What is Stock Keeping Unit (SKU) in eCommerce in 2022? Definition with Examples.

If your business deals with a wide range of products, it becomes immaterial whether it runs on a small or large scale. Inventory management and control become a critical part of your operations. SKUs in eCommerce are more critical when the same items are being sold online and in physical stores. Stock Keeping Units help you manage and understand the nature of the products sold and the cyclicity of their demand. 

This article covers various aspects of SKUs in eCommerce such as what it is, what they are used for and how to make the most out of them.

What is a Stock Keeping Unit (SKU)?

Stock Keeping Unit is a naming and tracking system used by merchants to identify and monitor their product inventory or stock. A Stock Keeping Unit is a one-of-a-kind code made up of alphabets and digits that identify a product’s manufacturer, model, design, type and dimensions.

Companies create their own Stock Keeping Unit identifiers that are distinctive to the products and services they provide. Internal SKUs in eCommerce, from two firms offering the same item, such as t-shirts, are likely to be different.

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Understanding Stock Keeping Units (SKUs)

SKUs in eCommerce are used to help businesses account for all of their inventory precisely and rapidly. Model numbers are distinct from SKUs; however, model numbers can be integrated into SKUs if a corporation so desires.

These codes ensure that your workers, consumers, vendors and software discuss the same procedures. Item codes, component numbers and the company’s model number are used to describe SKUs. A Stock Keeping Unit isn’t just for physical products; you could allocate them to other services you provide, such as bills and invoices, etc.

Consider a situation where a retailer for a new, independent food and beverage store wants to come up with SKUs to start their inventory operations. They may give food items the letter F, with B denoting beverages and B2 denoting combos. The following set of alphanumeric codes will be a veg/non-veg and hot/cold beverages indicator, followed by an indicator for the size of the beverage. V may therefore be assigned to veg items, while NV could be assigned to non-veg food.

The items might then be categorised further based on their shelf life. A veg patty expiring in 5 days would be FVP01062022, while a cold beverage in tall size would be BVCT020000.

Importance of Stock Keeping Units (SKUs)

SKUs are used for more than just identifying products and keeping track of inventory. This information will help you determine the profit margin of your business based on the data you’ve gathered. SKUs perform the following activities:

Data Interpretation

SKUs enable merchants to acquire data to analyse product importance or identify periodic and cyclical trends in their various client categories. This data allows them to store inventory that corresponds with trends in customer behaviour.

Inventory Management

A Stock Keeping Unit system’s primary function is inventory management. Retailers can manage the storage and transport of inventory using one Stock Keeping Unit. They can use the data acquired from sales to define inventory levels and deadlines, which can function as a trigger for starting or stopping inventory reordering and exercising control.

Assistance to Customers

Employees may scan a Stock Keeping Unit to rapidly determine what is in stock when a client is looking for a different product version, resulting in increased sales performance and customer experience.

How Do SKUs Work?

SKUs in eCommerce are surprisingly simple to create. SKU numbers can be produced automatically by a system or a vendor.

SKUs may be customised in an inventory management system and the system’s technical team can ingest all the data creation of SKUs and correctly onboard the relevant inventory onto the software.

Users may search for SKU numbers in the system’s backend to detect quantity levels, orders, price and sales levels once the infrastructure is in place. Custom sales reports based on a specific Stock Keeping Unit number can also be published.

What are SKUs Used For?

SKUs in eCommerce can be used in a variety of ways by merchandisers. Simply put, they are accustomed to keeping track of inventory and sales. On the other hand, SKUs have the potential to accomplish a lot more when combined with a solid sales strategy.

Inventory Analysis

SKUs in eCommerce are utilised to manage items at a single store or across numerous locations at the most fundamental level. You can scan an SKU to discover the entire amount of inventory available. When combined with an inventory management system, ordering cycle management and supplier connections, SKUs enable a more systematic or automated method for administering your items.

Future Sales Forecasting

Your WMS software can provide comprehensive reports and sales statistics using product SKUs concerning each item on the list. A systematic approach to utilising this data can enable businesses to estimate sales and demand for different products in upcoming periods. These systems can be highly effective for a small-scale enterprise. Retailers may use retail analysis to analyse how each item is performing by their Stock Keeping Unit.

Customer Assistance

Properly estimating sales and demand will make future management easier. Knowing what to expect enables businesses to manage inventory levels. It’s a narrow line that must be trodden carefully. Custom order suggestions via past order details also help you ensure that you have the correct quantity of goods on hand.

Product Recommendations

Employees can locate comparable items by looking at similar SKUs that are customised to meet different product range categories. For example, all fashion items on an eCommerce website may have the same starting SKU numbers, allowing the system to suggest a similar variety for customers looking to try something new.

Pricing

Finally, SKUs in eCommerce help provide discounts, offer attractive products and deconstruct packaged items into individual components. Businesses might use different SKUs for goods and packaging. A single beer, for example, may have a single SKU, but a case of the same beer would have its own unique SKU for a separate price and inventory unit. 

How to Design and Create SKU Numbers?

Depending on the software, SKUs in eCommerce can be constructed in various ways. Creating SKUs may be simple and adaptable with the right inventory management system. The steps are listed below:

Step 1: Begin with SKU Numbers

Each Stock Keeping Unit’s first two or three digits/characters should reflect a primary identification. This might be a department, retail category, or even a vendor. A Stock Keeping Unit number, when scanned, specifies the top-level merchandising group and position of any product in your shop. If you own more than one business, you can also use SKU numbers to designate retail locations.

Step 2: Create Distinctive Designations Using Middle Values

Use the middle digits of SKU numbers to attribute distinctive qualities to your product, such as dimension, shade, product category or other required details. Arrange them in whatever way makes sense when arranging the items you offer.

Step 3: Add a Sequential Number to the SKU at the End

Employing sequential numbering for the last series of a Stock Keeping Unit number, such as 1, 2 and 3, simplifies the setup process and helps you distinguish old vs fresh goods amongst all your products. Trying to tie the last digit of a Stock Keeping Unit code to a supplier product ID might also be helpful in some cases. Methods that make logical sense for the products you sell should be employed.

Step 4: Incorporate SKUs Into Your Inventory Management System

You can generate SKUs and maintain inventory manually in notebooks or an excel file, but utilising a systematic approach with inventory tracking is more straightforward and efficient. A system-based approach allows you to monitor as much or as little product data as you desire. However, most small businesses can start by entering the following simple data: 

  • Product description
  • Product name
  • Product category
  • Brief description
  • Any other relevant data

Step 5: Make Use of Barcode Generation

After creating a Stock Keeping Unit number, it needs to be integrated with your inventory management system. Here, you need to create barcodes that can be scanned into the system. These barcodes are placed on the items along with product labels. Barcodes can be generated using conventional barcode generation systems or through your inventory management system. Once barcodes are generated, you can print and stick them to your products.

Learn more about differences between barcodes and SKU here.

Examples of Properly Named SKUs in eCommerce

Example 1 – ADMWALKWHI7213

The SKU created can be understood as follows:

  • AD: Name of the Manufacturer (Adidas)
  • M: Male
  • Walk: Walking Shoe
  • WHI: White Colour
  • 7: Shoe Number
  • 213: Item Number

Example 2 – BBHGTSHBLK02003

The SKU created can be understood as follows:

  • BBH: Baby Hug
  • G: Girl
  • TSH: T-Shirt
  • BLK: Black
  • 02: Age
  • 003L Item Number 

5 Best Practices for SKU formatting

Be Simple

Since Stock Keeping Unit numbers are so simple to create for your company, it might be tempting to incorporate as much data as you can. Choose 2-3 features that you wish to convey in your SKU number to avoid lengthy SKUs. Keep individual codes short if you want more features.

Begin With the Most Important Features

After determining important features, choose the most important one and add it to the beginning of the SKU number. Some stores like to begin with the most basic feature and work their way down. For example, begin with the identifier for the shoe brand before going on to type, size and item number.

Do Not Start SKU Numbers With a Zero

Most SKUs today are scanned into software stems and zeros at the start of a number are frequently perceived as non-existent. As a result, the SKU 003BBHGTSHBLK02 might also be interpreted as 3BBHGTSHBLK02. To reduce the confusion created by this issue, make sure that none of your Stock Keeping Unit numbers begin with a zero. Many firms work around this by starting the SKU number with a brand or supplier identity, as shown in the example above.

Avoid Using Letters That Could be Confused for Numerals

It may be tempting to use every letter of the alphabet because SKU numbers are alphanumeric. To avoid misunderstandings, try not to use characters that resemble digits. The letters O and I, for example, are frequently mistaken as zero and one.

Do Not Repeat the Manufacturer’s Numbers

It may look easier just to use the manufacturer’s number or include it in the SKU when creating a numbering scheme. However, this eliminates the benefits of having a custom SKU formula built to meet your company’s particular needs.

Conclusion: How to Use SKUs to Grow Your Business and Improve Your Customer Service?

Consumers increasingly expect and want a personalised, seamless experience. As a result, in terms of generating an engaging and intriguing shopping experience, eCommerce, as well as physical retail, have become highly critical. Merchandisers must keep their stores/eCommerce sites updated with the best-selling and most in-demand products to keep customers interested. Having a detailed view of and easy access to optimised SKUs is crucial for creating enticing assortments and quickly updating product suggestions and trends to keep up with the latest market trends.

SKUs are essential for merchants to be competitive in today’s dynamic, fast-paced retail industry. They simplify extracting relevant information from product identification data that is particularly unique to your company and its products. They enable you, your workers and your clients to instantly verify the availability of products via an SKU query. Even small commercial enterprises should make use of SKUs. Create a decent SKU structure today and gain advantages across your business. This can be done with a 3PL fulfillment company like WareIQ.

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Stock Keeping Unit: FAQs