What is a Stock Keeping Unit?
A Stock Keeping Unit (SKU) is a unique alphanumeric code assigned to each distinct product for sale in a store or inventory.
Purpose of Stock Keeping Units
The SKU code facilitates tracking the quantity, sales, and inventory levels of that product - a critical element in managing inventory effectively. They are fundamental to efficient warehousing, inventory management, and sales data analysis.
Composition of Stock Keeping Unit
A SKU typically consists of an internal code that makes the most business sense to the company. It could include information about the product category, size, color, manufacturer, or other specific product traits.
Not to be confused with UPC
It's important not to confuse SKU with Universal Product Code (UPC). While both are unique identifiers, the UPC is universally recognized and remains the same across all businesses, while SKU is unique to each store or business.
Importance of Stock Keeping Units
For businesses, SKUs are crucial for maintaining a streamlined inventory. In e-commerce, SKUs are pivotal in managing online sales, ensuring correct and prompt fulfillment, and delivering customer satisfaction.
Why Use Stock Keeping Units?
Let's explore the reasoning behind businesses using SKUs and how they bring efficiencies to inventory management.
Accuracy in Inventory Management
SKUs enable businesses to accurately keep tabs on inventory levels, making restocking more efficient and preventing overstocking or understocking situations.
Speed and Efficiency
Thanks to SKUs, handling and locating specific products in large warehouses or storage facilities becomes quicker and easier, saving time and improving efficiency.
Enhanced Sales Analysis
A well-organized SKU system aids businesses in tracking product performance, analyzing sales data, spotting trends, and making informed decisions on stocking and discontinuation.
Streamlines Online Selling
SKUs are critical for managing online sales, from ensuring immediate responses to customer orders to preventing mistakes in order fulfillment.
Customer Satisfaction
Efficient SKU management leads to timely order fulfillment, less error in sending wrong products, and ultimately higher customer satisfaction.
Who Uses Stock Keeping Units?
Identifying who uses SKUs gives practical insights into the wide applicability of these unique codes.
Retailers
Retailers use SKUs to handle their in-store and online inventory effectively, keep track of sales, and aid their merchandising decisions.
E-Commerce Businesses
E-commerce businesses extensively use SKUs to manage their vast online inventory, fulfill orders accurately, and handle returns efficiently.
Wholesalers
SKUs enable wholesalers to manage their large-scale inventory, track product performance over time, and make informed decisions about future investments.
Manufacturers
Manufacturers use SKUs to keep track of the various products and product variations they produce.
Warehouse Management
Warehouses use SKUs to accurately locate products, manage bin systems, and streamline picking, packing, and shipping processes.
When to Use Stock Keeping Units?
Understanding when to utilize SKUs can help businesses optimize their inventory management and e-commerce fulfillment operations.
Inventory Management
Whenever a business deals with inventory - be it one item or thousands, SKUs become indispensable in managing and tracking that inventory accurately.
E-commerce Fulfillment
In the world of e-commerce, every time an order is placed, SKUs are employed to ensure that the correct product gets to the right customer.
Sales Data Analysis
When analyzing sales data and product performance, SKUs deliver insightful trends and behavioral patterns.
Product Replenishment
SKUs play a decisive role when the time comes to replenish stock, helping businesses avoid overstocking or running out of popular items.
Warehouse Organization
In the context of warehouse organization, SKUs streamline the process of locating products, making warehouses more efficient.
How are Stock Keeping Units Utilized?
Digging into the mechanics of how SKUs are used helps to reveal their inherent potential to streamline sales and inventory operations.
Stock Keeping Unit Generation
SKUs are generated using a logical system that reflects the attributes of the product, and helps identifying the product quickly.
Tracking Inventory
SKUs are used to track the exact quantity of a particular product in inventory, hence simplifying restocking as needed.
Monitoring Sales
SKUs allow businesses to monitor product-wise sales, identify strong performers, and make strategic decisions based on the insights derived.
Online Order Management
In e-commerce, SKUs find primary use in order management, right from aiding customers locate what they want, to accurate order fulfillment.
Handling Returns
SKUs ease the process of handling returns, significantly reducing the probability of error while processing product returns.
Best Practices in Stock Keeping Unit Management
Being aware of best practice guidelines help businesses extract the maximum advantage from their SKU systems.
Logical and Consistent
A SKU system should be logical, consistent, and easy to understand, even for a new employee. It should convey information about the product swiftly.
UNIQUE to Each Product
Each SKU should be unique to avoid confusion. Even the smallest change - like color or size - should warrant a new SKU.
Do Not Begin with Zero
SKU codes should not start with a zero, as it could lead to errors in some software systems.
Avoid Using Manufacturer Codes
Avoid using manufacturer product codes as SKUs to prevent reliance on external attributions, which may change without notice.
Regular Review and Management
Regularly review and update SKU systems to keep pace with the evolving business products and services.
Challenges in Stock Keeping Unit Management
Identifying the common issues can help in planing better SKU systems for smooth operation of business.
Overly Complex SKUs
Creating overly complex SKU systems can delay inventory management processes and increase chances of errors.
Standardization Across Channels
For businesses operating across multiple platforms or channels, standardizing SKUs can pose a considerable challenge.
Misclassification
Misclassification of items or errors in assigning SKUs can lead to inaccurate inventory counts or improper order fulfillment.
Scalability
As a business grows, managing an expanding list of SKUs can be challenging without proper systems in place.
Technology Integration
For effective SKU management, synchronization with inventory, warehouse, and point of sales systems is required, which can challenge integrations.
Trends in Stock Keeping Unit Management
It's beneficial to know the emerging trends that are changing the way businesses employ SKUs.
Automation
More businesses are automating the process of SKU generation and tracking, making inventory management more efficient.
SKU Rationalization
There is a growing trend of SKU rationalization, where businesses analyze product performance and profitability to optimize the number of SKUs they manage.
Real-Time Stock Keeping Unit Tracking
With advanced inventory management systems, real-time SKU tracking is now possible, providing immediate insights into stock levels and sales performance.
Use of AI and ML
Artificial intelligence (AI) and machine learning (ML) are being increasingly used in dynamic SKU management, enhancing precision and decision-making.
Integration with IoT
Integration of SKU management with IoT devices, particularly in the warehouse environment, is improving order fulfillment and inventory management.
Frequently Asked Questions (FAQs)
How is a Stock Keeping Unit (SKU) Defined?
A Stock Keeping Unit (SKU) is a unique identifier comprising letters, numbers, or both, assigned to products, distinguishing them by variations like size, color, or other attributes.
What's the Purpose of Using SKUs in Inventory Management?
SKUs facilitate tracking, organizing, and monitoring inventory, improving efficiency, streamlining warehouse operations, and minimizing errors in the logistics process.
How are Stock Keeping Units different from Barcodes?
SKUs are alphanumeric product codes suited for internal use, while barcodes are machine-readable symbols used globally for scanning purposes.
Can Stock Keeping Units be used to Forecast Inventory Demand?
By analyzing historical SKU data, businesses can forecast demand trends, optimizing inventory levels, and improving supply chain management.
Do stock keeping units play a role in Electronic Data Interchange (EDI)?
Yes, SKUs are incorporated into EDI systems, enabling efficient communication of product information between manufacturers, retailers, and suppliers.
