SKU Number | 10 mins read

How to Use SKU Numbers - Complete Guide For Business Owners

how to use sku numbers complete guide for business owners
Hanh Truong

By Hanh Truong

Introduction to SKU Numbers

From brick and mortar stores to online retailers, businesses of all sizes are using stock-keeping units, or SKUs, to track the movement of specific goods in their inventory. These custom codes can be seen on a product's price tag or sticker.

While these labels may not serve a purpose for customers, SKU numbers are critical for business owners to monitor their stock management and to ensure sales are being made in their store.

What is an SKU Number?

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An SKU is a unique number or alphanumeric code that is used to track inventory. Typically, it will be around 8-12 characters long, in which each number or alphabet corresponds to the key characteristics of a product.

Details that an SKU number will commonly have are product type, color, brand, and size. For example, a computer retailer may have DL1307SL as an SKU code for a laptop. The DL represents the brand, Dell, while 13 is the size, 07 means model 7, and SL indicates that the product is silver.

Retailers are empowered to create their own SKUs and to customize their codes according to their needs. It is recommended, however, that the details on the SKU be arranged by order of importance. This helps make it easier for staff to locate the exact products they need.

Difference Between UPC, Serial, and SKU Numbers

There are various codes that businesses need to understand when working with inventory management. And while many of them may look similar, each set of numbers has its own functions.

For example, all goods have a universal product code or UPC number. Unlike SKUs, universal product codes always contain 12 digits. These characters are issued by the Global Standards Organization and are used to only identify what the item is and its manufacturer. Additionally, it is not unique; meaning the same type of items will have the same code, regardless of where it is being sold.

Therefore, a sweater that is sold at two different retailers will have the same UPC. However, the item will have 2 different SKUs since they come from separate companies.

Another code businesses will utilize is serial numbers. Similar to SKUs, serial numbers are customized for specific items. However, they are more commonly utilized for electronics and can be seen printed at the bottom of laptops and other devices. Customer service teams will use these codes to track information regarding warranty and product ownership.

How to Set Up SKU Numbers

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When creating SKU numbers for products, business owners should consider following these proven steps.

1. Determine Product Identifiers

Management should begin their SKU creation process by first selecting what characteristics of a product they need to track.

Depending on the type of business a company is running, there are common item traits that are typically used.

  • Product type
  • Store department it belongs to
  • Location in the store
  • Brand
  • Supplier
  • Size
  • Color
  • Style
  • Special features

If companies have a small volume of inventory, it may not be necessary to have a lot of identifiers in the SKU. Longer and more complex SKUs are usually created for businesses that carry high amounts of inventory and need to accurately monitor every product.

It is also recommended that managers consider what customers often inquire about when looking for goods. For instance, if most shoppers ask about a product's brand, it would be helpful to have a brand identifier in the SKU.

2. Start With a Top-Level Identifier

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When arranging the SKU number, the first 2-3 digits should be the most important identifier of a product.

If a department store, for example, is making an SKU for a perfume bottle, then the first two characters should correspond with what aisle or section in the store perfumes are located. This will make it easier for staff members to find exactly where a product is in their facility.

3. Add Unique Product Traits

The following characters in the SKU should indicate other unique traits about the product, such as sizing, material, and color.

4. End With a Sequential Number

Once the key identifiers are included in the SKU code, management should use sequential numbers for the last 2-3 characters. These numbers help staff members differentiate individual items from those that similar to them.

Since stores will usually carry products in the same color, style, and size in bulk, sequential numbers will guarantee that each item has its own customized SKU and that it can be accurately tracked.

Benefits of Using SKUs

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Having accurate and smooth logistics is key for businesses because it ensures that orders are sent out and delivered promptly. Companies can improve their movement of goods and inventory management by implementing an SKU system into their operations.

Well-defined and structured SKUs can provide many benefits.

Inventory Accuracy

With an SKU system, every product that moves from the warehouse to the order fulfillment area will be scanned. Similarly, when customers purchase items in a store, they are scanned at the register.

By scanning these products, the inventory tracking system will update the current stock level for the specific item. These real-time adjustments ensure stock count accuracy, enabling managers to make informed decisions to keep optimal levels of inventory.

This is important because incorrect inventory records can easily lead to overstocking products. Having a surplus of inventory will not only take up valuable warehouse space that could have been used for faster-moving products, but it can also result in increases in carrying costs.

Accuracy in inventory counts will also minimize instances of understocking, which could have caused a loss of sales and customers.

Share Inventory Data With Multiple Channels

SKUs are shareable and can be used on multiple online stores and sales channels. This ensures that correct inventory levels are adjusted in real-time and that metrics are consistent throughout all channels.

Businesses will then have more sales opportunities with this capability since customers have a chance to purchase their products from any online method.

Increased Efficiency With Order Picking

Staff members can quickly and accurately find products with the help of an SKU number, effectively speeding up the order fulfillment process.

By working efficiently and increasing order accuracy, businesses will be able to deliver products to their buyers, keep up with consumer demand, and achieve overall satisfaction.

Optimize Packing and Shipping Processes

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When performing packing or distribution tasks, employees can scan the SKU's barcode and automatically print a packing slip for the order they are working on.

This form of automation reduces the time it would have taken staff members to input order information, such as the destination address, and eliminates the chance of human errors and misspelling key details.

Streamline Cycle Counting

Cycle counting, which is the process of counting small subsets of inventory throughout the year, helps organizations have more visibility into their stock control.

SKU numbers and barcodes can help streamline counting procedures since employees can simply scan products, instead of manually counting all items. Additionally, since the system automatically updates inventory levels, employees will not have to dedicate a large amount of time to perform the count.

Minimize Delays and Inaccuracies

With SKU systems integrated into inventory management software, employees and managers can quickly and easily access stock information with the company's Internet devices. Therefore, when customers come in-store and ask questions about a product, staff can find the answer instantly, rather than having to go into the stockroom to find the item.

Additionally, the number of backorders will also be reduced since inventory is automatically updated online, which means customers will not have to wait longer periods to receive their products.

These advantages will help businesses foster positive customer experiences and ensure quality service is provided.

Make Better Suggestions to Customers

Since the characters in an SKU number indicate a product's main characteristics, employees on the sales floor will be able to quickly identify additional goods that a customer may like.

In the case that the original product that the shopper wanted is unavailable, the SKU will also help staff members find alternative and similar items.

This is helpful for online retail websites as well, in which management should apply their SKU to the site's algorithms so when shoppers add something to their cart, complementary or similar items will show up as suggestions.

Tips on Using SKUs

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Once an SKU system is integrated into a business's operations, managers should take note of various tips to ensure they are using their codes to their utmost potential.

Do Not Overload SKUs

Highly complicated or long SKUs can be confusing and hard to remember for employees. Management should choose 2-3 key identifiers of a product to use in their SKU to ensure that it does the job of distinguishing inventory but is also easy-to-read.

Avoid Using Manufacturer Numbers

When arranging the SKU, it is important to not reuse manufacturer numbers because it can cause confusion when scanning. To avoid accidentally including these digits, executives should create an organizational system that shows all the codes that are being used for the current inventory.

Avoid Beginning with the Number 0

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SKUs should not begin with 0s because it can cause discrepancies with some data analytical software. Since many of these systems will interpret a 0 as nothing, an item that is 0L901 would be processed as L901.

This will cause inaccuracies with inventory data and will make it difficult to gain insight into sales and product movement.

Start With Letters

Letters will help an SKU stand out from all other codes, especially when managers or employees are assessing a consolidated list of SKUs. It will also help staff quickly identify the item they are looking for.

Avoid Letters That Look Similar to Numbers

SKUs that contain letters that look similar to numbers can be confusing for staff that is reading them. For example, the lowercase ' L' can be read as the number '1.'

However, if these letters are unavoidable, managers can stylize their SKUs to accommodate them. A company, for instance, can section its SKU characters with a dash, like 'ELV-224,' or ensure that only capital letters are used.

Reuse SKUs

Companies can reuse old SKUs from products that they no longer carry for new inventory. But managers should make sure to wait for a period of time, such as 2 years, or when their entire inventory for that product is sold. Doing so will prevent any errors or discrepancies in inventory tracking.

Key Takeaways - SKU Numbers

  • SKUs are customizable codes that help businesses effectively and efficiently inventory goods.
  • To create an SKU for a product, management must assess their products and determine key identifiers.
  • Executives should consider the best practices of forming SKUs to reap its many benefits.