What is an SKU and Why it is so Important

Whether you’re selling products online or offline, you need a unique Stock Keeping Unit (SKU) number for each item. Why? It’s a tracking code and a variant differentiator. It’s the only sensible way to track goods in your supply chain from purchasing to production and after-sales.

This data is fundamental to any e-commerce business, supplier, wholesaler, or reseller selling merchandise at volume. It is also a term frequented in external fulfilment centers and among employees in an organization, to review product performance within inventories or catalogs.

What does SKU stand for, and what is an SKU number?

An SKU code, or Stock Keeping Unit, is traditionally an 8-12-character alphanumeric number. This code is not the barcode or Universal Product Code (UPC) that you might be familiar with.

Before we dive into the differences, it’s important to note what information an SKU contains.

An SKU is an internal, machine-readable code that consists of numbers and letters, and it describes the model, type, color, size, or any other identifying traits of a particular item. This code is assigned to a product and is only used within your organization (or third parties accessing your data). While the term is globally recognized, the code can only be unique to your business.

No two products that have the same SKU (barcode, yes!), regardless of industry or category. You cannot duplicate them, nor should you reuse them. Be strategic with the data you put into each SKU to avoid errors, and build each product SKU the same to maintain uniformity.

The difference between a barcode and an SKU code

In inventory management, a few words are used interchangeably in the wrong context. And “SKU and barcode” are one of them. The biggest difference between the two is that barcodes are not unique to your brand—they share a universal code from one manufacturer.

For example, a Nike Air Force 1 pair of sneakers sold in a chain store in the US will have the same barcode as a Nike Air Force 1 pair of sneakers on Zalando UK. However, this is not the case with SKUs—each store that stocks a product will have its own SKU variation.

Unlike SKUs, these codes can be accepted by certain sales channels. They are not free, and you cannot make them up as you would with an SKU. To get a code assigned to a product, it needs to be processed by the American company, GS1 , to meet international business standards. This company will administer the process for a per-code fee, and once completed; the code is set.

This code will be used for the duration of a product’s shelf life until it’s discontinued.

Why do companies use SKU codes?

Inventory tracking is the main reason why companies use an SKU code.

But if we’re honest, it also makes you and your customers’ lives easier.

• Less human error and discrepancies made in data management
• Faster customer service and the ability to assist around the clock
• Improved customer experience due to product consistency
• Simplifies stocktakes and provides an accurate way to calculate shrinkage
• Improved demand forecasting and e-commerce catalogue management
• It becomes easier to monitor output, which, in turn, boosts revenue and profits
• Ability to upsell and cross-sell products using relatable SKU product data

When you’re working with and sharing thousands of products internally and externally, you need a systematic inventory tool that works. And by this, we do not mean spreadsheets. You need software that is designed to streamline manual processes and increase cost-efficiency.
This way, you get your products to market faster and have a closer eye on demand forecasting.

By monitoring stock movement, sales, and the customer experience in real-time, you can use these insights to adjust your approach to provide the best customer service and maximize profits.

How to make a good SKU?

As mentioned, an SKU is a sure way to identify and differentiate stock. While it is both used for tracking and decision-making, it also needs to be something that is easy to read, manage and organize. You always want to ensure that you make smart decisions with your SKU naming.

So, in saying that, stick to less than 12-characters and consider the following elements:

• The first two digits should be your top identifier/s points
• Avoid starting an SKU with the number “0” at all costs
• Avoid using manufacturer numbers in your SKU
• Do not reuse old SKU numbers from past product lines
• Begin your SKU product code with letters first
• Avoid using special characters or symbols in your SKU
• Stick to the most important information and don’t overcomplicate it

How SKU can help your Inventory Management

To truly succeed in this line of business, you need to have the right information at your fingertips. Too often, companies use guesstimates on purchasing orders, which leave them with too much or too little stock to deal with. Both are detrimental to your bottom line.

As it stands, 75% of businesses lose sales as a result of problems in managing their inventory. This can be anything from loss to stockouts or even too much inventory on hand. If you look at monetary findings across the globe, bad inventory costs $1.75 trillion annually. This clearly indicates the importance of an inventory management system to manage your data.

Download our free resource on the Six Steps to Effective Inventory Management.

The competition is widespread, and advanced technology is making it easier for small businesses to leap ahead. Essentially, the more insights you have about your products and their performance, the easier it will be to make informed decisions that meet customer demands. By investing in a single source of truth that can integrate with third-party systems to store your data, you can revolutionize your inventory and improve demand forecasting.

Make use of the above tips in your SKU development, and make your data work for you. Eliminate unnecessary inventory costs with Intuendi and start increasing your profiles today!

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