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What Is a SKU & How To Manage Them

Whether you’re new or an expert in the warehousing and order fulfillment industry one thing is clear, there is quite a bit of specialized terminology to learn and understand. Learning this terminology and how it fits into your business though is crucial if you’re going to successfully navigate your order fulfillment and inventory management.

One important term and industry concept to familiarize yourself with are SKUs. In this article we’ll layout what an SKU is, how to manage them, and why they’re important.

Like most other industries the warehousing and inventory world is full of its own acronyms. SKU (also used as a word acronym pronounced skew) stands for Stock Keeping Unit.

A stocking keeping unit (SKU) is a distinct alphanumeric code that is used to identify a specific product type and is used as an inventory control measure. SKUs are generally employed by businesses for internal use only. You will generally find SKUs on products and they communicate a variety of information about the product characteristics such are color, sizing, brand, and so on. SKUs are used by businesses such as retailers, fulfillment centers, warehouses, and in product catalogs to track inventory levels, movement of items, and to organize the management of inventory. SKUs can be used not only for physical products but for services offered by a business as well.

SKUs must be unique to the product it identifies to distinguish it from others. A good example of this would be if a company produces and sells the same basic t-shirt but offers it in various colors and sizes. Each combination of color and size would have its own unique SKU. So, if our hypothetical t-shirt were offered in red and in sizes small, medium, and large the business would have three distinct SKUs.

Now when it comes to SKUs there are no set universal standards. Businesses thus have a fair amount of liberty to create their own SKU codification system, but it is recommended that a certain amount of standardization is applied so that when SKUs are generated it is done in an organized and structured way.

When creating an SKU system, beyond ensuring that each is unique and specific, avoid using symbols that wouldn’t fit the context, like an exclamation point. Also try not to use characters that are specific to a language as this may throw people off from other regions in the world.

An SKU should also only communicate a description of the product itself, so avoid attributing things like production facilities, point of origin, and other details that go beyond the product itself, especially since there are plenty of other number identifiers to account for those details.

As well ensure that your SKUs are the same across your entire business (I.E. warehouses, stores, offices etc.) so that there is no confusion. And finally standardize your nomenclature so that there it is a logic and structure behind it and as much as possible that your SKUs contain the same amount of digits. Many organizations use a pyramidal alphanumerical strategy for their SKU system which helps with attributing the right details while facilitating recognizability. For instance, our t-shirt producer may use a code like TM-05-XL which would translate to:

  • T: T-Shirt

  • M: Men’s

  • 05: Red (Many companies use numerical codes for colors)

  • XL: size extra large

Of course, the number of products you carry, produce, and the variety will have an impact on your SKU system so be sure to take these variables into consideration.

SKUs are important because they essentially are the basis for good inventory management. Depending on your business and whether it manufacturers products or sells products produced by other company’s SKUs are critical for a number of reasons. This includes as we mentioned your inventory management, as SKUs will help you know how much of each product and product variants you’re storing, which require restocking, and which products are selling best. They also help with item identification which goes a long way in optimizing your picking process and improving your overall order fulfillment. By being able to accurately identify products you ensure that customers are getting the items they ordered. SKUs also allow you to track your inventory and product performance by identifying top sellers versus those that are underperforming. You will also be able to track inventory turnover, and defect rates amongst other KPIs.

As we can see SKUs play a vital role for managing your inventory in an organized and systematic way. Having a well-structured SKU system though is only part of maintaining and tracking the inventory associated to it. To make this easier a WMS, like Akatia’s WAM solution for Salesforce, can help efficiently track your SKUs and inventory related to them. In WAM you can set up your different product types and associate the corresponding SKUs to them. Once you begin receiving and shipping inventory the system will be able to track how much of each SKU you have in stock, how many you have shipped, where they a stored, as well as relate this information to customer orders and pick lists to make fulfillment easy and reduce errors.

Furthermore, a WMS like WAM will be able to run reports on all your SKUs giving you the detailed and insightful feedback to make good business decisions and better manage your inventory.

SKUs as we’ve seen have an important role to play in successfully managing your inventory. By understanding and implementing a well-structured SKU system that considers your product variables and business type, along with implementing the right technology solutions to support it you will be able to manage your SKUs effectively. In turn this will increase the efficiency of your inventory management allowing you to manage your fulfillment in an organized way.

If you’re looking to transform the way you manage your inventory and warehouse, click the link below to get in contact with us. We’d be happy to speak with you!


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