What is an SKU number? How can retailers use them to improve business?

With inventory accuracy in retail flirting around a very unimpressive 60-65%, could the trusty SKUs be the answer to the issue?

Running a modern retail business can be challenging, especially if you don’t know your SKU numbers from your barcodes.

But by prioritising the effective management of your inventory, you’ll stand the best chance of success.

That’s where SKUs earn their keep; they help you identify your inventory.

And by being able to identify your inventory, you’ll be in a better position to monitor, track and manage your stock.

Most retailers, of course, know that inventory management can be the difference between success and failure.

After all, if you run out of best-selling items or overstock poor sellers, your profits and losses will tell an interesting story.

Today we’re going to look at SKU numbers, what SKU numbers are, how SKU numbers work, the benefits of SKUs for retailers and how to create a good SKU.

We’ll also explain the difference between SKUs and UPCs (barcodes) and answer some of your burning questions about SKUs, such as:

• What is an SKU number?
• What does SKU stand for?
• Can two products have the same SKU?
• How do you pronounce SKU?
• Is SKU unique for each item?
• What makes a good SKU?
• What is the difference between an SKU and a Barcode?

So, let’s get straight into it and get your initial questions out of the way first.

What is an SKU number?

An SKU number is internal product inventory coding that helps you quickly identify your inventory.

SKU numbers usually contain vital information on products such as size, colour, type, location and other important product features.

And SKU numbers are usually around eight and sometimes up to twelve alphanumeric digits in length.

SKUs help retailers track what’s selling, what stock needs to be replenished, where inventory is located, etc.
Ultimately, an SKU number’s sole purpose is to help retailers keep control of their inventory and understand what’s going on within the business.

How does an SKU number work?

Okay, let’s take a retailer who sells mobile phones as an example.

Let’s say they’re selling an Apple iPhone 13, 64GB, Black, 6.7-inch screen size.

They might want an SKU number that lets them easily understand the essentials, so their SKU might look something like this:

AIP1364B67

So, what might an Apple iPhone 12, 128GB, Silver, 6-inch screen size look like?

AIP12128S6

Let’s break it down further so we understand each part.

AIP = Apple iPhone
12 = iPhone 12 model
128 = 128 GB storage
S = Silver
6 = 6-inch screen size

The breakdown of an SKU number will be different for every retailer.

It’s you who creates the SKU, so it’ll be you who decides what’s important to include in it.

Two mobile phone stores could be selling the same product, but their SKUs could be significantly different.

What does SKU stand for?

SKU is an abbreviation for Stock Keeping Unit.

Can two products have the same SKU?

Yes and no.

Let’s use an example.

A Real Madrid football shirt, size large, will have its own SKU.

The same football shirt but in size medium will have a different SKU.

However, if both football shirts are large and identical, they can have the same SKU.

Ultimately, an SKU is how you differentiate between your products to best keep on top of all of your inventory.

How do you pronounce SKU?

SKU is commonly pronounced as ‘skew’.

Click here to hear the pronunciation of SKU.

Is SKU unique for each item?

SKU numbers are unique to every product that is different from other similar products.

For example, a 42-inch Samsung TV will have a different SKU number than a 32-inch Samsung TV.

In contrast, two Samsung TVs that share the same technical specs will have the same SKU number.

Remember, the SKU numbers you create are there to help you better manage your inventory.

What makes a good SKU? 8 steps to creating the perfect SKU.

SKU numbers aren’t as complicated as they might seem.

What initially might look like many random numbers and letters soon starts making sense once you start creating your own.

Indeed, you can create your own SKU numbers for your products by following a few tried and tested rules.

1. Aim for no more than 12 characters for your SKU number.
2. Ensure all SKU numbers are unique from similar products or those from seasons gone by.
3. Don’t start SKU numbers with 0 (zero) as you’ll encounter issues with Microsoft Excel.
4. Avoid letters such as O, I and L as these can easily be confused for numbers that look similar.
5. Keep it simple by using numbers and capital letters, separated by dots or dashes. For example, you could use S, M, L, XL and so forth to describe a product’s size.
6. Remember, SKUs are for internal use only to help you track your inventory, so it doesn’t matter what SKUs your competitors use to describe the same products.
7. Whichever format you choose for your SKUs, stick to it consistently to avoid confusion. For example, if you decide to use the letters BL to mean Blue, don’t then also have BL representing Black, or you’ll confuse staff.
8. 8. Create your own SKU numbers and resist the urge to use a manufacturer’s SKU number.
   SKUs created by manufacturers are for their internal inventory management processes, so they’ll be unlikely to help you with yours.

What is the difference between an SKU and a UPC or Barcode?

An SKU number is usually created in-house by retailers to manage their inventory better.

SKU numbers are usually a combination of letters and numbers.

In contrast, a barcode – also known as UPC (Universal Product Code) – is 12 numbers in length.

UPC numbers are made up of only numbers created by the Uniform Code Council when the product manufacturer applies for a barcode.

A more straightforward way to think about it is that UPC/Barcodes are created for external use by someone else, whereas you create SKUs for your own internal use.

5 Key benefits of using SKUs as a retailer

Using SKUs has a wide range of benefits for retailers.

Here is our pick of the bunch.

1. SKUs improve productivity and efficiency.

Using SKU numbers is vital so that you don’t waste one of life’s most precious commodities, your time.

If you’ve set up a sound SKU system, you’ll be able to spend less time searching for stock and managing it.

SKUs make finding, sorting and searching for products much more straightforward.

As a result, the time you’ve saved on that can be used on other essential parts of your business, allowing it to be run much more efficiently.

2. Keep track of your inventory in real-time.

It’s crazy that some retailers are still treating their inventory as a guessing game in the modern era of big data and impressive retail technologies.

Guess no more; SKU numbers take the guesswork out of inventory management and allow you to track every single product in real-time.

That allows you to ensure that stock levels remain consistent and that you’re only ordering products you need.

Keeping track of your inventory in real-time has another benefit, too.

It means you can improve brand loyalty and the relationship with your customers, all of whom want reliable stocking from their favourite retailers.

3. Avoid embarrassing Out of Stock (OOS) issues.

Nothing can hurt your bottom line more as a retailer than stocking issues.

Being out of stock can fracture your relationship with customers and may end up with them buying from your competitors instead.

But it doesn’t have to be that way.

That’s because if you have your SKUs set up with your inventory management system, you’ll be able to ensure OOS issues don’t affect you.

4. Improve your profits.

How much your retail store makes in profit will ultimately dictate whether your business is successful.

And SKUs can help you improve profitability by ensuring you’re smelling what’s selling and only selling popular products to customers.

SKUs will help you plan appropriately for the future and focus on the essentials.

5. SKUs allow you to plan ahead.

SKUs are your gateway to the future and allow you to make educated guesses on what you’ll need to buy in the future.

That’s because SKUs that are linked up with your inventory management system allow you to spot seasonal trends, find hot-selling products and plan for the future.

Once you know how busy you’re likely to be based on accurate, historical data, you’ll better be able to plan staffing levels too.

Conclusion

Modern retail – online and offline – has its challenges.

And reliably managing inventory is one of the biggest challenges retailers face.

So, could retailers benefit from implementing a system that uses SKU numbers?

In our opinion, it’s an unequivocal yes, absolutely.

We’d go so far as to say that SKU numbers could be the best thing you’re not utilising.

Savvy retailers are finding that by utilising SKUs, they benefit from a much more profitable, streamlined, and simple process.

When paired up with a sound inventory management system, your SKU numbers act as a magnifying glass into the overall health of your company.

You’ll enjoy dramatically improved efficiency and productivity once your SKU system is set up.

And you’ll also be able to keep track of all your inventory to avoid embarrassing out-of-stock issues.

SKUs also help you improve your profitability by spotting patterns and basing decisions on reliable historical data, enabling you to plan from a position of strength.

SKU numbers don’t have to be complicated; since you’re creating them, you have complete control over how they’re made.

When your SKU numbers are paired with a robust inventory management system like AirPOS, you’ll wonder how you ever managed beforehand.

So, what are you waiting for?