SKUs, or stock-keeping units, provide valuable information about your inventory and are used to track inventory. Business owners unfamiliar with SKU architecture often use the manufacturer SKU or even have randomized the SKU leading to duplicates or inaccurate tracking methods. Knowing what an SKU is and how it can benefit your business is essential for the healthy growth of your supply chain management and business process.
What is an SKU?
An SKU is a stock keeping unit. They provide information about the characteristics of the product in an alphanumeric sequence. In an SKU, you should be able to identify the most important information about the product, such as its color, shape, price, brand, and/or size. When architecting an SKU for a product, you will want the essential information to the least important information.
These SKU sequences are unique to your business and inventory management software. They should be formatted to represent what your customers or vendors ask the most about your product.
Your SKU is used to track your inventory and is unique to your business. It is essential to know that they will reflect your business’s most significant needs. Do your customers frequently ask about the colors of your product? If so, you will want this information to be listed first, as it is the most important. Additionally, what is the size of your stock? If you have a more extensive inventory stock, you may need to break your SKU down further.
What A SKU Is Not
Your SKU should not be your UPC or your manufacturer’s SKU, as this will prevent you from accurately tracking your inventory and ultimately lose out on the many benefits of having a clean SKU process. You will want a clean SKU database when you are ready to grow into a cloud-based inventory management system. These systems help organize and sort your inventory so you can find data faster that concerns your cost of goods compared to your selling price, overall inventory debts, and assets, as well as help complete, accurate forecasting.
How to build an SKU
Besides what your customers are frequently asking about, you want to consider several other factors when formulating your SKUs. It is crucial that your SKUs:
- Do not have leading zeros
- Have between 12 and 24 characters
- Do not begin with a letter
- Do not have a random alphanumeric association
- Do not have duplicate sequences
- Have identifiable characteristics of that product; this defines a good SKU
SKU benefits to your business
As mentioned above, SKUs not only provide quick ways to find answers for your customers or vendors most frequently asked questions they also allow you to track inventory and offer a variety of other benefits such as:
- Track inventory, re-order points
- SKUs help track your inventory and can give you a clear indication of the re-order point of a product
- Knowing which inventory is selling the quickest and where you should allocate your funds
- Analyze assets and debts within your inventory stock
- SKUs allow you to see what is selling and what characteristics bring your customers back
- Offer new product suggestions to customers
- Compare like SKU characteristics and offer
- Increase customer satisfaction and loyalty
- When you have an SKU system that alerts you to re-order points, you decrease out of stock statuses
- When you have excellent customer service, you retain more loyal customers. Excellent customer service means you answer questions promptly. Additionally, products are shipped out immediately (because the products are picked, packed, and shipped quickly. )
- Provide more products that are similar to the most popular items
Challenges of SKUs in the real world
- Shopify doesn’t require an SKU, but cloud inventory platforms do. What is your team going to need to do to fix this issue?
- In Shopify, you can change the SKU for a product any time you want. Most other systems DO NOT allow you to change the SKU on a product. How are you going to handle standardization or resolve issues when they arise?
- For some cloud inventory platforms, everything relies on the SKU. What if you uploaded the wrong SKU. How will you handle fixing the database inside the cloud inventory software?
- Each sales channel (Amazon, Shopify, Etsy, etc.) thinks about products differently.
Because SKUs are not a one size fits all, the more specific and unique your SKU architecture is, the more effective it will be for your business and supply chain process. SKUs boil down to what is important to you, what is important to your customer, and what is important to your vendor. After you identify these fundamental needs, you can create SKUs that manage your inventory more efficiently and accurately, eventually giving you the ability to continue to grow your business.