Organization is an essential piece of inventory management. Your business can’t get very far if you don’t know what inventory you have.
This is true whether you run an e-commerce shop, a warehouse, a brick-and-mortar store, or an omni-channel operation.
Here’s what we’re covering in our SKU guide to help you build a lean and profitable business:
What is an SKU?
SKU stands for Stock Keeping Unit. It’s an alphanumeric code between 8-12 characters that distinguishes one product variant from any others in your warehouse. This unique internal code allows retailers to keep track of their products.
The strength of an SKU lies in its uniqueness. Because it’s specific to your business, you can tailor the code to what customers or vendors ask most often about your product. Your customer’s needs and questions can help form your SKU designations.
This can include basic information, such as:
- And more
You can include whatever you find most important about your product in the SKU to differentiate it from the other inventory.
SKU vs. UPC: What’s the Difference?
Many people use SKU and UPC codes interchangeably, but they serve two distinct purposes for retailers.
UPC stands for Universal Product Code. This is a 12-number code number given to the manufacturer and is more general than an SKU barcode. The Global Standards Organization issues UPCs. UPCs help companies identify the manufacturer of a product.
Basically, a UPC will always stay the same, while an SKU is specific to your company.
Larger companies sometimes opt to only use the UPC, but most companies find it useful to have both. SKUs give more specific information about the product, while UPCs have more general information.
If something in a specific batch of products at the factory was compromised, for example, the UPC code is helpful to track down exactly where it went. However, an SKU can help determine where the product is within your inventory.
Top Reasons Why You Need to Use SKUs
The logistics of retail can be tough. If incorrect or delayed orders plague your operations, your customer will seek out your competitors. Businesses must find any way to stand out from the competition. SKUs can give you the edge you need to be fast, efficient, and get a better understanding of your inventory and customer.
Here are just a few reasons why you should use SKUs in your inventory management system.
FREE DOWNLOAD: Before you go any further, download our SKU Code Generator for Microsoft Excel and to start creating SKUs for your products today.
More Accurate Inventory
Inventory is a tricky game. On one hand, overstocking on a product can seriously cut into profit because your carrying costs will increase. That’s capital you could’ve used on more popular products. However, going out of stock can mean a severe loss of potential business.
When you have a smaller amount of orders, it’s not as stressful to keep your inventory numbers updated in Excel and across your selling channels. However, there’s still more room for error since the data is being entered manually.
Each time a customer creates an order, and that order moves to the next step in your fulfillment process, you have to update your numbers. You don’t want a customer placing an order for inventory that appears in stock, but will actually have backorder status.
In order to execute lean operations without actually going out of stock, inventory needs to be as accurate as possible. SKUs can help you know exactly what you have and let you know when product needs to be reordered. You can get a real-time look at your inventory with incredible accuracy.
Faster and More Accurate Order Picking
Once your customer places an order, the shipment needs to go out quickly. In this Amazon era, customers have very little patience when it feels like their order is taking too long to be shipped. Many warehouses struggle to keep up with the pace of their customer expectations.
SKUs can help warehouses find what they need even more efficiently. SKUs allow workers to find the exact product that they need with both speed and accuracy, which is required to keep up with customer demand.
As we mentioned, SKUs can be particularly helpful for products that have variants like color or size. For example, let’s say you have the same type of wrench, and you carry them in 15 different sizes. Looking for an SKU versus checking sizes will help your picker get that order to a packing station faster.
When you carry many variations of the same product, SKUs can help your pickers discern which is needed for an order faster.
Not only can they move faster, but the insight the SKUs give will help you to design a warehouse that is easier to navigate. You can put the best-selling items in the easiest to reach places and move slower inventory to the back. SKUs can help you to identify where each item should go because you have a better understanding of what sells best.
Efficient Packing and Shipping
Not only will picking orders be easier, but the packing process is faster with SKU barcodes. Simply by scanning the barcode, you can automatically print out the packing slip and shipment barcodes. This will create a more accurate shipment, and a smoother process all around.
SKUs allow you to create a more digitized process with a warehouse or inventory management system to save time. When you scan the barcode to send off a shipment, your inventory numbers can be updated as well if you have an integrated system.
No more mistakes about products you didn’t know were sent out earlier in the day. You can get up-to-date inventory levels right away.
FREE DOWNLOAD: Ready to get started? Download our SKU Code Generator for Microsoft Excel and to start creating SKUs for your products today.
Accurate Cycle Counting
Some warehouses strive to keep as accurate an inventory as possible with cycle counting. It’s less disruptive to daily operations and allows warehouse managers to ensure that they keep accurate inventory between scheduled full physical inventory counts.
SKU barcodes are essential to cycle counting. They directly affect the performance and accuracy of the counting process in your warehouse. The more thorough the SKU system, the faster and easier it is for cycle counting to take place.
Reduce Backorders, Incorrect Orders, and Shipping Delays
Have you ever walked into a shoe store and asked an associate for a specific size only to have them disappear for long amounts of time? Then they return to tell you that that specific size is out of stock?
It’s a frustrating experience for customers to wait around only to be told that the item they want isn’t there. SKUs help you to respond to your customer’s needs with speed and accuracy.
SKU barcodes won’t just help you respond quickly, but you’ll be able to minimize, and even potentially eliminate, your out-of-stock situations.
These factors all result in increased customer satisfaction with your business. If there does come a time when you do have items that are out of stock, this underlying sense of brand loyalty will help you keep customers that you might otherwise lose to your competitor.
Better Suggestions for Your Customers
You can use SKUs to recognize product characteristics that help your sales team identify additional items that your customer might want. They could also suggest alternatives when what your customer wants isn’t available.
SKUs can help give you valuable insight into the particular type of item that they want and help you quickly identify alternatives that will keep them happy.
This can also be done online too. Many e-commerce sites will offer suggestions for additional items that you might like, either as complementary to the item you’re looking at or as an alternative. This is typically done by applying an algorithm to the retailer’s SKUs to come up with similar items.
Following a search for a Nintendo Switch case, Amazon offered up sponsored suggestions for other Nintendo Switch cases (first row), but then also showed other related items (second row). This is the perfect opportunity to up-sell or cross-sell customers on items. Especially while they’re in a purchasing frame of mind.
How to Generate Your Own SKUs
Beware of using your supplier’s or wholesaler’s SKUs for your specific business. You could run into several problems using someone else’s SKUs.
First, it’s possible that there could be duplicate SKUs for different products. Because every vendor uses their own unique SKUs, duplicates can happen and cause serious confusion while trying to locate and sell products.
Second, every business has different customers, needs, and priorities. Your SKUs should reflect that. Keep in mind what’s most helpful to you and your company when deciding on how you’d like to create your SKU. Some general rules for correctly creating SKUs include:
The first two-three numbers should be a top-level identifier (warehouse, supplier, etc.)
In the U.S., most SKU’s are between 8-12 characters
Make sure that each letter and number has a meaning
Never use a zero
End with sequential number series
Make sure the format is easy to understand
These general guidelines will help keep your SKUs streamlined in your inventory and easier for everyone to understand.
Depending on how many products you have, generating unique SKUs for each product can become a cumbersome process. Many retailers avoid managing their inventory with SKUs because creating unique identifiers for each product is too challenging. It can waste precious time and resources that could be spent elsewhere.
A Pain-Free SKU Generator
When it comes to getting started, a stock keeping unit generator can make all the difference to make the process as pain-free as possible.
That’s why we created an SKU number generator that makes creating a basic SKU code strategy easier. Our Excel spreadsheet can help you create an SKU code strategy quickly.
Download our Free SKU Code Generator
Our SKU Code Generator Microsoft Excel template will give you a head start in creating unique SKUs for your inventory management.
Get up to 100% inventory accuracy by implementing SKUs in your warehouse operations.Download Now
Written by Ruthie Bowles
Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.