What is a SKU Number: The Essential Guide for Retail Management
Published: 7 June 2024
If you’re in the world of retail, you’ve likely encountered the term SKU. SKU stands for Stock Keeping Unit, which is a unique identifier for each product in your inventory. Think of SKUs as alphanumeric codes that help you track and manage products efficiently.
SKUs are crucial for inventory management in both physical and online stores. They provide an effective way to monitor stock levels, anticipate reorder points, and analyse sales trends. Unlike UPC codes, which are universal, SKUs are unique to each retailer, offering greater flexibility in organising your product offerings.
Implementing an efficient SKU system can significantly improve your supply chain and customer service. By generating your own unique SKUs, you can streamline your operations, reduce errors and meet customer demand more accurately.
In this article
Understanding SKU numbers
SKU numbers are vital during inventory management, helping retail businesses effectively track and manage products. They ensure smooth operations—from storage to checkout—enhancing customer satisfaction and operational efficiency.
Definition and key characteristics of SKU numbers
A Stock Keeping Unit (SKU) is an alphanumeric code assigned to a product by a retailer to track inventory internally. Typically, SKUs are between eight to twelve characters long.
Each character or group of characters within the SKU relates to a specific attribute of the product, such as type, brand, colour, size or location in the retail store. This customisation allows online retailers to tailor SKUs to their unique inventory management needs.
Components of a SKU Number
An SKU number is composed of several parts, each representing different attributes of the product.
- Category Identifier: Often the first part of the SKU, indicating the type of product (e.g., clothing, electronics).
- Brand Code: Identifies the brand of the product.
- Product Attributes: Includes size, colour or other specific details.
- Location Code: Helps in tracking where the product is stored within a retail business.
- Individual Item Number: A unique number for each item.
A SKU number example, like “ELX-1001-BLK-M” could represent an electronic item from a certain brand, black in colour, medium size. These components make it easy to identify and track specific products quickly.
What do you need to create and format SKU numbers?
To create effective SKU numbers, start by using a structured format. An alphanumeric code works best as it helps in categorising products. Having a clear SKU structure or SKU format is crucial.
- Use a logical sequence: Begin with letters representing product categories or types. Next, incorporate identifiers like size or colour.
- Keep it simple: Avoid overly complicated SKUs; simplicity aids in easier inventory management.
- Consistency is key: Stick to the same format for all SKU codes to maintain order and avoid confusion.
- Avoid using special characters: Stick to alphanumeric characters to prevent errors in different inventory systems.
Tools and software for generating SKU numbers
There are several tools and software available that can help you with generating and managing SKU numbers efficiently.
- Inventory Management Software: Platforms like ControlPort™ offer integrated solutions that allow you to create SKUs seamlessly and keep track of stock levels.
- Spreadsheet Software: Programmes such as Microsoft Excel or Google Sheets can be used for setting up and managing a custom SKU system. Templates and macros can automate SKU generation.
- Dedicated SKU Generators: Online tools specifically designed for SKU generation can help you generate SKU numbers based on your predefined format.
- POS Systems: Retailers often use POS systems like Square or Shopify POS which allow for easy SKU number management and inventory tracking. These systems can automatically update stock levels and alert you when it’s time to reorder.
5 Factors about the Usability of a SKU Number
SKU numbers, or Stock Keeping Units, play an essential role in a variety of retail operations. Their usability spans across inventory management, order fulfilment, pricing analysis, merchandising and marketing.
1. Inventory Management and Tracking
A unique SKU number is vital for accurate inventory management. By assigning unique codes for each product, retailers can easily monitor stock levels. This helps prevent overstocking or running out of high-demand items.
SKUs provide an efficient way to track products, enabling quick identification and location within the inventory system. Clear SKU architecture simplifies inventory audits and stock takes, ensuring that inventory records are always up to date.
2. Order Fulfilment and Logistics
Efficient order fulfilment relies heavily on the use of SKUs. Each product’s SKU number ensures that the right items are picked, packed and shipped to customers. This helps minimise errors in order processing and improves customer satisfaction.
By using SKUs, logistics teams can streamline their operations, enhancing the speed and accuracy of the fulfilment process. Additionally, SKUs facilitate the integration of various logistical systems, such as warehousing and distribution, promoting seamless operation throughout the supply chain.
3. Pricing and Sales Analysis
SKU numbers play a significant role in pricing strategies and sales analysis. Retailers can track sales data for each SKU to understand sales trends and customer preferences.
This detailed sales analysis helps in setting accurate prices and identifying the most profitable products. By analysing the performance of products based on their SKUs, you can adjust your inventory positions and pricing models to optimise profits and meet customer demand.
4. Merchandising and Assortment Planning
SKUs are crucial for effective merchandising and assortment planning. They allow retailers to organise and display products in ways that enhance the shopping experience.
By segmenting products using SKUs based on attributes like price, colour and size, you can create visually appealing and strategically placed merchandise displays. This careful planning helps in enhancing sales and ensuring that the right mix of products is available to meet varying customer tastes and preferences.
5. Marketing and Promotions
In marketing campaigns and promotional strategies, SKUs help in targeting specific products or groups of products. Using SKU codes, you can track which promotions are most effective at driving sales and identify high-performing products.
This information is valuable in tailoring future marketing efforts and optimising promotional budgets. Moreover, SKUs assist in managing promotional stock, ensuring that featured items are readily available and accurately tracked during promotional periods, thereby avoiding stockouts and maximising sales opportunities.
The differences: SKU vs UPN and EAN
UPC (Universal Product Code) and EAN (European Article Number) have a standardised format used for identifying products globally. UPCs typically have 12 digits, while EANs have 13 or 8 digits. These codes are essential for point-of-sale systems, ensuring consistency and accuracy when products are scanned at checkout.
Distinctive features and functions of SKU numbers
SKU numbers are unique alphanumeric codes that retailers create to track merchandise within their inventory. Unlike UPCs or EANs, SKUs are tailored by each retailer without any standardised format. They help manage inventory, track sales trends and streamline restocking processes.
4 Benefits you will get with SKU numbers
Implementing SKU numbers can significantly streamline your inventory management and improve your overall operations. Below are the key benefits you can achieve by using SKU numbers in your business.
1. Optimising stock levels and avoiding stockouts
Using SKU numbers allows you to monitor stock levels accurately. This prevents stockouts by ensuring you reorder products before they run out. By constantly tracking inventory levels, you can identify which items are selling quickly and which are not.
This helps you make informed decisions about when to reorder stock or discontinue underperforming items, ensuring that your inventory aligns with customer demand.
2. Better decision-making through data analysis
SKU numbers facilitate detailed sales data collection, supporting better decision-making. You can analyse trends and patterns in customer purchases by examining your SKU data.
This information enables you to forecast demand more accurately, plan promotions and adjust your inventory levels accordingly. Additionally, having detailed sales data at your fingertips empowers you to optimise your pricing strategies and improve your overall profitability.
3. Enhanced inventory accuracy and control
Assigning unique SKU numbers to every product in your inventory helps prevent errors and discrepancies. This unique identification system ensures that each item is tracked individually, reducing the chances of mistakes during stock counting or order processing.
With improved inventory control, you can maintain accurate records, minimise losses due to misplaced or miscounted items and maximise customer satisfaction by delivering what you promise.
4. Improved efficiency in order processing and fulfilment
SKU numbers streamline the order processing and fulfilment stages, making your operations more efficient. Employees can quickly locate products in the warehouse using SKU codes, reducing the time needed to pick and pack items.
This efficiency translates into faster order fulfilment, leading to quicker delivery times and enhanced customer satisfaction. Efficient SKUs usage ensures that your stock management aligns with the fast-paced nature of modern retail environments, both online and offline.
3 Ways to simplify your business with SKU numbers
Using SKU numbers can streamline your inventory management, improve sales tracking, and enhance overall operational efficiency. Implementing a robust SKU management system can significantly benefit your business.
1. Setting reorder points
A common issue eCommerce businesses face is not knowing when to order more stock of products. Well, a useful solution to this is using SKU numbers to set and calculate reorder levels.
You can do this by assigning each product a SKU, which helps to improve inventory visibility and to see when your stock levels are running low. So, simply by implementing your own SKU system, you can avoid waiting for your inventory to be replenished.
2. Integration with inventory management software and POS systems
Integrating SKU numbers with inventory management software and POS systems is essential for maintaining accurate stock levels and facilitating real-time updates. This integration allows automatic adjustments to inventory quantities upon sales or reorders, reducing manual errors.
POS systems can use SKUs for faster checkout processes by quickly retrieving product information. This helps in maintaining up-to-date data on sales trends and stock availability.
3. Training for staff on SKU number usage
Training your staff on using and understanding SKU numbers is crucial for operational consistency. Begin by educating them on how SKU numbers are structured and the importance of each segment in the code. Clarify how SKUs help in tracking inventory, managing stock levels and ensuring accurate order fulfilment.
Hands-on training sessions can be very effective. Demonstrate using SKU numbers in various scenarios like stock-taking, sales transactions and inventory adjustments. Provide clear documentation that staff can reference as needed.
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