What is a Stock Keeping Unit (SKU)?

A stock-keeping unit (SKU) is a unique combination of characters that retailers use to identify a product.

SKUs are vital tools for online retailers

SKUs are a type of product code that includes letters and numbers. They make it easier for merchants to tailor their system according to their business needs. Depending on the type of products they sell, retailers can create SKUs with identifying information such as category, style, gender, size, and color.

Companies assign unique SKU codes specific to the goods and services they sell. For example, two companies selling the same product will likely use two different codes internally.

SKUs are vital tools for accurate inventory management. They allow retailers to identify products and monitor stock levels across multiple sales channels. The success of an online store depends on good product management, and good product management leans on SKUs.

These codes are typically used at warehouses, manufacturing companies, fulfillment centers, brick-and-mortar stores, and online retailers. They help a merchant, their staff, suppliers, and systems to identify the same item.

Creating SKUs

It’s not enough to have one SKU for a single type of item like pants, for instance. Each product variant should have a distinguished code, and only the same variants can use that exact code.

In the case of the pants, merchants need to assign a distinct code for different sizes, colors, and styles. The SKU for a pair of blue flared pants in size 36 can look like PNT-BLU-FLR-36, while blue bootcut pants in size 34 can be PNT-BLU-BCT-34.

Some companies create all their SKUs while others adapt what their suppliers use. This way, when merchants need to reorder products, they can use the supplier’s codes to avoid any errors.

There is no definite way to create SKUs. Still, companies need to develop a system with a method that everyone can follow and understand to decipher the code easily.

Uses and benefits of distinct codes

Retailers use SKUs for more than just product identification. A well-crafted SKU can give merchants plenty of information that can measure profitability and efficiency.

Here are some good uses:

• Inventory management: As the core function of an SKU system, retailers can track inventory levels, turnover, and flow. Merchants can determine when to replenish stocks or stop orders for products using the information gathered from sales.
• Sales trends analysis: SKUs allow retailers to collect sales data that helps them identify which products are popular or underperforming. They can help identify seasonal trends. By analyzing the data, merchants can stock inventory that coincides with trends in consumer behavior and make strategic decisions to grow the business.
• Product recommendations: Retailers can use SKUs to enhance the shopping experience. When customers visit a specific product page, they can see product recommendations based on the product codes. If a product is out of stock, the recommendations can show them alternatives, creating sales efficiency and customer satisfaction.
• Logistics management: When working with third-party logistics (3PL) providers, merchants share how many different SKUs they have in their inventory. This information helps the 3PL determine how much warehousing and storage space is needed in their fulfillment center. Many 3PLs will store merchandise according to their product codes to make the picking and packing process more efficient.

Efficiently manage inventory with Cafe24

Cafe24 aims to empower businesses of all sizes with easy-to-use systems and integrations that help with inventory tracking and ultimately improve the shopping experience. These solutions include:

• SERA: With SKUs, it’s easier to identify what items and variants are popular among consumers. Cafe24 merchants can use Specialized and Enhanced Realtime Admin (SERA) to see real-time data from online sales and receive assistance in identifying current inventory.
• Multimarket Management: SKUs help merchants track their inventory across various sales channels. Cafe24’s Multimarket Management service integrates an e-commerce store with online marketplaces, social commerce channels, and other sales platforms. With this system in place, merchants can add new products, manage orders, and track inventory from a single admin.
• Recipe: SKUs help track when products are low in stocks and need replenishment. Recipe automates repetitive tasks such as marking products with a ‘sold out’ tag once inventory runs out, resetting product information upon restock, categorizing related products, and managing orders.

Retailers design their SKUs to meet their business merchandising structure and inventory management methods. Tailoring SKU architecture to a company’s specific needs and integrating them with data analysis and inventory management tools will allow business owners to manage their stores more efficiently. Further, businesses will gain an edge in understanding how to adapt to ever-changing consumer behaviors.