What is an SKU Number, and How Do Online Businesses Use Them?
Anyone who has purchased something online or has read a product description has almost probably come across SKUs.
Below is the definition of an SKU and the typical uses for them for an eCommerce business.
SKUs Made Simple
An SKU, or stock-keeping unit number, is a unique string of letters and digits representing each product in a seller's inventory.
There is no standard practice for SKU creation, but the chosen approach often makes things the least complex for the employees who need to interpret the SKU's data and determine what it means. Usually, the information contained in an SKU number is in order from most to least importance.
Sometimes, the SKUs for similar products in a merchandise line have only slight variations.
For example, a red shirt and blue shirt that are the same style and from an identical brand may be characterized by nearly the same SKUs except for one number that's different due to the color variation. In any case, the seller assigns the SKUs to products and creates them in ways that make the most sense for business operations.
SKUs Vs. UPCs
The Universal Product Code (UPC) is another identifying factor associated with merchandise. However, there's a notable difference between UPCs and SKUs. Whereas SKUs are seller-dependent, UPCs remain the same even when various merchants offer the respective products.
Also, whereas SKUs can have any number of letters or numbers depending on a merchant's identification system, UPCs comprise 12 numbers and include barcodes.
Using SKUs to Determine the Key Profit Generators
As explained in the example above, SKUs can contain information about a product's color. It might also include the manufacturer's name and a product's size or style.
By keeping track of the most in-demand SKUs, the employees from online stores can reliably know which products customers buy most often instead of the less popular products. Then, based on SKU trends, an individual in charge of replenishing the stock might decide to purchase fewer of the products that don't sell as quickly compared to the most-desired items.
Improving Vendor Communications with SKU Numbers
As SKUs are primarily used internally at online stores, customers and vendors may never see them. However, online merchants can still rely on SKUs to have smoother communications with vendors.
For example, SKUs are helpful in forecasting. A valid sales forecast can set expectations for anticipated demand, allowing online merchants to check with their vendors and ensure they can meet minimum requirements. If they can't, it may be necessary to start working with additional suppliers.
Moreover, SKUs help employees gauge how particular fast items usually sell. They can then talk about timeframes with their vendors and reduce the likelihood of shipments arriving late.
Using SKU's to Speed-up Inventory Tracking
If thousands of items in the warehouse are associated with an online store, it becomes almost impossible to track inventory quickly without making errors. Because SKUs include an alphanumeric system that the people working for your business should understand, they facilitate accurate stock-taking and reduce many of the challenges associated with warehouse logistics.
Inventory tracking is one of many things that help prevent backorders — the condition whereby products sell out. By conducting stock counts with SKUs' help, online retailers get accurate pictures of what's available to sell.
Merchants can also do full inventory counts, which involve counting every product on hand. It's necessary to close the shop at a physical store during business hours or hire a team that can take care of the job during odd hours. Fortunately, that doesn't apply to a business operating only online.
The other option is to do a cycle count —focus on only a small section of inventory to count every day, and repeat the process to address all items in a store. A cycle count allows merchants to stay on top of inventory tracking without substantial disruptions to operations.
SKUs Are Essential for eCommerce Brands of All Sizes.
A person responsible for running an online store should never assume the establishment is too new or doesn't carry enough inventory to justify using SKUs. SKU numbers reduce challenges for merchants and vendors alike.