibility for maintaining the inventory levels of their products at the customer’s location. This leads to cost-savings in planning, ordering, and storing products by both the vendor and the retailer.
How Does VMI Work?
Vendor Managed Inventory operates based on a few key components that ensure seamless operations and optimal inventory levels. The vendor owns the product and monitors the inventory levels and sales patterns once the inventory is handed over to the retailer. All replenishments are calculated through forecasting and provided to the retailer on time to prevent stockouts.
Inventory Visibility and Data Sharing
One of the critical aspects of VMI is the real-time exchange of data between the vendor and the customer. The vendor and retailer work together to develop accurate demand forecasts and establish optimal inventory levels.
For example, when sales data indicates high demand for a specific product, the vendor can proactively increase stock levels to prevent stockouts. Conversely, if sales are slow, the vendor can adjust the inventory to avoid overstocking, thus minimizing carrying costs.
Replenishment Process
In a VMI system, the vendor determines reorder points and triggers automatic inventory replenishment based on the shared data. This proactive approach ensures that inventory levels are always aligned with actual demand, reducing the risk of stockouts or excess inventory.
The vendor continuously monitors inventory levels and sales data to identify the optimal time for replenishment. This automated process not only saves time but also ensures that the customer always has the right amount of stock available.
Collaboration
Successful VMI requires open communication and collaboration between the vendor and the customer. Both parties must work together to plan inventory levels, share data, and address any potential issues that may arise.
Regular meetings and communication channels help in aligning goals, discussing forecasts, and making necessary adjustments. This ensures that the right amount of stock is available at the right time, reducing excess inventory and associated carrying costs.
Key Players in VMI
Various stakeholders play crucial roles in the successful implementation and operation of a VMI program.
- Suppliers and Vendors: The vendor is responsible for managing the inventory levels to ensure the timely delivery and supply of products and goods. This also gives the vendor accurate numbers for demand forecasting, production planning, and stock availability.
- Retailers and Customers: In a VMI system, retailers or customers provide essential sales data and forecasts and collaborate with vendors on planning. Their role is to share accurate and timely data, which allows vendors to make informed decisions regarding inventory management.
- Third-Party Logistics (3PL) Providers and Technology: Third-party logistics providers (3PLs) play a vital role in facilitating VMI by offering warehousing and transportation services. They act as intermediaries, ensuring the smooth flow of goods from the vendor to the customer.
Benefits of Implementing VMI
To understand the advantages and benefits of VMI, it is important to understand how the system can improve the relationship between the vendor and retailer.
With proper management, VMI reduces inventory carrying costs, improves stock availability, reduces stockouts, and increases efficiency throughout the supply chain. The vendor and retailer have better control over the branding and inventory disbursement.
A well-implemented VMI system results in lower inventory levels, carrying costs, inventory shrinkage, and stockouts. Accurate inventory management can also prevent cash flow restrictions by providing better control and promotion.
VMI reduces time spent on inventory planning since the stock is managed by the vendor. It also reduces unnecessary ordering and the need for excess storage space.
Common Challenges in VMI
While VMI offers numerous benefits, it also comes with certain challenges that need to be addressed. These challenges involve data sharing accuracy and timeliness, establishing trust and clear communication between partners, forecasting accuracy and potential for demand fluctuations, and the potential for vendor lock-in.
Without the proper data analytics system, it is difficult to present accurate numbers. Furthermore, as the VMI integration involves two parties, the partnership must be equally managed with confidence and trust. An inventory management system can only be successful if the data is reliable.
VMI vs. Traditional Inventory Management
Traditional inventory management involves the customer managing their inventory levels and placing orders when stock reaches a certain threshold. This can lead to frequent stockouts and overstocks. In contrast, VMI transfers this responsibility to the vendor.
Using VMI systems, the vendor has the means to track and manage the customer inventory with accurate forecasts for demand. Vendors can improve supply chain management efficiency by optimizing inventory control.
The Future of VMI
The adoption of Vendor Managed Inventory is expected to grow as businesses recognize its efficiency benefits. Emerging technologies like artificial intelligence (AI) and automation are poised to play a significant role in enhancing VMI systems.
AI-powered forecasting tools can analyze vast amounts of data to predict demand more accurately. This leads to better inventory management and reduced risk of stockouts or overstocking. Automation technology can further streamline the replenishment process, reducing the need for manual intervention. This enhances the overall efficiency of VMI programs.
In addition, integrating the Internet of Things (IoT) can improve real-time data on inventory, product usage, and consumer patterns to reduce stockouts.
Enhance Your Business with Lean Supply’s VMI Solutions
If you’re considering implementing VMI in your business, Lean Supply Solutions can provide the expertise and solutions you need. Our comprehensive VMI programs are designed to streamline your inventory management and enhance your supply chain operations. We use a combination of lean processes, leading IT systems, and world-class quality systems.
Contact us today to learn more about how we can help you optimize your inventory levels and achieve greater efficiency.
- Published in Blog