Stock Keeping Unit (SKU)

What is SKU (Stock Keeping Unit)?

A Stock Keeping Unit (SKU) is a unique alphanumeric code assigned to a product to identify and track it in inventory and sales systems. SKUs are used by retailers, warehouses, and e-commerce businesses to manage stock and differentiate products.

Key Features of an SKU:

• Uniqueness: Each SKU is specific to a product, including its variations (e.g., size, color, or model).
• Internal Use: SKUs are created by businesses for internal tracking and are not standardized across industries.
• Organization: They help organize inventory, ensuring quick identification and retrieval of products.
• Data Insights: SKUs provide valuable data for sales trends, stock levels, and reorder needs.

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Why Is a SKU Important?

Stock Keeping Units (SKUs) are critical for efficient inventory and sales management. They provide businesses with a streamlined way to organize, track, and analyze their products. Below are the main reasons why SKUs are important:

1. Inventory Organization: SKUs allow businesses to categorize products effectively, making it easier to locate items and maintain an organized inventory system.
2. Improved Stock Tracking: SKUs provide real-time insights into stock levels, helping businesses identify fast-moving products, avoid overstocking, and prevent stockouts.
3. Enhanced Order Accuracy: By using SKUs, businesses can match products to orders more precisely, reducing errors in picking, packing, and shipping.
4. Data-Driven Decision-Making: SKUs enable detailed sales and inventory analysis, offering insights into trends, seasonal demands, and profit margins.
5. Streamlined Reordering Process: SKUs simplify reordering by clearly identifying low-stock or out-of-stock items, ensuring smooth replenishment.
6. Customer Satisfaction: Quick product identification and efficient inventory management translate into faster order fulfillment, enhancing the customer experience.

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How to Create SKU Codes for Your Products

Creating SKU codes is a straightforward yet essential process for organizing and managing inventory. A well-structured SKU system enhances efficiency and minimizes confusion. Follow these steps to create SKU codes for your products:

1. Define the Format

Decide on a consistent structure for your SKUs. Use a combination of letters and numbers that represent key product attributes like category, size, color, or brand.

• Example: CATEGORY-BRAND-COLOR-SIZE (e.g., JKT-NIKE-BLK-MED)
  
  

2. Include Relevant Product Information

Identify the attributes most important to your business and customers. Common components include:

• Category: The type of product (e.g., JKT for jackets).
• Brand: The manufacturer or brand (e.g., NIKE).
• Color: The product's color (e.g., BLK for black).
• Size/Specification: Size, weight, or other dimensions (e.g., MED for medium).
  
  

3. Avoid Special Characters

Stick to alphanumeric characters. Avoid spaces, slashes, or symbols, as they can complicate integration with software systems.

4. Keep It Simple and Short

Ensure SKUs are concise but informative. Overly complex codes can lead to errors and confusion.

5. Test for Uniqueness

Each SKU must be unique to prevent duplication and ensure accurate tracking. Verify that no two products share the same SKU.

6. Implement Logical Sequencing

Use a logical order to make SKUs intuitive. Group similar products together for easier identification and tracking.

7. Use Automation Tools

Consider using inventory management software to generate and manage SKUs automatically, ensuring consistency and scalability as your product catalog grows.

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Example of a Well-Crafted SKU Code:

• JKT-NIKE-BLK-MED: A medium black Nike jacket.
• SHP-ADID-WHT-SML: A small white Adidas shoe.

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How to Assign SKUs to Products?

Assigning SKUs to your products ensures seamless inventory management and quick identification. Follow these practical steps to assign SKUs effectively:

1. Organize Products by Categories

Group your inventory into categories such as clothing, electronics, or home goods. This helps create structured and logical SKUs that are easy to understand and manage.

2. Choose a Clear SKU Format

Use a consistent format that includes key product attributes. For example:

• Category-Brand-Color-Size
• Example: TSH-NIKE-BLK-LRG (T-shirt, Nike, black, large).
  
  

3. Start with a Prefix for Categories

Assign a prefix for each product category. For instance:

• TSH for T-shirts
• SHP for Shoes
• BAG for Bags
  
  

4. Incorporate Specific Attributes

Add identifiers for key attributes, such as:

• Brand: Include a shortened version of the brand name (e.g., NIKE).
• Color: Use a three-letter code (e.g., BLK for black).
• Size or Model: Include sizing, weight, or model numbers (e.g., MED for medium).
  
  

5. Avoid Duplication

Ensure each SKU is unique to avoid confusion or errors in tracking. Use a checklist or automated tools to confirm there’s no overlap.

6. Use Numbers for Variations

If a product has multiple variations (e.g., colors or sizes), add a numeric code for easier distinction. For example:

• TSH-NIKE-BLK-MED-01 for black, medium.
• TSH-NIKE-BLU-LRG-02 for blue, large.
  
  

7. Test and Validate Your System

Before fully implementing, test your SKU assignment on a sample of products. Ensure it’s logical, scalable, and aligns with your inventory software.

8. Implement SKUs in Inventory Software

Once SKUs are assigned, input them into your inventory management system for seamless tracking and order processing.

A well-planned SKU assignment system saves time, reduces errors, and streamlines your operations, allowing your team to efficiently manage products at scale.

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SKU Codes Challenges and Solutions

Complex SKU Structure

• Problem: Overcomplicated SKUs cause confusion.
• Solution: Standardize and simplify SKU formats.
  
  

Duplicate SKUs

• Problem: Duplicates lead to inventory errors.
• Solution: Use inventory software and regular audits.
  
  

Managing Variations

• Problem: Multiple product attributes create confusion.
• Solution: Systematize variations with consistent identifiers.
  
  

Scalability Issues

• Problem: Poor SKU design hinders growth.
• Solution: Design SKUs to accommodate future expansion.
  
  

Human Errors

• Problem: Manual entry leads to mistakes.
• Solution: Automate SKU generation.
  
  

Outdated SKUs

• Problem: Obsolete SKUs clutter the system.
• Solution: Archive unused SKUs regularly.
  
  

Misaligned Systems

• Problem: SKU mismatch across platforms.
• Solution: Integrate systems for alignment.

These key points ensure efficient SKU management and streamlined inventory processes.

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SKU vs UPC Code and Barcode

SKU (Stock Keeping Unit)

• Purpose: Internal identifier for managing inventory.
• Customization: Unique to each retailer, tailored to their system.
• Scope: Specific to the retailer; not universal.

UPC Code (Universal Product Code)

• Purpose: Global identifier for products.
• Customization: Standardized and issued by GS1.
• Scope: Universally recognized, used for scanning at checkout.
  
  

Barcode

• Purpose: Encodes data (like SKU or UPC) for scanning.
• Customization: Represents either SKU or UPC based on the system.
• Scope: Functions as a visual representation of data for automated processing.
  
  

Key Differences

• Purpose: SKUs manage internal inventory, while UPCs are universal product identifiers.
• Scope: SKUs are retailer-specific, whereas UPCs are globally standardized.
• Relation: Barcodes can represent both SKUs or UPCs depending on the use case.

Understanding these distinctions helps businesses streamline inventory and improve checkout processes.

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