Understand Stock Keeping Unit the Right Way

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There might be moments for growing businesses when they find themselves struggling to stay on top of their inventories once the sales start rolling in. This is where the Stock Keeping Unit or SKU comes into the picture. 

Next question is – What  is SKU? 

Have a look here:

KDH-09-ERT

Do you know what is this? 

Or…DFR-J-POL this? 

Either you do, or you don’t. 

Either way, we have created a compilation of the most asked question on and about SKU. Read this article to know more. 

What is the stock-keeping unit or SKU? 

Pronounced as skew and a short form for Stock Keeping Unit, SKU is used by retailers to identify and track their inventory or stock. SKU is a unique code consisting of alphabets and numbers that identifies the characteristics of each product such as the manufacturer, brand, style, size and colour.  Companies usually issue their own SKU codes specific to the product or service they offer. 

Why is SKU important?

Let’s understand this better by taking an example. 

You are a textile manufacturer and you have been designing t-shirts for some years now. Let’s say you are manufacturing white t-shirts with mandala print on it. 

Now there are almost 15 unique t-shirts. These come in 5 different colours with 4 size variants (S, M, L, XL).

Let’s calculate the number of t-shirts you have now:

15*5*4=300.

300 unique products!

Even if this seems like a very small number at first glance, you know that those are a lot of unique products to take care of.

If your warehouse or your store is filled with hundreds or thousands of products that you have no SKU of, then having a clear understanding of stock levels of each product and their variants gets tedious. 

Here are the benefits of having an SKU in place.

  • Brings everyone on the same page: One of the major advantages of using SKU is that every individual across the organisation can understand the products and their movement efficiently
  • Reduces the risks of errors: Lengthy product names & variant attributes are difficult to remember and this can cause communication errors; SKU helps eliminate this 
  • Easy stock-taking: SKU assists you with easy inventory management; i.e it helps you to identify variants by which you can easily check if inventory matches the actual stock levels
  • Prioritizes products: SKUs allows you to identify sales volumes for each product variant. Perhaps certain colours or size combinations are more popular than others
  • Optimize inventory: Set reorder points on each product variant on your stock keeping unit to keep inventory at maximum efficiency

Please note: SKUs are sometimes misunderstood for Universal Product Code or UPCs. It must be noted that they are two different codes, serving different purposes. SKU is for the internal team to label and identify the inventory. UPC, on the other hand, stands constant throughout, no matter who sells the product. 

Creating & setting up SKU

Now that you know what is SKU and why is it important, the next step is to know how to create and set up your SKU. The most important point before you get started is to keep them human-readable. This means that the purpose of SKU is not to enable a machine to reach them but to set up in a way that anyone who works with the inventory can understand and read them.

In a nutshell, SKU codes must help you identify the exact variant of a product you are looking for. Hence, you must incorporate information on colour, size, type and other relevant attributes. 

For example, if your product list includes t-shirts that come in different sizes and prints, then the following can be a good SKU example code:

T-shirt with the mandala (size L, white & yellow) – TSM-L-WY

Reading and decoding these codes initially might seem like a big task but for those working in and with the organisation, using these daily just becomes their second nature. There is no set way or format to create an SKU. It is seen that companies usually develop their own set of codes that seems convenient to them and which everyone in their organisation follows and understand for smooth movement of the products. 

The point is that secret language and shortcodes are not just useful for gossip and inside jokes. The ones like SKUs can be a big boon if used well enough. You can manage your inventory smoothly with the language that is known just to your team, helping you save on a bulk of time and effort!

Also read: Best Inventory Management Techniques You Need to Know