What Is a SKU Number? How to Organize Your Inventory Better

Imagine you were at your local shoe store and wanted to try on a pair, but the salesperson had no clue where the shoes were.

Retailers and salespeople don't have to fight while organizing everyday merchandise orders. They run their daily errands with ease since they know which product lies where. 

The profitability of any business today relies on how it optimizes its inventory. From the purchase of raw materials to final assembly to the characterization of SKU numbers, every step is a measured sales plot.

Poor inventory management has many negative effects and can even be why your retail business has to close its doors. Luckily, warehouse management software helps you design SKU numbers, monitor inventory and run retail smoothly.

Even the smallest product in your present inventory has a SKU number. It identifies the product for the business or the seller. It determines whether the product should be added, sold, or discarded from the inventory.

Your SKU architecture lays the initial forecast of your product distribution process. Without SKU markings, it would be challenging to differentiate between product details. The discrepancy between product details would confuse the truckers and warehousers who manage inventory from start to finish.  SKU management also spots buying trends, patterns, and pricing to run discount offers.

Importance of a SKU number

To maintain a steady supply chain, you need a headcount of SKU numbers of your company products. The top-performing SKUs would produce a lean supply chain to dispatch orders faster. Your product manufacturing is irrevocably dependent on how many SKUs you have. If you have built SKU logic before manufacturing, your products wouldn't be hard to classify.

Instead of pushing inventory in batches, you can organize them based on top-performing SKUs. The top-performing SKUs will reach the shop floor first. From there, you can disperse orders as the demand increases or decreases. This helps tap into buyer requirements and buying trends to complete company goals. SKU numbers also maintain supply levels to ensure you don't perish.

A SKU system can also help you automatically track inventory. What raw counterparts went into the design, and which product category is live? SKU numbers tell you every ounce of that. You can play into your strong areas of manufacturing by maintaining top SKUs. More SKUs will confuse your production staff, as they won't be able to keep up with demand. 

SKUs are also marked as bar codes or QR codes on products. Scanning these codes will display all production information at hand, along with the warranty, sales data, repair time unit, and so on. 

Basics of a SKU number

A SKU number is printed on labels in retail stores for stock-keeping purposes. The code is made up of numeric or alphanumeric characters that are unique to each type of product that your business sells. The number of digits will vary but typically remain around eight to twelve characters.

SKU numbers are exclusive to one store and are not used externally. This means that they are highly customizable. You have the freedom to create the code in a way that makes sense for your business and the goods you sell.

SKU number vs. UPC number

Not to be confused with a universal product code (UPC), a SKU number is used internally only and managed directly by the retailer.

While a UPC number stays the same across different product styles and patterns, a SKU number is created after carefully examining a product's manufacturing details.

SKU numbers are unique codes that can differ for every product across different stores. They identify a product's distinguishing characteristics, like shape, size, and color, for the retailer to keep track of their inventory.

SKUs are purely business-based and help prevent stockouts of a particular product. You can create SKU numbers via a spreadsheet, an inventory management system, or a retail POS application. Not only does it help manage your current inventory, but it also indicates stock replenishment. 

A universal product code (UPC) is a 12-digit passcode bought and licensed by all leading manufacturers of North America for ease of international logistics. It irons out your entire supply chain process and keeps your products consistent and compatible with e-commerce platforms and offline storefronts. UPCs also speed up the inventory process by standardizing product details and pricing. 

Benefits of a SKU number

By using SKUs, retailers can track how much is left of a certain item, as well as which items are most popular and need to be re-ordered. This helps retailers understand which items sell out the fastest so they can stay ahead of it instead of running out of stock.

Additionally, the benefits of using a SKU numbering system trickle down to the customer because it helps your employees save time. If your inventory is organized by SKUs, employees can electronically find out exactly how much you have left of an item in seconds. This means less time sifting through piles of products in the back room and more time spent on the floor engaging with customers.

Example of a SKU number

Since SKU numbers are unique to your business, you can change them to fit your products. Typically, a retailer will customize the code to match certain product characteristics such as the brand, size, and color.

For example, if you sell orange t-shirts, your SKU numbers might be eight-digit. Here, the first two digits represent the brand name (like Nike or Adidas), the next three digits depict the product category (like t-shirt, poncho, sweater), and the next three digits encode the fit (small, medium, or large), followed by color (any color).

You can also organize products based on gender (male/female) or kid's age (0-6, 6-12, and so on). 

How to create a SKU number

You can create SKU numbers and organize them manually in a spreadsheet, or consider investing in inventory management software that does all the legwork for you. If you run a retail business, you likely already own a software solution with this capability.

Another option is to use an online SKU generator. Many of these tools are free to use and can generate SKUs based on the characteristics you want to include in seconds.

Tips for creating a SKU number

A SKU number is an amalgam of the physical and brand attributes of the item you are stocking up on.

In this image, you can notice an OMR code that incorporates implicit product information. The SKU number is LVMED-BLK-2492. The standard convention would be brand name (LV), size (MED),  BLK(product color black), and 2492 (SKU number).

These attributes make up a recognizable product that demarcates it from your existing inventory. You can also notice the twelve-digit UPC code, a communicative code for international shippers, to decipher the product's type. 

Here are a few guidelines for creating a simple and easy-to-maintain SKU logic:

• Stick to a universal naming convention.
• Don’t lead with the number zero.
• Assure that SKUs for each product are unique 
• Don’t use letters easily confused with numbers, such as 0 and 1.
• Only include the most important characteristics, like product theme, product brand, product size, product fabric, product price, and SKU number.
• Put the most important identifiers first.
• Complete the SKU with a sequential number.
• Separate identifiers with dashes to make the SKU more readable.

As you can see, there’s a lot of room for flexibility. What works for the retail shop next door might not work for you, so take a long look at your inventory and develop an SKU naming convention easily understood by you and your employees.

Best practices for a SKU number

Including your SKU logic in your retail management system will ease your inventory hassles. It will help replenish in-store inventory as it sells out, diversify products, and automate offers and schemes.

Maintaining a SKU checklist for each product bookkeeps your retail system and assigns one particular type to every product. It is a unique identifier of the product in the e-commerce space.

To ensure you manage your SKUs properly without running into confusion, here are a few best practices:

• Ensure each product has a unique SKU number. The idea stays within 8 characters and 12 numbers. Each SKU number should help you identify the type, color, brand name, and size of a product. 
• Ensure your SKU logic stays the same when inventory expands. Rehashing your SKUs in a different pattern might create product discrepancies. If not aligned with previous inventory listings, your retail POS might crash.
• Inventory tracking fluctuates as you get a new shipment or sell older stock. Keep SKUs consistent throughout your supply chain circle so that no personnel gets confused.
• Do not start your SKUs with zero or a special number.  This might confuse some inventory management systems as they won't register the dispatching.
• While designing SKU, consider your inventory scale, growth, and expansion plans for the future. As you diversify your product line, ensure you design SKU numbers accordingly.

Ready, set, scan

Although it may seem like a random assortment of numbers, a SKU number is much more than that. By labeling products with SKUs, you have more control over your inventory and can assure that you never run out of stock of your customers’ favorite items.

Make hay while the sun shines. Send a just-in-time notice to your manufacturers to meet constant demand and minimize inventory handling. 

This article was originally published in 2019. It has been updated with new information.