Table of Contents
- What is a SKU?
- Why and how you should use SKUs
- Differences between SKU, UPC and EAN
- Advantages of SKUs for your ecommerce business
- How to design a correct SKU architecture
- Uses of SKU in retail: speed, predictability and efficiency
Whether you're new to retail or you've been managing inventories and product catalogs for a long time, you'll already be familiar with this code and its strange name: SKU.
What is a SKU?
Stock Keeping Unit (SKU) is a unique set of numbers and letters used to identify, locate and track a product internally in a company or store's warehouse.
Every day we come across many examples of SKUs, whether on packages or in product pages on a website, app or marketplace. For example, this electronics product label shows a SKU that reads "URB06W-IN".
Now, the million-dollar question is, where do SKUs come from? Unlike other important codes in product management, which we'll see later, SKUs are generated by each company or vendor.
Why and how you should use SKUs
SKU is an essential piece of information for each product and ensures straightforward and correct identification throughout the production chain, inventory tracking and sales.
Think of a SKU code as a product’s ID card and you’ll understand how important it is for retail.
And SKU means a lot for logistics too. A product SKU brings together information for the identification or classification of each product by color, price, brand, size, size, manufacturer, etc.The combination and order of letters and numbers will depend upon the priorities of each seller, always influenced by the buyer’s requirements and the company’s goals.
For example, in a furniture catalog, if customers usually query measurement data, logically that information should appear in the SKU and be placed near the beginning.
The product information, summarized alphanumerically, in SKUs should always be sorted from most to least important and include only the most necessary data, to avoid ending up with SKUs that are too long for convenience.
Differences between SKU, UPC and EAN
Both retailers and buyers are accustomed to using these barcodes in addition to the SKU.
While the SKU is a code that’s established by each seller, there areother identification codes designed to categorize the product according to universal and compulsory systems.
The characteristics that differentiate each inventory code are as follows:
EAN (European Article Number)or IAN (International Article Number)
- Barcode for scanning
- Numeric only (usually 13 digits)
- The first 3 digits identify the company’s country
- The next 4 or 5 digits identify the owner of the brand
- The remaining digits are the product code
- Includes a check digit
SKU (Stock Keeping Unit)
- Variable in length between 8 and 12 characters
- Usually begins with a letter
- Zeros are best avoided
- Represents product information
- Unique for each company
UPC (Universal Product Code)
- Comprises 12 digits
- Numeric only
- Represents product and manufacturer information
To give an example, Converse sneakers have a unique and universal UPC barcode which is the same for all stores in all countries around the world. But each seller or store that has these Converse shoes in their catalog can further categorise them in their inventory by a unique SKU number.
Advantages of SKUs for your ecommerce business
SKUs are valuable components of product catalog management,being very useful in a number of ways, such as:
- Optimizing your product catalog management
- Inventory tracking
- Analyzing sales levels and trends
- Applying buyer behavior analytics
- Increasing productivity, as automated, real-time work enables faster responses
- Improving inventory flexibility according to demand
- Avoiding running out of stock of those products most in demand
How to design a correct SKU architecture
First of all, you must design a SKU architecture to determine what information is to be encoded in its numbers and letters, such that a new SKU can be easily generated for each new product.
The SKU architecture should be relevant to your company’s needs, sales priorities and customer profile.
In creating your own SKUs, you will have to follow two essential steps:
Catalog organisation and volume
Your SKU architecture should represent your product information priorities.
It may be that identifying the color of an item is not as important as the type of customer it’s meant for (child or adult, women or men...).
The volume of stock your company handles also influences whether your SKU should be more detailed or less so: if there’s a lot of stock the more specific your SKU, the easier and quicker it will be to locate each product.
Unique, non-duplicated SKU numbers
You should avoid duplicating a SKU within your own catalog; this is essential for ensuring good inventory tracking and to provide your customer with the correct information at all times.
Even if a product has been removed from the catalog, try not to re-use old SKUs as this may cause identification problems or shipping errors.
Uses of SKU in retail: speed, predictability and efficiency
The usefulness of SKUs is mainly internal, as it allows for more accurate inventory tracking, and has a positive impact on other business areas:
A good SKU architecture will ensure that each product is classified following an internal logic system. The item will therefore be easier to locate and to associate with other catalog management data, such as stock levels, manufacturer or supplier information, shipments and orders, and/or sales forecasts.
Scanning the status and activity of each SKU will make it easier to determine the sales rate for each product and to know when more stock will need ordering, or to look for ways to get stagnant stock moving. Like this, your warehouse need never reach critical levels or accumulate products that aren’t profitable.
Sales forecasting and catalog reinforcement
By using company-specific barcodes for each product you can analyze the volume and progression over time of both demand and sales more efficiently, and thereby make decisions regarding sales and marketing.
By analyzing the costs and revenues associated with each SKU number, you can quickly identify which products are performing better or worse.
You’ll find it advantageous to use software that centralizes and automates each product’s information, such as a Product Information Manager (PIM), which assists with catalogs containing any number of SKU – even if you have thousands!
Improved customer service
Thanks to SKUs, both customer service teams and physical-store sales assistants can quickly locate each product and query.
Using SKUs makes it more efficient for you to find a product, repeat a previous order, recommend similar products and compare product features. Thus SKU codes allows you to quickly locate the product a customer is looking for, view its current stock level and offer alternatives should the desired item be out of stock.
Of course, this kind of help is just as important in brick-and-mortar stores, where sales assistants can immediately answer questions about stock without having to visit the warehouse nor trawl the shelves by hand. In addition, it benefits the design and layout of physical stores, as it enables you to reduce the exhibited stock to just one item per category.
Now you know all about the SKU, designing a SKU architecture should be one of your top priorities, as it is for any retailer. It's never too late: try our free 30-day demo to experience first-hand the convenience of managing your catalog with our PIM software.