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.
