How Do SKUs Help in Inventory Management?

Faced with a warehouse full of a growing number of products, dozens of products that turn into hundreds or even thousands, it can become excruciatingly difficult to navigate. Without a robust inventory management strategy, retailers are left with a logistical nightmare. This is where SKUs come in, bringing order and efficiency to inventory management.

SKUs help with inventory management because these codes are unique and help identify the products you sell. This system is adaptable and customizable, meaning you have complete control over it. The speed of procedure execution enabled by SKUs enhances customer satisfaction, which helps you grow your store.

In this article, we will first define the SKUs and the differences between this system and the UPC system. Next, we’ll dive into the benefits of SKUs and then the steps to start using them.

What Are SKUs?

SKUs (stock keeping units) is a unique identifier or code assigned to products to organize them in the warehouse or on the shelves. SKUs are numeric or alphanumeric codes that facilitate inventory management and traceability of different products. Retailers often use it in combination with Universal Product Codes (UPCs) or other forms of product labeling to make product identification and management easier.

SKUs is a system to classify and categorize the products. SKUs describe in letters, numbers, or both, the products you sell. SKUs are reference codes that have meaning to you and your employees.

The Difference Between SKU and UPC

Both SKUs and UPCs are scanner-readable codes and are used by retailers to manage inventory. However, they have different purposes and distinct characteristics.

The Purpose of SKUs and UPCs

SKUs are mainly intended for internal use by a company to identify and manage the products in its inventory in a customizable way. They are designed to make inventory management, organization and tracking more efficient.

For their part, UPCs are universal and standardized codes that identify products when scanning them at the point of sale. UPCs allow products to be effortlessly identified, making it easier at the checkout and for inventory tracking.

The Uniqueness of the Products

SKUs are specific to each company. Different stores selling identical products may have completely different codes. SKUs are created and managed by each company based on its specific needs. Their format and structure therefore vary widely. They do not have global relevance or meaning.

As for UPCs, they are unique for each product and they are standardized. A UPC is assigned to a product by a central authority. This authority ensures that there are no two products with the same UPC. UPCs are globally applicable, as they are recognized and used by retailers all around the world. This makes them essential for selling products across multiple distribution channels. So, a product, a 240-gram box of ABC cookies for example, has the same UPC in all stores where it is sold, regardless of the country.

Customization Options

SKUs are flexible. Stores can create SKUs in a way that suits their internal operations well. These codes include store-relevant information like product attributes, categories, and other internal codes.

On the contrary, UPCs do not contain information about the product itself. UPCs are standardized 12-digit codes intended to be consistent in all instances where the product is sold. They are pre-assigned, so they are not flexible or changeable by the retailer.

The SKU system is complementary to the UPC system. In many cases, companies use SKUs in conjunction with UPCs. This dual system allows companies to meet both their internal and external needs.

For example, some retailers assign their own internal SKU codes to products for tracking purposes within their stores, even if the products already have a UPC. This helps them manage inventory more efficiently.

In short, if you want a customizable system tailored to your store and your particular needs, SKUs are an ideal option for you!

Reasons to Use SKUs

SKUs are a very useful tool for retailers. Let’s take a look at why many merchants choose to use SKUs.

Improved Inventory Management

Each SKU represents a specific product or item in your inventory. This unique identification allows precise tracking of individual products. SKUs thus help maintain accurate and up-to-date inventory levels. By assigning a unique SKU to each item, you can quickly and easily record changes in inventory levels as products are received, sold, returned or exchanged. For these reasons, SKUs reduce the risk of confusion or mismanagement.

Looking for the best inventory management methods? Click here!

SKUs provide a systematic way to track and manage inventory. They help keep accurate records of the quantity, location and status of each product, reducing the risk of overstocks or stockouts. This allows you to group similar products with shared attributes (e.g. size, color, style, condition) under a common SKU category.

SKUs thus make it possible to organize products efficiently. They make it easier to locate specific items in your warehouse or store. This results in faster order fulfillment and a reduction in the time needed to find a product.

With SKUs, you can also easily monitor stock levels of each product and order from suppliers at the right time to maintain optimal inventory levels and reduce storage costs. This minimizes the risk of running out of popular items or having too many.

Better Management of Variations and Life Cycles.

SKUs are useful for managing variations in product characteristics within the same product line. If a company offers a product in different sizes, colors, or styles, SKUs can incorporate this information, making it easier to track and manage these variations.

SKUs are also used to manage products throughout their life cycle, from their introduction to the discontinuation. This is especially useful for tracking slow-moving or seasonal items.

Efficiency in Inventory Rotation

SKU codes can include the date the product was received by the store or the product’s expiration date. When it comes to perishable goods, the classification enabled by SKUs ensures that older inventory is sold before newer items, reducing waste and potential losses.

Faster Fulfillment of Customer Orders

SKUs simplify and speed up order processing and fulfillment. They allow your staff to quickly identify the right products for customer orders. This reduces the chances of the wrong item being shipped to the customer. The fewer errors, the more satisfied customers!

Access to Data Analytics and Report Customization

SKUs provide valuable data. You can track individual product performance, identify the best sellers and evaluate the profitability of each SKU. This information makes pricing, marketing and inventory decisions easier.

Find out here how data analysis can help you optimize your operations.

Moreover, SKUs allow you to generate detailed reports specific to each product or product category. It is particularly useful when you have an extensive product catalog with various attributes, as you can analyze data for specific categories, sizes, or styles. So you can evaluate the performance of different product attributes, such as size, color or brand.

These data and reports enable informed decisions regarding product inventory and sourcing.

Fewer Losses and Theft

SKUs can help deter internal and external theft. When inventory is closely monitored using SKUs, discrepancies become more visible, making it easier to discover and prevent loss and theft.

Simplifying Returns and Exchanges

SKUs make return and exchange management of products easier. With SKUs you can quickly identify the product, check its condition and process the return more efficiently.

Adaptable System

As your business is growing, SKUs make it easier to manage a wider and more diverse range of products. They provide a scalable system to add new products.

Ease of Communication

When everyone in your organization uses the same SKUs, communication about products and stock levels is simplified. This reduces the risk of misunderstandings and errors.

In short, SKU codes make it easier to track inventory and sales. So, time is saved on inventory, supply and order management.

How to Use SKUs?

There are several things to consider before using SKUs. Here are the steps to guide you if you are a beginner in the art of SKUs.

1. Understand Your Products

First, you need to have a clear understanding of the products you are selling. Decide which attributes are essential to distinguish one product from another, such as size, color, model, condition, brand, quantity of product in a jar or package or any other relevant characteristic. Knowing your products and their distinctive features will inform how you structure your SKUs.

2. Choose a Format

Determine the format of your SKUs. The most common format: combinations of letters and numbers. Codes often include short words or abbreviations. You can customize the format of your SKUs according to the needs of your store.

3. Develop a Naming Convention

Create a systematic naming convention for your SKUs. The convention must be coherent and logical, making it easy to understand and use for your team. For example, if you sell clothing, you might use a format like “CLOTH-S-W-RED” for a small size red shirt for women.

Here are 2 more examples of SKU codes.

• BOOK-SF–XYZ123: a sci-fi book with an ISBN XYZ123.
• BEER-IPA-ABC-493: a 493 ml bottle of IPA style beer from the ABC brand.

4. Implement an Inventory Management System

If your current system doesn’t already do this, invest in inventory management software or tools that allow you to generate, assign and track SKUs. These systems simplify processes and reduce the risk of errors.

This SKU system will be very useful for tracking stock levels, sales and supplier or customer orders. This data can help you make informed decisions about sourcing, managing stockouts, and optimizing your inventory.

5. Assign SKUs to Products

For each product in your inventory, assign a unique SKU based on your chosen naming convention. Ensure that each SKU accurately represents the product attributes.

Important : the codes should make sense to you. If your team doesn’t understand them, they’re useless.

6. Put Labels on Products

Print labels with SKUs, then attach them on each product or product packaging. Barcodes or QR codes are useful for quick scanning and tracking.

7. Create a Database

Maintain a comprehensive database that lists each SKU along with product details such as description, cost, price, supplier information and stock levels. This database will be the central reference of your inventory.

8. Train Your Employees

Be sure that your team understands the SKU system and knows how to use it. Proper training will help reduce errors and improve efficiency. Customers will be happier if employees are familiar with your procedures and complete them quickly and without errors.

9. Integrate SKU System With Your Point of Sale and Ordering Softwares

Make sure your SKU system is integrated with your ordering processes and point of sale software.

Click here to learn how to choose the right POS software for your store.

Point of sale softwares help to simplify the supply chain and improve your ability to meet customer demand. Some POS software can even create SKUs automatically.

There you go, you now know a lot more about SKUs. You can say goodbye to chaos, confusion and lost products in the frightening warehouse clutter. These customizable and flexible codes help optimize your inventory, save time and money, and avoid nervous breakdowns. You will then be able to focus on growing your business and less on the sometimes exhausting inventory management.