Have you ever looked at a product listing and wondered what that cryptic string of letters and numbers meant? The identifiers keeping track of your inventory are SKUs (Stock Keeping Units). But what does stock keeping unit mean?
It might seem like an indecipherable code reserved for the warehouse, but behind those seemingly random characters lies the secret sauce to a thriving e-commerce business.
You are in for a treat if you aren't currently using SKUs to grow your e-commerce business and take advantage of a more organized system. Even if you are presently using an SKU system, we'll talk about the different ways you can make things more organized and streamline your operations and workflow.
In this guide, we'll discuss SKU types, the best SKU format, SKU management techniques, and how to generate SKU numbers.
What is SKU in E-commerce?
SKUs, or Stock Keeping Units, are crucial for managing e-commerce inventory. They assign unique identifiers to each product:
- Track inventory levels – Prevent stockouts and overstocking.
- Forecast demand – Analyze sales data to predict future needs.
- Streamline order fulfillment – Quickly and accurately pick and pack orders.
- Organize your warehouse – Efficiently locate products and optimize storage space.
Maximize the Benefits of Your SKUs
The importance of SKUs in inventory management cannot be understated. Here are some ways you can further optimize your SKUs:
- Become an Inventory Master – Track stock levels in real-time, preventing those dreaded "out-of-stock" nightmares. You can communicate more clearly with your supplier, or keep track of your warehouse.
- Forecast Like a Pro – Analyze historical sales data tied to SKUs for each product, allowing you to predict future demand and avoid overstocking or understocking. What are SKU codes? This identifier can increase profit margins and reduce lead time while causing limited dependence on current inventory levels.
- Fulfill Orders with Lightning Speed – With clear product identifiers like SKUs, picking and packing orders becomes a breeze, ensuring your customers receive their purchases faster.
- Less Warehouse Chaos – Organize your products efficiently with a system based on SKUs, making it a cinch to locate anything in your warehouse.
Choosing Your SKU Format: How to Create A SKU Number
Just like snowflakes and pancakes, no two e-commerce businesses are exactly alike. That's why there are three main types of SKU systems to choose from, each with its own strengths:
1. The Simple Sequential SKU System: How to Create SKU Code
This is your classic "number crunching" approach. Products are assigned sequential numbers as they're added to your inventory. What is SKU number? Depending on the product, it is an identifier of what you are trying to call upon.
- Pros: Easy to implement, particularly for businesses with a small, manageable product range.
- Cons: Lacks detailed information about the product. Makes identifying product variations (color, size) a guessing game.
- Example: SKU #1001, SKU #1002, SKU #1003 (Limited visibility into product details)
2. The Alphanumeric SKU System:
Here's where things get a bit more interesting. This method incorporates letters and numbers to represent different product attributes (e.g., size, color).
- Pros: Provides more detailed information about the product. Simplifies identification of product variations.
- Cons: Can become complex with a large number of attributes. It may require a coding system for consistency. The SKU meaning shouldn't ever be altered.
- Example: SHRT-BLK-100 (Shirt, Black, Size 100)
3. The Hierarchical SKU System:
This system offers the ultimate level of detail for businesses with a vast and diverse product range. It utilizes a multi-level structure to categorize products by brand, category, sub-category, and attributes.
- Pros: Offers a highly detailed representation of product information. It is ideal for businesses with a complex inventory.
- Cons: Requires careful planning and implementation. It can be cumbersome for smaller businesses.
- Example: CLOTH-SHIRT-MEN-S-BLK-100 (Clothing > Shirt > Men > Size Small > Black > SKU #100)
Best Practices for Crafting Effective SKUs: What is SKU in E-commerce?
Creating effective SKUs is essential for efficient inventory management and streamlined operations. Following these best practices ensures your SKUs are informative, consistent, and easy to manage:
- Choose a suitable SKU system. Select a system that aligns with your product catalog and inventory management needs.
- Create informative SKUs. Incorporate relevant product details like size, color, and brand.
- Maintain consistency. Use a standardized format for your SKUs to avoid confusion.
- Keep SKUs concise. Avoid overly long codes that can be difficult to read and manage.
- Use letters and numbers. Avoid special characters to prevent parsing issues.
- Consider language compatibility. Ensure your SKUs are compatible with different keyboard layouts and languages, especially if you operate in a global market.
Here are some examples of how to make a SKU and structures across different industries to demonstrate this point further:
Apparel SKU example:
- TSHRT-M-GRY-S (T-Shirt, Men's, Gray, Small)
- JNS-W-BLU-28 (Jeans, Women's, Blue, Size 28)
Electronics SKU example:
- TV-4K-55 (Television, 4K Resolution, 55-inch Screen)
- LAPTOP-I7-16GB (Laptop, Intel Core i7 Processor, 16GB RAM)
Furniture SKU example:
- CH-TBL-4-LEG-OAK (Chair, Table, 4 Legs, Oak)
- SOFA-3-SEAT-BLK (Sofa, 3-Seater, Black)
Books SKU example:
- BK-FICTION-NOVEL-12345 (Book, Fiction, Novel, ISBN 12345)
- BK-NONFICTION-HISTORY-67890 (Book, Non-Fiction, History, ISBN 67890)
Read More: How to Create SKU Numbers?
Common Pitfalls to Avoid
To ensure your SKU system is efficient and effective, avoid these common pitfalls when deciding how to create a SKU for a product:
- Overcomplicating SKUs – Keep it simple. The goal is clarity, not complexity.
- SKU Proliferation – Avoid creating unique SKUs for every minor variation. Focus on essential information.
- SKU Rationalization – Regularly review and eliminate unnecessary SKUs to streamline your operations.
You'll need to carefully manage your inventory to make sure that all the work you have done to get your SKU system up and running clearly reflects inventory levels. To effectively manage backorders and out-of-stock situations, it's essential to:
- Communicate clearly – Keep customers informed about the status of their orders and provide estimated delivery times.
- Offer alternatives – Suggest similar or complementary products to minimize customer frustration.
- Optimize inventory – Analyze sales data and demand patterns to improve inventory planning and reduce stockouts.
Backorders and stockout situations are both frustrating for customers, but there's a fundamental difference. When an item is back-ordered, it's temporarily unavailable, but you can still order it and receive it later. If it's out of stock, it means the item is completely unavailable for purchase right now.
Optimizing SKU Systems for Inventory Management
Effective SKU management comes down to organization. You may have created extremely descriptive codes, but that's only one piece of the puzzle.
Leverage your SKU data to streamline your inventory operations and ensure customer satisfaction. Here's how you can make the most of it:
- Track Stock Levels. Monitor inventory in real-time or set automatic threshold reminders to avoid stockouts and overstocking.
- Set Reorder Points. Use sales history and lead times to determine optimal reorder points.
- Analyze Sales Trends. Identify best-selling and slow-moving items to optimize your product mix.
- Use Inventory Management Software. Invest in tools that integrate with your e-commerce platform for streamlined SKU management.
- Implement RFID or Barcode Technology. Enable real-time SKU tracking and accurate inventory management.
- Ensure data synchronization. Integrate your SKU system with your e-commerce platform for seamless data flow.
Empowering Your E-commerce Operations with SKU Management Tools
To make the most of your SKUs, arm yourself with the right tools:
- Inventory Management Software – Optimize your operations with software that integrates seamlessly with your e-commerce platform.
- SKU Generators – Automate the process and ensure consistency with dedicated SKU generation tools.
- ERP Systems – An ERP system offers comprehensive inventory management, including SKU tracking and optimization, for larger businesses.
Real-Time Tracking:
Real-time data will give you an edge over your competition. It is not nice to have, but it is a must-have.
- RFID and Barcode Technology – Embrace these technologies for accurate, real-time inventory monitoring.
- Platform Integration – Ensure your SKU system works seamlessly with your e-commerce platform for smooth data flow.
Leveraging SKU Data for Success:
SKUs are more than just inventory tracking. They are a valuable source of data that can significantly boost sales and enhance customer satisfaction. Here's how they can help you further drive the point home:
- Cross-selling and Upselling – Recommend complementary products based on past purchases.
- Personalized Recommendations – Offer tailored suggestions to each customer.
- Demand Forecasting – Predict future sales and optimize inventory levels.
- Processing Returns – It comes with the business. Process returns faster using more affordable options so you can maintain customer satisfaction and drive further growth.
Why Your SKU Strategy Can Make or Break Your E-commerce Store
SKU management is an all-encompassing term that can mean many things depending on your business. Regardless of your stage in your journey, this guide can help you build, refine or understand precisely where you should be going next.
SKUs may seem like a small detail, especially at first, but they play a vital role in keeping your customers happy and dealing with future growing pains. If the operational and sales processes align, you'll have a more harmonious team—regardless of the growth you are experiencing.
Frequently asked questions
A SKU (Stock Keeping Unit) is a unique alphanumeric code assigned to a specific product or item in inventory. It helps businesses track stock levels, manage inventory, and differentiate between similar products. SKUs streamline inventory management and sales processes.
A SKU number is a specific alphanumeric code assigned to a product to uniquely identify it within a business's inventory system. This number helps track stock levels, manage sales, and differentiate between similar items, making inventory management more efficient.
A product SKU (Stock Keeping Unit) is a unique identifier assigned to a specific item in inventory. It helps businesses track stock levels, manage sales, and differentiate similar products.
